2018 Year-end opportunity
The end of the year presents a unique opportunity to look at your overall personal financial situation. With factors like tax reform, life changes or just working towards your goals, end of year is an especially important time to review things. Weaving together your prior planning, subsequent changes and revised goals helps you stay on course. Following are some things you consider before the year ends.
Income Tax Planning –Ensure you are implementing tax reduction strategies like maximizing your retirement plan contributions, tax loss harvesting in portfolios and making charitable contributions can all help reduce current and future tax bills. It is also good to review your current year tax projection based on your income and deductions year to date and how that may be different from before.
Estate Planning – Examine your current estate plan to visualize what would happen to each of your assets and how the current estate tax law will impact you. Be sure that your estate planning documents are up to date – not just your will, but also your power of attorney, health care documents, and any trust agreements and beneficiary designations are in line with your desires. If you have recently been through a significant life event such as marriage, divorce or the death of a spouse, this is especially important right now.
Investment Strategy– The recent market volatility has some people feeling uncomfortable. Market declines are a natural part of investing, and understanding the importance of maintaining discipline during these times is imperative. Regular portfolio rebalancing will allow you to maintain the appropriate amount of risk in your portfolio. And, if you are retired and living off your portfolio, you also want to maintain an appropriate cash reserve to cover living expenses for a certain period of time so that you do not have to sell equities in a down market.
Charitable Giving – There are many ways to be tax efficient when making charitable gifts. For example, donating appreciated stock could make sense in order to avoid paying capital gains taxes. Further, you may want to consider bunching charitable deductions by deferring donations to next year or making your planned 2019 donations ahead of time. If the numbers are large enough, you might even consider a private foundation or donor advised fund for your charitable giving. If you are at least 70.5 you may want to consider Qualified Charitable Distributions (QCD) from your IRA.
Retirement Planning –Think about your future when working becomes optional. Whether you expect a typical full retirement or a career change to something different, determining an appropriate balance between spending and saving, both now and in the future is important. There are many options available for saving for retirement, and we can help you understand which option is best for you. If you are at least 70.5 you should be sure your 2018 Required Minimum Distributions (RMD) from your IRAs are paid before year-end. Qualified Charitable Contributions, up to $100,000, will be treated as part of your RMD but not taxed.
Cash Flow Planning – Review your 2018 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals. If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions. If you are over age 70.5 make sure you are taking your RMDs because the penalties are significant if you don’t.
Risk Management – It is always a good idea to periodically review your insurance coverages in various areas. Recent catastrophic events like hurricanes serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life and disability insurance.
Education Funding – Funding education costs for children or grandchildren is important to many people. While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key. With the added flexibility of funding k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.
Elder Planning – There are many financial planning elements to consider as you age, and it is important to consider these things before it’s too late. Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is critical. Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.
The decisions you make each year with your personal finances will have a lasting impact. I hope this has begun to generate some insight to areas of your personal finance that need attention. Please contact me if you have any comments or questions.
2019 retirement account limits announced by IRS
The limit on 401(k) contribution are increased to $19,000, $25,000 for those that are are 50 or older.
The limit on IRA contribution are increased to $6,000, $7,000 for those that are 50 or older.
IRA Adjusted Gross Income deduction phase- will start at $103,000 fir joint returns and $64,000 for single and head of household filers.
IRS Link: COLA Increases for Dollar Limitations on Benefits and Contributions
The above apply for contributions made for 2019 not for 2018 contributions made in 2019
New Medicare cards are coming
New Medicare cards are coming
Medicare is mailing new Medicare cards to all people with Medicare now. Find out more about when your card will mail.
10 things to know about your new Medicare card
- Your new card will automatically come to you. You don’t need to do anything as long as your address is up to date. If you need to update your address, visit your mySocial Security account.
- Your new card will have a new Medicare Number that’s unique to you, instead of your Social Security Number. This will help to protect your identity.
- Your Medicare coverage and benefits will stay the same.
- Mailing takes time. Your card may arrive at a different time than your friend’s or neighbor’s.
- Your new card is paper, which is easier for many providers to use and copy.
- Once you get your new Medicare card, destroy your old Medicare card and start using your new card right away.
- If you’re in a Medicare Advantage Plan (like an HMO or PPO), your Medicare Advantage Plan ID card is your main card for Medicare—you should still keep and use it whenever you need care. And, if you have a Medicare drug plan, be sure to keep that card as well. Even if you use one of these other cards, you also may be asked to show your new Medicare card, so keep it with you.
- Doctors, other health care providers and facilities know it’s coming and will ask for your new Medicare card when you need care, so carry it with you.
- Only give your new Medicare Number to doctors, pharmacists, other health care providers, your insurers, or people you trust to work with Medicare on your behalf.
- If you forget your new card, you, your doctor or other health care provider may be able to look up your Medicare Number online.
Watch out for scams
Medicare will never call you uninvited and ask you to give us personal or private information to get your new Medicare Number and card. Scam artists may try to get personal information (like your current Medicare Number) by contacting you about your new card. If someone asks you for your information, for money, or threatens to cancel your health benefits if you don’t share your personal information, hang up and call us at 1-800-MEDICARE (1-800-633-4227). Learn more about the limited situations in which Medicare can call you.
How can I replace my Medicare card?
If you need to replace your card because it’s damaged or lost, sign in to your MyMedicare.gov account to print an official copy of your Medicare card. If you don’t have an account, visit MyMedicare.gov to create one.
If you need to replace your card because you think that someone else is using your number, let us know.
How do I change my name or address?
Medicare uses the name and address you have on file with Social Security. To change your name and/or address, visit your online my Social Security account.
Medicare is managed by the Centers for Medicare & Medicaid Services (CMS). Social Security works with CMS by enrolling people in Medicare.
Interest Rates Rise on Federal Student Loans for 2018-2019
Interest rates on federal student loans are set to rise for the second year in a row. This table shows the interest rates for new loans made on or after July 1, 2018, through June 30, 2019. The interest rate is fixed for the life of the loan.
| New rate 2018-2019 | Old rate 2017-2018 | Available to | Borrowing limits | |
|---|---|---|---|---|
|
Direct Stafford Loans: Subsidized Undergraduates |
5.045% |
4.45% |
Undergraduate students only Subsidized loans are based on financial need as determined by the federal aid application (FAFSA) |
For dependent undergraduates: 1st year: $5,500 ($3,500 subsidized) 2nd year: $6,500 ($4,500 subsidized) 3rd, 4th, 5th year: $7,500 ($5,500 subsidized) Max: $31,000 ($23,000 subsidized) |
|
Direct Stafford Loans: Unsubsidized Undergraduates |
5.045% |
4.45% |
Undergraduate students only; all students are eligible regardless of financial need |
For dependent undergraduates: 1st year: $5,500 ($3,500 subsidized) 2nd year: $6,500 ($4,500 subsidized) 3rd, 4th, 5th year: $7,500 ($5,500 subsidized) Max: $31,000 ($23,000 subsidized) |
|
Direct Stafford Loans: Unsubsidized Graduate or Professional Students |
6.595% |
6% |
Graduate or professional students only; all students are eligible regardless of financial need Unsubsidized loans only |
$20,500 per year (unsubsidized only); max $138,500 ($65,500 subsidized) |
|
Direct PLUS Loans: Parents and Graduate or Professional Students |
7.595% |
7% |
Parents of dependent undergraduate students and graduate or professional students Unsubsidized loans only |
Total cost of education, minus any other aid received by student or parent |
New Reports Highlight Continuing Challenges for Social Security and Medicare
Most Americans will receive Social Security and Medicare benefits at some point in their lives. For this reason, workers and retirees are concerned about potential program shortfalls that could affect future benefits. Each year, the Trustees of the Social Security and Medicare Trust Funds release lengthy annual reports to Congress that assess the health of these important programs. The newest reports, released on June 5, 2018, discuss the current financial condition and ongoing financial challenges that both programs face, and project a Social Security cost-of-living adjustment (COLA) for 2019.
What are the Social Security and Medicare Trust Funds?
Social Security: The Social Security program consists of two parts. Retired workers, their families, and survivors of workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability
Insurance (DI) program. The combined programs are referred to as OASDI. Each program has a financial account (a trust fund) that holds the Social Security payroll taxes that are collected to pay Social Security benefits. Other income (reimbursements from the General Fund of the U.S. Treasury and income tax revenue from benefit taxation) is also deposited in these accounts. Money that is not needed in the current year to pay benefits and administrative costs is invested (by law) in special Treasury bonds that are guaranteed by the U.S. government and earn interest. As a result, the Social Security Trust Funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits.
Note that the Trustees provide certain projections based on the combined OASI and DI (OASDI) Trust Funds. However, these projections are theoretical, because the trusts are separate, and generally one program’s taxes and reserves cannot be used to fund the other program.
Medicare: There are two Medicare trust funds. The Hospital Insurance (HI) Trust Fund helps pay for hospital care (Medicare Part A costs). The Supplementary Medical Insurance (SMI) Trust Fund comprises two separate accounts, one covering Medicare Part B (which helps pay for physician and outpatient costs) and one covering Medicare Part D (which helps cover the prescription drug benefit).
Highlights of Social Security Trustees Report
- This year, for the first time since 1982, Social Security’s total cost is projected to exceed its total income (including interest), and remain higher for the next 75 years. Consequently, the U.S. Treasury will start withdrawing from trust fund reserves to help pay benefits in 2018. The Trustees project that the combined trust fund reserves (OASDI) will be depleted in 2034, the same year projected in last year’s report, unless Congress acts.
- Once the combined trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 79% of scheduled benefits for 2034, with the percentage falling gradually to 74% by 2092.
- The OASI Trust Fund, when considered separately, is projected to be depleted in 2034. Payroll tax revenue alone would then be sufficient to pay 77% of scheduled benefits.
- The DI Trust Fund is expected to be depleted in 2032, four years later than projected in last year’s report. Both benefit applications and the total number of disabled workers currently receiving benefits have been declining. Once the DI Trust Fund is depleted, payroll tax revenue alone would be sufficient to pay 96% of scheduled benefits.
- Based on the “intermediate” assumptions in this year’s report, the Social Security Administration is projecting that the cost-of-living adjustment (COLA), announced in the fall of 2018, will be 2.4%. This COLA would apply to benefits starting in January 2019.
Highlights of Medicare Trustees Report
- Annual costs for the Medicare program exceeded tax income each year from 2008 to 2015. Although last year’s report projected surpluses in 2016 through 2022, this year’s report projects that costs will exceed income (excluding interest income) in 2018.
- The HI Trust Fund is projected to be depleted in 2026, three years earlier than projected last year. Once the HI Trust Fund is depleted, tax and premium income would still cover 91% of estimated program costs, declining to 78% by 2042 and then gradually increasing to 85% by 2092. The Trustees note that long-range projections of Medicare costs are highly uncertain.
Why are Social Security and Medicare facing financial challenges?
Social Security and Medicare are funded primarily through the collection of payroll taxes. Because of demographic and economic factors including higher retirement rates and lower birth rates, there will be fewer workers per beneficiary over the long term, worsening the strain on the trust funds.
What is being done to address these challenges?
Both reports urge Congress to address the financial challenges facing these programs soon, so that solutions will be less drastic and may be implemented gradually, lessening the impact on the public. Combining some of these solutions may also lessen the impact of any one solution.
Some long-term Social Security reform proposals on the table are:
- Raising the current Social Security payroll tax rate. According to this year’s report, an immediate and permanent payroll tax increase of 2.78 percentage points would be necessary to address the long-range revenue shortfall (3.87 percentage points if the increase started in 2034).
- Raising the ceiling on wages currently subject to Social Security payroll taxes ($128,400 in 2018).
- Raising the full retirement age beyond the currently scheduled age of 67 (for anyone born in 1960 or later).
- Reducing future benefits. According to this year’s report, scheduled benefits would have to be reduced by about 17% for all current and future beneficiaries, or by about 21% if reductions were applied only to those who initially become eligible for benefits in 2018 or later.
- Changing the benefit formula that is used to calculate benefits.
- Calculating the annual cost-of-living adjustment for benefits differently.
According to the Medicare Trustees Report, to keep the HI Trust Fund solvent for the long term (75 years), the current 2.90% payroll tax would need to be increased immediately to 3.72% or expenditures reduced immediately by 17%. Alternatively, other tax or benefit changes could be implemented gradually and might be even more drastic.
You can view a combined summary of the 2018 Social Security and Medicare Trustees Reports and a full copy of the Social Security report at ssa.gov. You can find the full Medicare report at cms.gov.
Revised 2018 Optional Standard Rates
The changes apply for years beginning after 2017.
The recent tax legislation suspended (2018-2025) the deduction for miscellaneous itemized deduction subject to the 2% of adjusted gross income. Among the items that are not deductible during the suspension period are unreimbursed employee travel expenses and moving expenses. The notice states that the standard business mileage rate (54.5 cents per business mile) does not apply during the suspension period. The standard business mileage rate will only apply to deductions in determining adjusted gross income.
The maximum standard automobile cost for computing the allowance under a fixed and variable rate plan are $50,000 for passenger automobiles (including trucks and vans) placed in service after December 31, 2017.
The changes can be found in Notice 2018-42
Changing Market: Municipal Bonds After Tax Reform
January is typically a strong month for the municipal bond market, but 2018 began with the worst January performance since 1981, driven by rising interest rates and uncertainty over changes in the Tax Cuts and Jobs Act (TCJA).1 The muni market stabilized through April 2018, but uncertainty remains.2 The tax law changed the playing field for these investments, which could affect supply and demand.
When considering these dynamics, keep in mind that bond prices and yields have an inverse relationship, so increased demand generally drives bond prices higher and yields lower, and vice versa. Any such changes directly affect the secondary market for bonds and might also influence new-issue bonds. If you hold bonds to maturity, you should receive the principal and interest unless the bond issuer defaults.
Tax rates and deduction limits
Municipal bonds are issued by state and local governments to help fund ongoing expenses and finance public projects such as roads, water systems, schools, and stadiums. The primary appeal of these bonds is that the interest is generally exempt from federal income tax, as well as from state and local taxes if you live in the state where the bond was issued. Because of this tax advantage, a muni with a lower yield might offer greater value than a taxable bond with a higher yield, especially for investors in higher tax brackets.
The lower federal income tax rates established by the new tax law would cut into this added value, but the difference is relatively small and unlikely to affect demand. Many taxpayers, especially in high-tax states, may find munis even more appealing to help replace deductions lost to other TCJA provisions, including the $10,000 cap for deductions of state and local taxes.3 Tax-free muni interest can help lower taxable income regardless of whether you itemize deductions.
The large corporate tax reduction from a top rate of 35% to 21% is likely to have a more significant effect on demand for munis. Corporations, which own a little less than 30% of the muni market, may hold on to bonds they currently own but become more selective in purchasing future bonds.4
A tightening market
The supply of new municipal bonds dropped after the fiscal crisis as local governments became more cautious about borrowing. The TCJA further tightened the market by eliminating “advanced refunding” bonds, issued to replace older bonds at lower interest rates, which have accounted for about 15% of new issues.5
This is expected to reduce the supply of bonds for the next three years or so, but the long-term effects are unclear. If interest rates continue to climb, there is less to gain by replacing older bonds, but local governments may issue taxable bonds if they see an opportunity to reduce interest payments. There may also be changes to the structure of future muni issues.6
Risk and rising interest rates
Munis are considered less risky than corporate bonds and less sensitive to changing interest rates than Treasuries, making them an appealing middle ground for many investors. For the period 2007 to 2016, which includes the recession, the five-year default rate for municipal bonds was 0.15%, compared with 6.92% for corporate bonds. Most of those defaults were related to severe fiscal situations such as those in Detroit and Puerto Rico. The five-year default rate for investment-grade bonds (rated AAA to BBB/Baa) was just 0.05%.7
Treasuries, which are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, are considered the most stable fixed-income investment, and rising Treasury yields, as occurred in early 2018, tend to put downward pressure on munis.8 However, Treasuries are more sensitive to interest rate changes, and stock market volatility makes both Treasuries and munis appealing to investors looking for stability.
Bond funds
The most convenient way to add municipal bonds to your portfolio is through mutual funds, which also provide diversification that can be difficult to create with individual bonds. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.
Muni funds focused on a single state offer the added value of tax deductibility for residents of those states, but smaller state funds may not offer the level of diversification found in larger states. It’s also important to consider the holdings and credit risks of any bond fund, including those dedicated to a specific state. For example, in October 2017, many state funds still held Puerto Rico bonds, which are generally exempt from state income tax but carry high credit risk.9
If a bond was issued by a municipality outside the state in which you reside, the interest may be subject to state and local income taxes. If you sell a municipal bond at a profit, you could incur capital gains taxes. Some municipal bond interest may be subject to the alternative minimum tax.
The return and principal value of bonds and bond fund shares fluctuate with changes in market conditions. When redeemed, they may be worth more or less than their original cost. Bond funds are subject to the same inflation, interest rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund’s performance. Investments offering the potential for higher rates of return involve a higher degree of risk.
Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
1, 8) CNBC, February 28, 2018
2) Bloomberg, 2018 (Bloomberg Barclays U.S. Municipal Index for the period 1/1/2018 to 4/16/2018)
3-4, 6) The Bond Buyer, February 12, 2018
5) The New York Times, February 23, 2018
7) Moody’s Investors Service, 2017
9) CNBC, October 10, 2017
New Medicare Cards Are Coming
If you receive Medicare, you will be getting a new Medicare card in the mail. To help prevent fraud and fight identity theft, Medicare is removing Social Security Numbers from Medicare cards. Your new card will have a new Medicare Number that’s unique to you.
When are new cards being mailed?
Medicare will be mailing new red, white, and blue paper Medicare cards between April 2018 and April 2019. Card mailings will be staggered, so the timing will depend on your geographical location.
Newly eligible people will begin receiving the new cards starting in April. The following table from the Centers for Medicare & Medicaid Services shows when Medicare will be mailing cards to existing Medicare recipients. You can check the status of card mailings in your area on medicare.gov/newcard.
| Wave | States Included | Cards Mailing |
| 1 | Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, West Virginia | Beginning May 2018 |
| 2 | Alaska, American Samoa, California, Guam, Hawaii, Northern Mariana Islands, Oregon | Beginning May 2018 |
| 3 | Arkansas, Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, North Dakota, Oklahoma, South Dakota, Wisconsin | After June 2018 |
| 4 | Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont | After June 2018 |
| 5 | Alabama, Florida, Georgia, North Carolina, South Carolina | After June 2018 |
| 6 | Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Texas, Utah, Washington, Wyoming | After June 2018 |
| 7 | Kentucky, Louisiana, Michigan, Mississippi, Missouri, Ohio, Puerto Rico, Tennessee, Virgin Islands | After June 2018 |
Some tips on using your new Medicare card
The following tips are from the Medicare website, medicare.gov.
- Your new card will be mailed to you automatically. You don’t need to do anything as long as your address is up-to-date. If you need to update your address, contact Social Security at https://www.ssa.gov/myaccount/ or 1-800-772-1213.
- Once you receive your new Medicare card, destroy your old Medicare card and start using your new card right away.
- Doctors, other health-care providers, and facilities will ask for your new Medicare card when you need care, so carry it with you.
- If you’re in a Medicare Advantage Plan (like an HMO or PPO), your Medicare Advantage Plan ID card is your main card for Medicare — you should still keep and use it whenever you need care. However, you also may be asked to show your new Medicare card, so you should carry this card, too.
- Medicare will never call you uninvited and ask you to give out personal or private information to get your new Medicare Number and card.
- Scam artists may try to get personal information (like your current Medicare Number) by contacting you about your new card. If so, hang up and call 1-800-Medicare.
Federal Income Tax Returns Due for Most Individuals
The federal income tax filing deadline for most individuals is Tuesday, April 17, 2018. That’s because April 15 falls on a Sunday, and Emancipation Day, a legal holiday in Washington, D.C., falls on Monday, April 16, this year.
Need more time?
If you’re not able to file your federal income tax return by the due date, you can file for an extension using IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You should file Form 4868 by the due date of your return. Filing this extension gives you an additional six months (until October 15, 2018) to file your federal income tax return. You can also file for an automatic six-month extension electronically; details on how to do so can be found in the Form 4868 instructions, as well as on the IRS website.
Note: Special rules apply if you’re living outside the country, or serving in the military outside the country, on the regular due date of your federal income tax return.
Pay what you owe
One of the biggest mistakes you can make is not filing your return because you owe money. If the bottom line on your return shows that you owe tax, file and pay the amount due in full by the due date if at all possible. If you absolutely cannot pay what you owe, file the return and pay as much as you can afford. You’ll owe interest and possibly penalties on the unpaid tax, but you will limit the penalties assessed by filing your return on time, and you may be able to work with the IRS to pay the unpaid balance (options available may include the ability to enter into an installment agreement).
It’s important to understand that filing for an automatic extension to file your return does not provide any additional time to pay your tax. When you file for an extension, you have to estimate the amount of tax you will owe; you should pay this amount by the April 17 due date. If you don’t, you will owe interest, and you may owe penalties as well. If the IRS believes that your estimate of taxes was not reasonable, it may void your extension.
You should consult with your tax adviser to see if there are any factors in your situation that should be considered before filing an extension.
Still Time to Contribute to an IRA for 2017
There’s still time to make a regular IRA contribution for 2017! You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2017 ($6,500 if you were age 50 by December 31, 2017). For most taxpayers, the contribution deadline for 2017 is April 17, 2018.
You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2017, even if your spouse didn’t have any 2017 income.
Traditional IRA
You can contribute to a traditional IRA for 2017 if you had taxable compensation and you were not age 70½ by December 31, 2017. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2017, then your ability to deduct your contributions may be limited or eliminated depending on your filing status and your modified adjusted gross income (MAGI) (see table below). Even if you can’t deduct your traditional IRA contribution, you can always make nondeductible (after-tax) contributions to a traditional IRA, regardless of your income level. However, in most cases, if you’re eligible, you’ll be better off contributing to a Roth IRA instead of making nondeductible contributions to a traditional IRA.
| 2017 income phaseout ranges for determining deductibility of traditional IRA contributions: | ||
| 1. Covered by an employer-sponsored plan and filing as: | Your IRA deduction is reduced if your MAGI is: | Your IRA deduction is eliminated if your MAGI is: |
| Single/Head of household | $62,000 to $72,000 | $72,000 or more |
| Married filing jointly | $99,000 to $119,000 | $119,000 or more |
| Married filing separately | $0 to $10,000 | $10,000 or more |
| 2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan | $186,000 to $196,000 | $196,000 or more |
Roth IRA
You can contribute to a Roth IRA if your MAGI is within certain dollar limits (even if you’re 70½ or older). For 2017, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $118,000 or less. Your maximum contribution is phased out if your income is between $118,000 and $133,000, and you can’t contribute at all if your income is $133,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $186,000 or less. Your contribution is phased out if your income is between $186,000 and $196,000, and you can’t contribute at all if your income is $196,000 or more. And if you’re married filing separately, your contribution phases out with any income over $0, and you can’t contribute at all if your income is $10,000 or more.
| 2017 income phaseout ranges for determining ability to contribute to a Roth IRA: | ||
| Your ability to contribute to a Roth IRA is reduced if your MAGI is: | Your ability to contribute to a Roth IRA is eliminated if your MAGI is: | |
| Single/Head of household | $118,000 to $133,000 | $133,000 or more |
| Married filing jointly | $186,000 to $196,000 | $196,000 or more |
| Married filing separately | $0 to $10,000 | $10,000 or more |
Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. If you haven’t yet reached age 70½, you can simply make a nondeductible contribution to a traditional IRA, and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you’ve inherited — when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)
Finally, keep in mind that if you make a contribution to a Roth IRA for 2017 — no matter how small — by your tax return due date, and this is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2017.
You should consult with your own advisor to see if there are other considerations or factors that you should consider before making contributions to any IRA.
