Skip to content

Posts from the ‘Qualified Retirement Plans, 401(k), IRA, etc.’ Category

15
Mar

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.

10
Nov

IRA and Retirement Plan Limits for 2018

IRA contribution limits

The maximum amount you can contribute to a traditional IRA or a Roth IRA in 2018 is $5,500 (or 100% of your earned income, if less), unchanged from 2017. The maximum catch-up contribution for those age 50 or older remains at $1,000. You can contribute to both a traditional IRA and a Roth IRA in 2018, but your total contributions can’t exceed these annual limits.

Traditional IRA income limits

The income limits for determining the deductibility of traditional IRA contributions in 2018 have increased. If your filing status is single or head of household, you can fully deduct your IRA contribution up to $5,500 in 2018 if your modified adjusted gross income (MAGI) is $63,000 or less (up from $62,000 in 2017). If you’re married and filing a joint return, you can fully deduct up to $5,500 in 2018 if your MAGI is $101,000 or less (up from $99,000 in 2017). Note that these figures assume you are covered by a retirement plan at work.

If your 2018 federal income tax filing status is: Your IRA deduction is limited if your MAGI is between: Your deduction is eliminated if your MAGI is:
Single or head of household $63,000 and $73,000 $73,000 or more
Married filing jointly or qualifying widow(er) $101,000 and $121,000 (combined) $121,000 or more (combined)
Married filing separately $0 and $10,000 $10,000 or more

If you’re not covered by an employer plan but your spouse is, and you file a joint return, your deduction is limited if your MAGI is $189,000 to $199,000 (up from $186,000 to $196,000 in 2017), and eliminated if your MAGI exceeds $199,000. Single filers, head-of-household filers, and married joint filers who are not covered by an employer plan can deduct the full amount of their contributions.

Roth IRA income limits

The income limits for determining how much you can contribute to a Roth IRA have also increased for 2018. If your filing status is single or head of household, you can contribute the full $5,500 to a Roth IRA if your MAGI is $120,000 or less (up from $118,000 in 2017). And if you’re married and filing a joint return, you can make a full contribution if your MAGI is $189,000 or less (up from $186,000 in 2017). (Again, contributions can’t exceed 100% of your earned income.)

If your 2018 federal income tax filing status is: Your Roth IRA contribution is limited if your MAGI is: You cannot contribute to a Roth IRA if your MAGI is:
Single or head of household More than $120,000 but under $135,000 $135,000 or more
Married filing jointly or qualifying widow(er) More than $189,000 but under $199,000 (combined) $199,000 or more (combined)
Married filing separately More than $0 but under $10,000 $10,000 or more

Employer retirement plans

Most of the significant employer retirement plan limits for 2018 have also increased. The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan is $18,500, up from $18,000 in 2017. This limit also applies to 403(b) and 457(b) plans, as well as the Federal Thrift Plan. If you’re age 50 or older, you can also make catch-up contributions of up to $6,000 to these plans in 2018. (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.)

If you participate in more than one retirement plan, your total elective deferrals can’t exceed the annual limit ($18,500 in 2018 plus any applicable catch-up contributions). Deferrals to 401(k) plans, 403(b) plans, and SIMPLE plans are included in this aggregate limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan — a total of $37,000 in 2018 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan remains unchanged at $12,500, and the catch-up limit for those age 50 or older remains at $3,000.

Plan type: Annual dollar limit: Catch-up limit:
401(k), 403(b), governmental 457(b), Federal Thrift Plan $18,500 $6,000
SIMPLE plans $12,500 $3,000

Note: Contributions can’t exceed 100% of your income.

The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2018 is $55,000, up from $54,000 in 2017, plus age 50 catch-up contributions. (This includes both your contributions and your employer’s contributions. Special rules apply if your employer sponsors more than one retirement plan.)

Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2018 is $275,000 (up from $270,000 in 2017), and the dollar threshold for determining highly compensated employees (when 2018 is the look-back year) remains unchanged at $120,000.

16
May

Six Steps to Consider Before Tapping Your Retirement Savings Plan

You’ve worked long and hard for years, saving diligently through your employer-sponsored retirement savings plan. Now, with retirement on the horizon, it’s time to begin thinking about how to tap your plan assets for income. But hold on, not so fast. You may need to take a few steps first.

Step 1: Evaluate your needs
The first step in any retirement income plan is to estimate how much income you’ll need to meet your desired lifestyle. The conventional guidance is to plan on needing anywhere from 70% to 100% of your pre-retirement income each year during retirement; however, your amount will depend on your unique circumstances. While some expenses may fall in retirement, others may rise. So before even thinking about how to tap your plan assets, you should have a concrete idea of how much you’ll need to (1) cover your basic needs and (2) live comfortably, according to your wishes.

First, estimate your non-negotiable fixed needs — such as housing, food, and medical care. This will help you project how much you’ll need just to make ends meet. Then focus on your variable wants — including travel, leisure, and entertainment. This is the area that you’ll have the easiest time adjusting, if necessary, as you refine your income plan.

Step 2: Assess your sources of predictable income
Next, you’ll want to determine how much to expect from sources of predictable income, such as Social Security and traditional pension plans. These could be considered the foundation of your retirement income.

Social Security
A key decision regarding Social Security is when to claim benefits. Although you can begin receiving benefits as early as age 62, the longer you wait to begin (up to age 70), the more you’ll receive each month.

The Social Security Administration (SSA) calculates your retirement benefit using a formula that takes into account your 35 highest earning years, so if you had some years of no or low earnings, your benefit amount may be lower than if you had worked steadily.

You can estimate your retirement benefit by using the calculators on the SSA website, https://www.ssa.gov . You can also sign up for a my Social Security account so that you can view your Social Security Statement online. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits, along with other information about Social Security.

Pensions
Traditional pensions have been disappearing from employer benefit programs over the past couple of decades. If you’re one of the lucky workers who stand to receive a pension benefit, congratulations! But be aware of your pension’s features. For example, will your benefit remain steady throughout retirement or increase with inflation?

Your pension will most likely be offered as either a single or joint and survivor annuity. A single annuity provides benefits until the worker’s death, while a joint and survivor annuity generally provides reduced benefits until the survivor’s death.1

Step 3: Reflect
If it looks as though your Social Security and pension income will be enough to cover your fixed needs, you may be well positioned to use your retirement savings plan assets to fund the extra wants. On the other hand, if those sources are not sufficient to cover your fixed needs, you’ll need to think carefully about how to tap your retirement savings plan assets, as they will be a necessary component of your income.

Step 4: Understand your plan options
Upon leaving your employer, you typically have four options:

1. Plans may allow you to leave the money alone or may require that you begin taking distributions once you reach the plan’s normal retirement age.

2. You may choose to withdraw the money, either as a lump sum or a series of substantially equal periodic payments for the rest of your life, or you might use other withdrawal options offered by your plan. Note that the Government Accountability Office (GAO) found that only third of 401(k) plans offer other withdrawal options, such as installment payments, systematic withdrawals, and managed payout funds.

3. You may roll the money into an IRA. You’ll want to carefully compare the investment options, fees, and expenses of both your current plan and the IRA before making any rollover decision.

4. If you continue to work during your retirement years, you may be able to roll the money into your new employer’s plan, if that plan allows. Again, be sure to compare plans before making any decisions.

An annuity is an insurance contract designed to provide steady income over a set period of time or over either your lifetime or that of you and your spouse. According to the GAO, only about 25% of 401(k) plans offer an annuity option as a plan feature. If you think an annuity may apply to your situation, check to see if it is available in your plan. You may want to consider rolling at least some of your tax-deferred money into an IRA and purchasing an immediate fixed annuity. As noted above, however, you’ll want to carefully compare fees and expenses associated with all options before making any final decisions.3

Step 5: Compare tax deferred and tax-free
If you have both tax-deferred and tax-free (Roth) accounts, consider that the taxable portion of distributions from tax-deferred accounts will be taxed at your current income tax rate, while qualified withdrawals from Roth accounts are tax-free. For this reason, general guidelines often suggest tapping tax-deferred accounts before Roth accounts to allow those accounts to continue potentially growing free of taxes.

Note that all assets in employer-sponsored retirement savings plans — even money held in Roth accounts — will be subject to required minimum distributions (RMDs). These rules state that minimum distributions generally must begin in the year you turn age 70½; however, you may delay your first distribution up to April 1 of the following year.

Roth IRAs, however, are not subject to RMD rules until after your death. This is just one reason you might consider converting your employer-sponsored retirement assets to a Roth IRA. Keep in mind that a conversion will trigger an immediate tax consequence on the taxable portion of the converted assets, which can result in a hefty bill from Uncle Sam.

Step 6: Seek professional assistance
Determining the appropriate way to tap your assets can be challenging and should take into account a number of factors. These include not only your tax situation, but also whether you have other assets you’ll use for income, your overall health, and your estate plan. A financial professional can help make sense of your options in light of your unique situation.

1 Current federal law requires employer-sponsored plan participants to select a joint and survivor annuity unless the spouse waives those rights. This requirement is not mandated in an IRA, however.

2
“401(k) Plans: DOL Could Take Steps to Improve Retirement Income Options for Plan Participants,” GAO Report to Congressional Requesters, August 2016

3 Generally, annuity contracts have fees and expenses, limitations, exclusions, holding periods, termination provisions, and terms for keeping the annuity in force. Most annuities have surrender charges that are assessed if the contract owner surrenders the annuity in the early years of the contract. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company. It is important to understand that purchasing an annuity in an IRA or an employer-sponsored retirement plan provides no additional tax benefits other than those available through the tax-deferred retirement plan.

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

27
Sep

IRS Announces New Waiver Procedure for Taxpayers Who Inadvertently Miss the 60-day Rollover Deadline

Background–direct and indirect (60-day) rollovers
If you’re eligible to receive a taxable distribution from an employer-sponsored retirement plan (like a 401(k)) you can avoid current taxation by directly rolling the distribution over to another employer plan or IRA (with a direct rollover you never actually receive the funds). You can also avoid current taxation by actually receiving the distribution from the plan, and then rolling it over to another employer  plan or IRA within 60 days following receipt (a “60-day” or “indirect” rollover). But if you choose to receive the funds instead of making a direct rollover the plan must withhold 20 percent of the taxable portion of your distribution, even if you intend to make a 60-day rollover. (You’ll need to make up those withheld funds from your other assets if you want to roll over the entire amount of your plan distribution.)

Similarly, if you’re eligible to receive a taxable distribution from an IRA, you can  avoid current taxation by either transferring the funds directly to another IRA or to an employer plan that accepts rollovers (sometimes called a “trustee-to-trustee transfer”), or by taking the  distribution and making a 60-day indirect rollover (20% withholding doesn’t apply to IRA distributions).

Under recently revised IRS rules you can make only one tax-free, 60-day, rollover from any IRA  you own (traditional or Roth) to any other IRA you own in any 12-month period. However, this limit does not apply to direct  rollovers or trustee-to-trustee transfers (or to Roth IRA conversions). Because of the 20% withholding rule, the one-rollover-per-year rule, and the possibility of missing the 60-day deadline, in almost all cases you’re better off making a direct rollover or trustee-to-trustee transfer to move your retirement plan funds from one account to another.
 

Exceptions to the 60-day rollover deadline
But what happens if you do receive an actual distribution from your employer plan or IRA and you want to roll over the funds, but you’ve missed the 60 day deadline? There are limited statutory exceptions to the 60-day rule. For example, the time for making a rollover may be extended for those serving in a combat zone or in the event of a presidentially declared disaster or a terrorist or military action.

But the IRS also has the authority to waive the 60-day limit “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the [individual’s] reasonable control.” To seek a waiver you previously had to  request a private letter ruling from the IRS. However, the IRS has just announced (in Revenue Procedure 2016-47) a simpler alternative to seeking a private letter ruling.

The new waiver alternative: “self-certification”
Under the new procedure, if you want to make a rollover but the 60-day limit has expired, you can simply send a letter (the Revenue Procedure contains a sample)  to the plan administrator or IRA trustee/custodian certifying that you missed the 60-day deadline due to one of the following 11 reasons:

  1. The financial institution receiving the contribution, or making the distribution to which the contribution relates, made an error.
  2. You misplaced and never cashed a distribution made in the form of a check.
  3. Your distribution was deposited into and remained in an account that you mistakenly thought was an eligible retirement plan.
  4. Your principal residence was severely damaged.
  5. A member of your family died.
  6. You or a member of your family was seriously ill.
  7. You were  incarcerated.
  8. Restrictions were imposed by a foreign country.
  9. A postal error occurred.
  10. Your distribution was made on account of an IRS tax levy and the proceeds of the levy have been returned to you.
  11. The party making the distribution delayed providing information that the receiving plan or IRA needed to complete the rollover, despite your reasonable efforts to obtain the information.

To qualify for this new procedure, you must make your rollover contribution to the employer plan or IRA as soon as practicable after the applicable reason(s) above no longer prevent you from doing so. In general, a rollover contribution made within 30 days is deemed to satisfy this requirement.

Effect of self-certification
It’s important to understand that this new self-certification process is not an automatic waiver by the IRS of the 60-day rollover requirement. The self-certification simply allows you and the financial institution to treat and report the contribution as a valid rollover. However, if you’re subsequently audited, the IRS can still review whether your contribution met the requirements for a waiver.

For example, the IRS may determine that the requirements for a waiver were not met because (1) you made a material misstatement in the self-certification, (2)  the reason(s) you claimed for missing the 60-day deadline did not prevent you from completing the rollover within 60 days following receipt, or (3) you failed to make the contribution as soon as practicable after the reason(s) no longer prevented you from making the contribution. In that case, you may still be subject to additional income taxes and penalties. Because of this potential risk, some taxpayers may still prefer the certainty of a private letter ruling from the IRS waiving the 60-day deadline,  despite the additional time and expense involved.

Remember, you can make only one tax-free, 60-day, rollover from any IRA you own (traditional or Roth) to any other IRA you own in any 12-month period. This limit does not apply to direct  rollovers or trustee-to-trustee transfers (or to Roth IRA conversions).

Also keep in mind that you can generally leave your funds in a 401(k) or similar plan (at least until the plan’s normal retirement age) if your vested account balance at the time you terminate employment exceeds $5,000.

 

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.
9
Feb

There’s Still Time to Contribute to an IRA for 2015

There’s still time to make a regular IRA contribution for 2015! You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2015 ($6,500 if you were age 50 by December 31, 2015). For most taxpayers, the contribution deadline for 2015 is April 18, 2016 (April 19, 2016, if you live in Maine or Massachusetts).

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 2015, even if your spouse didn’t have any 2015 income.

Traditional IRA   

You can contribute to a traditional IRA for 2015 if you had taxable compensation and you were not age 70½ by December 31, 2015.

However, if you or your spouse was covered by an employer-sponsored retirement plan in 2015, 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.

2015 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 $61,000 to $71,000 $71,000 or more
Married filing jointly $98,000 to $118,000 $118,000 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 $183,000 to $193,000 $193,000 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 2015, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $116,000 or less. Your maximum contribution is phased out if your income is between $116,000 and $131,000, and you can’t contribute at all if your income is $131,000 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 $183,000 or less. Your contribution is phased out if your income is between $183,000 and $193,000, and you can’t contribute at all if your income is $193,000 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.

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 2015–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, 2015.

 

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

 

17
Nov

Year-End Security and CASH Tax-Related Deadlines

Some year-end tax related transactions involve securities and cash.  Such transactions must be completed by December 31, 2015 to be reported on your 2015 tax return.  Check with your financial institution to find out their cut-off dates for 2015.

  • Deadline for Required Minimum Distributions (RMDs): Clients who are 70½ or older must take an RMD from their IRA and/or their QRP for the 2015 tax year. All RMDs must be withdrawn by December 31, 2015, with the exception of RMDs for clients who turned or will turn 70½ during this calendar year. These clients may defer their first distribution until April 1, 2016. Deferring the distribution is not always the best choice from a tax perspective. Check with your tax professional to see if you should take such distributions in 2015 or 2016.If you have already taken the required distribution for 2015, no other action is required. December 22 is a frequent cut-off date.  Check with your institution if you need additional time.

You may find it advantageous to take your RMD early in the year or establishing a systematic payment to ensure the annual RMD is satisfied every year. Check with your financial institution for instructions on implementing these alternatives.

  • Deadline for Roth IRA Conversions: A Roth conversion form may also need to be submitted before December 31, 2015 to be processed by December 31, 2015. Check with your financial institution to determine the cut-offs and procedures that are required.
  • Deadline for Establishing a 2015 QRP: Check with your financial institution to determine the cut-offs and procedures that are required.
  • Deadline for Removal of Non-marketable Securities: To have non-marketable securities removed from your accounts by the end of the calendar year there may be a cut-off date. Check with your financial institution to determine the cut-offs and procedures that are required.
  • Charitable and Gift Deadlines:
    Check with your financial institution to determine the cut-offs and procedures that are required. 

Mutual Funds:
Due to the nature of processing charitable mutual fund deliveries, you should provide the following information with each request:

    Mutual fund symbol or CUSIP
    Number of shares your client would like to donate
    Mutual fund account number at the receiving firm
    Client account number at the receiving firm

Cash delivered via check and/or federal funds wire:
Between accounts at your financial institution:
Stock delivered via the Depository Trust Company (DTC) system:
Additional information for charitable gifts:

Contact the charity to learn what procedures and accounts they have.
Inform the charity what the specific gift will be (cash or securities). Let them know the amount or securities that they will be receiving.  Identify the security (securities) and the number of shares being transferred.

5
Jan

A helpful list for investors

It seems that everyone has a list on almost every topic, especially at year-end and the start of a new year.   I sometimes wonder what to do with this information.  Anna Prior’s Jan. 2, 2015 New York Times article, “The 15 Numbers Every Investor Needs to Know” is an exception.  It provides an approach to planning.  Following is a condensed discussion of the article:

  • Know what allocation of stocks, bonds and cash is appropriate for you.  Among the many factors to consider are: your financial goals, the value of your current investments, your health, your age, and your ability to withstand a drop in the value of your investments.
  • Take advantage of your ability to contribute to your employers’ 401(k) retirement plan, if applicable, for your situation.  The 2015 maximum contribution is $18,000 for a pretax traditional 401(k) plan and after-tax Roth 401(k) plan.  Those 50 or older can contribute an additional $6,000.  Understand the requirements and impact of taking distributions from your retirement plans.
  • Be familiar with the general valuations of stocks.  This will help you gage your investment risk.  Compare the average price/earnings (PE) ratio of stocks to the current PE.  The S&P 500 is commonly used as a proxy for the stock market.
  • Some consider bonds as a source of safety for investors.  It is difficult to predict how bonds will perform in the short-term.  The yield on the 10-year Treasury note will give you an indication of what the yield on bonds will be in the next 10 years or so.
  • High investment costs will reduce your returns  The expense ratios of your funds can be found in the fund prospectus, the website of the fund company and other media sources.
  • Be aware of your adjusted gross income (AGI).  This is the amount at the bottom of page one of you individual U.S income tax return.  The AGI will determine if other taxes or limitations will apply to you.  Examples are the 3.8% surtax on investment income, Medicare Part B & D premiums, deduction of some retirement plans, and some itemized deductions.
  • Estate-tax exemption of the states are often lower than the U.S. estate exemption.  This must be considered  in your planing for your family, heirs and charitable entities.
  • The amount of your essential and discretionary costs should be reviewed periodically.  This is important for: retirement planning, insurance planning and maintaining an adequate reserve fund for the unexpected and untimely expenditures.
  • Understand your health-care expenses.  This is need for; insurance planning, retirement planning and maintaining an adequate reserve fund.
  • Be aware of the difference between replacement cost and fair market value.  The difference to rebuilding a home can vary from what the home would sell for.  Replacing the contents of you home may be more than the fair market of the items.
  • The difference between owning and renting a home can have a major impact on your cash flow and quality of life.  The impact maybe more significant  when buying a first home and when retiring.
  • How long you are likely to live has a significant impact on your investment planning and cash flow planning.
  • Your approach to borrowing and repaying loans impacts your cash flow planning, investment planning and retirement planning.
  • Be aware of current and anticipated mortgage rates.  These impact planning relating to refinancing and debt repayment (cash flow planning).

There are many moving factors in planning.  An understanding of the parts and the alternatives are essential to a successful plan.

 

 

16
Dec

IRA rollover rules change in 2015

IRS previously held that the timing rules applied separately to all IRAs owned by an individual.  They applied the rule to each IRA owned.  The Internal Revenue Code allow a tax-free distribution if the distribution is rolled into an IRA within 60-days.  The tax-free rollover is not allowed if you’ve already completed a tax-free rollover within the previous one-year (12-month) period.  The Tax Court held a taxpayer may make only one nontaxable 60-day rollover within each 12-month period regardless of how many IRAs an individual owns (Bobrow v. Commissioner).  The IRS will not apply the revised rule prior to 2015.

IRS issued guidance on how the revised one-rollover-per-year limit is to be applied (Announcement 2014-32).
The clarification includes the following:
1)  All IRAs, including traditional, Roth, SEP, and SIMPLE IRAs, are aggregated and treated as one IRA when applying the new rule.
2) The exclusion for 2014 distributions is not absolute.  Generally you can ignore rollovers of 2014 distributions when determining whether a 2015 rollover violates the new one-year-rollover-per year limit.  This special transition rule will not apply if the 2015 rollover is from the same IRA that either made or received, the 2014 rollover.

The one-rollover-per-year limit does not apply to direct transfers between IRA trustees and custodians, rollovers from qualified plans to IRAs, or conversions of traditional IRAs to Roth IRAs.

In general, it’s best to avoid 60-day rollovers whenever possible.  Use direct transfers (as opposed to 60-day rollovers) between IRAs, as these direct transfers aren’t subject to the one-rollover-per-year limit.  The tax consequences of making a mistake can be significant.  A failed rollover will be treated as a taxable distribution (with potential early-distribution penalties if you’re not yet 591/2) and a potential excess contribution to the receiving IRA.

 

3
Aug

Do you know if you will owe tax as a shareholder of a company that completes an inversion?

“Inversions” are the subject of Laura Saunders August 1, 2014 article in the Wall Street Journal, “An ‘Inversion’ Deal Could Raise Your Taxes”.

An “inversion” is when a U.S. company merges into a foreign company.  Some U.S. companies (e.g. AbbVie, Applied Materials, Auxilium Pharmesuticals, Chiquita Brands International, Medtronic, Mylan, Pfizer, Salix Pharmaceuticals and Walgreen) have considered or are pursuing an “inversion” to reduce U.S. income tax.

It is expected that the “inversion” will be taxable to U.S. shareholders.  Technically the U.S. company is being acquired in a taxable transaction.  It is unlikely that the shareholders will receive any cash.

The tax consequences will vary based on each shareholder’s specific situation.
The net investment income tax (3.8%) will apply if your adjusted gross income (AGI) exceeds $200,000 if single and $250,000 if married filing jointly.

The long term capital gains rate is 20% if your AGI exceeds $400,000 if single and $450,000 if married filing jointly; 15% if your AGI exceeds $8,950 through $400,000 if single and $17,900 if married filing jointly.

The impact of the alternative minimum tax, itemized deduction phase-out and personal exemption are some of the other factors to consider.

Taxes will not be due if the stock is held in a traditional individual retirement account (IRA), Roth IRA, 401(k), or other tax-deferred vehicles.

Taxes are only on factor to consider, not the controlling factor, in deciding  if the stock of a company considering an “inversion” should be bought, sold or held.

“Inversions” will be especially unwelcome for long-term investors who were planning to hold their shares until death for estate-planning purposes.  At that point, there is no capital-gains bill, so some shareholders in firms doing “inversions” will owe taxes they would never have had to pay.”

The tax could be reduced if you have any unused losses from prior years.

Selling other stock or investments that have losses is a strategy to reduce tax from the “inversion”.

Gifting the stock to someone in a lower tax bracket (e.g. young child, grandchild, retired parent or grandparent)  is another stragey to reduce the tax.  The timing of the gift is important.

Contributing the stock to a charity is another approach if you have held the stock for more than a year and will have a gain.  The gain will not be taxed and the value of the stock may be deductible as a charitable contribution, subject to limitations.  Be sure to get a timely qualified acknowledgment.  Allow enough time to complete the transaction  before the “inversion”.

Among the other issues to be considered are: gift/estate taxes, “kiddie tax”, and possible retroactive legislation restricting “inversions”.

This is not intended as a complete discussion of all the factors and consequences to consider.  You should consult with your personal advisers to determine what if any action is appropriate for you.

 

 

 

 

 

17
Jul

Recent tax rules permit longevity annuities (LAs) to be held in 401(k), IRA, 403(b) and other employer-sponsored individual account plans

A recent press release announcing the final rules explains that, “as boomers approach retirement and life expectancies increase, longevity income annuities can be an important option to help Americans plan for retirement and ensure they have a regular stream of income for as long as they live.”
In general, the final rules:
• Amend the required minimum distribution (RMD) rules so payments don’t have to be taken from LAs to satisfy Required Minimum Distribution (RMD) requirements
• Set a maximum investment in an LA to the lesser of 25% of the plan account balance or $125,000 (adjusted for cost-of-living increases)
• Provide individuals with the opportunity to correct inadvertent LA premiums that exceed these limits
• State that the LA must provide that payments begin no later than the first day of the month next following the participant’s 85th birthday, although the maximum age may be adjusted later due to changes in mortality
• Allow for LAs to include “return of premium” death benefit provisions
• Expand the manner in which a contract can be identified as an LA
• Provide that LAs in qualified plans may not include “cash out” provisions, and no withdrawals are permitted in the deferral period, and, unless the optional death benefit or return of premium options are available, no payments will be made if the annuitant dies before the payment start date, although each of these restrictions may be found in LIAs that are not purchased within tax-qualified accounts
• For more information, the final rules can be read here.

Caution: This ruling will most likely have limited applicability. Taxes should not be the primary reason for financial decisions. It is a factor that should be considered after seeing how it impacts your financial plan.

What is a longevity income annuity?

A longevity annuity (LA), also referred to as a deferred income annuity or longevity insurance, is a contract between you and an insurance company. As the insured, you deposit a sum of money (premium) with the company in exchange for a stream of payments to begin at a designated future date (typically at an advanced age, such as age 80) that will last for the rest of your life. The amount of the future payments will depend on a number of factors, including the amount of your premium, your age, your life expectancy, and the time when payments are set to begin.

Caution: Guarantees are subject to the claims-paying ability and financial strength of the annuity issuer.