Oct 28

Penalty Free IRA Distributions

Sometimes you need to withdraw from your IRA plan for expenses that arise.  Though it is strongly recommended that you don’t, there are exceptions to the early withdrawal penalty.  In the case of IRAs, there is a 10% penalty if you take distributions before the age of 59 1/2.  Most exceptions are not planned such as disability or losing your job and needing to pay for insurance.

Bob Carlson of investingdaily.com says, “The exception that provides the most planning opportunities is for a “series of substantially equal annual distributions.” This sometimes is referred to as the SOSEPP exception (for “series of substantially equal periodic payments”). The SOSEPP exception primarily applies to IRAs. It applies to qualified employer plans only if the employee has separated from service of the employer.

To qualify for the exception, distributions from the IRA must be taken at least annually. The payments must be scheduled to last for the account owner’s life expectancy or the joint life expectancy of the owner and a beneficiary.

The distributions must continue until the later of either five years or when the owner reaches age 59½. For example, if substantially equal annual distributions begin at age 57, they must last at least five years to avoid the penalty. If the payments begin at age 50, they must continue at least until the owner reaches age 59½. After payments have continued for the required minimum period, they can be stopped without triggering the penalty.”

Check out this article for more information regarding this early IRA withdrawal.  For any questions regarding to early IRA distributions, contact the tax experts at the IRA Financial Group.

Don’t forget to follow us on Twitter @BergmanIRA!

Oct 26

IRA Beneficiary Designations

So what happens to your IRA if you pass away?  If you don’t name a beneficiary like your child or spouse, you could be missing out on years of income for your loved ones.  It’s also a good idea to name a secondary beneficiary in case of unforeseen circumstances.  Here are some standard designations:


This is normally the worst choice. If you have a will, that document will direct distribution. If you do not have a will the account will pass by state law under the statute of descent and distribution. You have now taken a non probate asset and placed it within the jurisdiction of the probate court.


This allows the most flexibility. Your spouse can continue to defer the payment of income tax. This also allows the spouse the ability to determine the beneficiaries at his or her death. For high net worth couples, advanced planning with IRAs is essential.


Children as primary beneficiaries offer a great way to give a child an automatic retirement fund. If each child is designated as a separate beneficiary, he can continue to defer part of the account over his own life expectancy. In a second marriage situation an IRA is a great tool. The designation to children of the first marriage allows a guaranteed inheritance without involving the second family. If done properly it cannot be challenged.


Designation to grandchildren can provide the longest deferral of the payment of income tax. If a two-year-old is a named beneficiary he can receive income over a life expectancy of over eighty years.


A trust will allow you to control the funds after your death. It permits a trustee to allocate among a class of beneficiaries or direct the use of the funds. It also allows the retention of funds if a child is not mature enough to receive the funds. A trust can delay the immediate unrestricted access to the monies by your children.


The use of IRAs to distribute to a charity is a great tax saving vehicle. If you want to give to charity, the monies will go directly free of probate and free of the payment of income tax upon presentation of a death certificate. If the distribution had come directly from the trust, income tax would have first been paid and only a portion of the funds would have gone to the charities.

Credit: thebeacon.net

Any questions, contact the experts at the IRA Financial Group today!

Follow us on Twitter: @BergmanIRA

Oct 25

Raiding an IRA for College

A question came from a reader over at foxbusiness.com about using her IRA to pay for her twins’ college expenses.  In part, she asks, “I am 50 years old, and I want to cash out and close my regular individual retirement account of $8,000 to use on educational expenses for my twin children who started college in September. Can I remove all the money now, or do I estimate what I think I may use and only make an IRA withdrawal for what’s needed for the current academic year?”

Dr. Don Taylor tells her it’s best to wait to their senior year since the withdrawal will be a part of her income in the tax year she takes them out which could effect the twins’ eligibility for financial aid.  However, he suggests not withdrawing from the IRA.  Assuming it’s a traditional plan, she’ll still owe taxes and in the 25% tax bracket, there will only be $6,000 left after taxes.  The only positive is that there wouldn’t be a 10% early withdrawal penalty since the money is being used for higher education.

“While I’m arguing that you not cash in the account now, if you were to make this move, you’d need to know more about the qualified higher education expenses that would allow you to use the IRA and not trigger the 10% penalty tax. Qualified higher education expenses are defined as tuition, fees, books, supplies and equipment required for the enrollment or attendance of a student at an eligible educational institution. They also can include room and board, if the student is enrolled at least half-time.

To spend money out of the IRA and avoid the penalty, you’d calculate the amount of eligible qualified expenses by subtracting college costs covered by any tax-free educational assistance, such as a Pell Grant or tax-free scholarship, a tax-free distribution from an education IRA or tax-free educational assistance provided by an employer”, says Dr. Taylor.

If you have any questions about this or other IRA situations, contact the tax experts at the IRA Financial Group today!

Oct 24

2013 Inflation Adjustments

Recently, the IRS announced inflation adjustments for next year.  Here is a brief list of them:

Retirement Plans

  • The contribution limit for employees who participate in 401(k), 403(b) and some other plans will increase to $17,500 from $17,000. The “catch-up” contribution limit for workers age 50 and above remains unchanged, at $5,500.
  • For taxpayers making deductible contributions to traditional individual retirement accounts, the upper income limit rises to $115,000 from $112,000 for married couples filing jointly ($69,000 for singles), if the worker is covered by a workplace retirement plan.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the upper income limit rises to $188,000 of modified adjusted gross income (AGI) from $183,000.
  • For taxpayers making contributions to a Roth IRA, the upper income limit is  $188,000 of AGI for married couples filing jointly ($127,000 for singles), up from $183,000 in 2012.

Gift Tax

  • The annual exclusion for gifts rises to $14,000, the first increase in several years. Next year taxpayers may make tax-free gifts up to $14,000 to as many different individuals as they desire, up from $13,000 this year.

Long-Term Care Insurance

  • The deductible portion of eligible long-term-care insurance premiums one can include in the term “medical care” also will increase.

Attained Age Before the Close of the Taxable Year                         Limitation on Premiums

40 or less                                                                                                       $360

More than 40 but not more than 50                                                               $680

More than 50 but not more than 60                                                            $1,360

More than 60 but not more than 70                                                            $3,640

More than 70                                                                                               $4,550


  • The amount that  reduces net unearned income reported on a child’s tax return subject to the “kiddie tax” will be $1,000, up from $950 in 2012.
  • For U.S. taxpayers living abroad, the foreign earned income exclusion rises to $97,600, up from $95,000 in 2012.

Credit to wsj.com

Need IRA help?  Contact a tax expert from the IRA Financial Group today!

Oct 23

Tax-Free Retirement!

We all hate paying taxes, but it’s a necessary evil we must all do.  The thing you can control is to not pay more than you absolutely have to, as required by law.  You contribute to most retirement plans, such as Traditional 401k and IRA plans, with pre-tax money.  Since these plans are tax-deferred, you will pay taxes on them once you start taking distributions.  But the government has given us the opportunity to have a tax-free retirement with a Roth IRA.  Taxes might be at their lowest point for the foreseeable future, so now’s the time to consider a Roth conversion.

Most people over the age of 50 are concerned about the combined impact of future taxes and continued market volatility knowing it can significantly impact their futures. There is a viable alternative to current retirement plans that will:

  • Preserve and protect your retirement account.
  • Eliminate market volatility
  • Eliminate Required Minimum Distributions
  • Eliminate potential additional taxes on Social Security
  • Never pay federal income taxes again
  • Create an income tax-free benefit for your heirs
  • Increase your retirement account by 10 percent immediately
  • Create guaranteed income for life for you and your spouse

Do all this by converting now.  The downside is that you pay the taxes now, but if you have the money available from non-qualified (non-IRA) funds, this is a truly great strategy.

Says Susan L. Moore Vault of InsideTusconBusiness.com:

Let me give you an example: John is 60, his wife Jane is 58. He has $500,000 in his 401(k) invested in stocks, bonds and mutual funds. If John leaves it there and starts drawing his money at 4 percent, when the market is declining he has no guarantee how long that money will last.

If John rolls over his 401(k) into a Fixed Indexed Annuity and converts to a Roth and uses other non-qualified funds to pay the taxes, the results will be:

  • Elimination of market risk forever
  • An immediate 10 percent bonus creating a $550,000 Roth IRA
  • An annual “roll-up” at 6.5 percent (increase in the Income Account Value)
  • At Jane’s age 65, start taking 4.5 percent of Income Account Value
  • Guaranteed annual income of $38,461.17, free of income tax for life.
  • Income will continue for life for a surviving spouse
  • Any funds left in the Roth IRA after both John and Jane die will be free of income tax to heirs
  • No required minimum distributions, ever
  • No impact on Social Security or Medicare
  • No income requirements. Anyone may convert a qualified plan to a Roth

Need help setting up a Roth IRA or just have questions?  Contact the IRA Financial Group today at 800.472.0646.  Don’t forget to follow us on Twitter, @BergmanIRA!

Oct 18

Planning For Early Retirement

There’s an interesting article over at usnews.com that talks about the transition into early retirement and the many factors you need to consider.

The first of these factors is your finance.  Obviously, if you retire early, you lose the steady stream of work income, though if you’re planning on retiring, you already have other income such as a pension, rental properties or your spouse’s job.  But, Social Security isn’t available to you until you’re 62, and if you have an IRA, you incur a 10% penalty if you take distributions before you are age 59 1/2.  You need to figure out what your monthly income will be after leaving your job.

Says author Joe Udo, “For example, if you want to retire at age 55, then you need to estimate your retirement income at various ages. You may want to delay retirement account withdrawals to avoid the early withdrawal penalty or postpone signing up for Social Security in order to get bigger payments later on in retirement. Here’s an example of retirement income streams you might begin to tap at various ages:

55-60: Income from a pension, spouse’s job, rentals, savings, or investment accounts

60-67: Add income from IRA and Roth IRA withdrawals

67-70: Add income from Social Security

70+: Add income from required minimum distributions from retirement accounts if applicable

The biggest challenge is funding retirement from 55 to 60 because of the reduction in income. Once you get passed this stage, you will have your IRA and Social Security to draw upon.”

The other major factor to consider is expenses.  Many expenses will drop drastically or even disappear altogether when you retire.  Work-related expenses include:  your commute, less gas, no parking fees and maybe one less car to pay for; your wardrobe; tasks you didn’t have time to perform like washing the car or mowing the lawn can now be done; saving for retirement.  Other expenses that could be gone with proper planning are your mortgage, your child’s education and lower taxes.  One expense that’s sure to rise is medical.  Medicare benefits don’t kick in until you’re 65, so you’ll need health insurance that was probably cheaper with your old job.

Mr. Udo suggests taking a “retirement test drive”.  Take a leave of absence from your job for a few months (if possible) and see how retired life is treating you.  Do you have enough income to live comfortably?  Can you fill up your days without losing your mind?  Can you deal with not going to a job that gave you fulfillment?  Does your spouse want you out of the house??  After a few months, you will know for sure if now is the right time for you to retire.

Looking to retire younger?  Are you prepared?  Contact one of the experts at the IRA Financial Group today to see if you’re financially prepared to retire!

Oct 16

Converting a Nondeductible IRA Into a Roth

Most financial planners will agree that a Roth IRA is one of the best retirement solutions around.  The two main reasons for this are that distributions on both principle and earnings are both tax-free once you reach retirement and there are no RMDs (required minimum distributions) once you’re age 70 1/2.

However if, as an individual, your annual earned income is $125,000 or more ($183,000 for married couples), you cannot contribute to a Roth IRA.  You may still contribute $5,000 to a traditional IRA ($1,000 more if you’re at least 50 years old).

People in lower tax brackets can receive an IRA contribution deduction on their federal tax returns.  If you earn over these IRS limits, you may still contribute to an IRA, but you will not receive the deduction.  This is known as a non-deductible IRA.

Here’s where converting to a Roth becomes worthwhile.  As of 2010, there is no income limits on Roth conversions.  Anyone can convert from a traditional IRA to a Roth and pay the taxes due now and have all Roth withdrawals tax-free.  If your IRA is comprised strictly of non-deductible contributions, you would only pay tax on the earnings!

The rules of converting are more complex if you have normal contributions, non-deductible contributions and earnings throughout your IRA(s).  Here’s an example from sfgate.com:

John Doe, a 30% taxpayer, has a Traditional IRA worth $200,000 on Dec. 31, 2012, of which $100,000 is non-deductible contributions. Doe wants to convert $100,000 of this IRA to Roth. Because Doe has $100,000 of non-deductible contributions in this Traditional IRA, you would think that he could convert the $100,000 of non-deductible contributions tax-free. Unfortunately, the IRS has a special formula that must be followed if you own an IRA with normal contributions.

Here’s how it works:

Tax-free Percentage = Total Non-deductible Contributions divided by
(Sum of year-end value of all IRA accounts + Conversion Amount)
= $100,000/($200,000 + $100,000) = $100,000/$300,000

Tax-Free amount of Conversion = 33.3% (or $33,333)

Therefore, if John converts $100,000 to the Roth, he will have $33,333 ($100,000 x 33.3%) that is not-taxed and $66,667 ($100,000 x 66.7%) that will be taxed at his 30% tax rate.

For more information about converting to a Roth and other retirement questions you might have, contact the IRA Financial Group today!

Don’t forget to follow us on twitter @BergmanIRA!

Oct 15

IRA Rollover Strategies

The Chicago Tribune had a couple of Q&A questions about rolling over IRA plans and would like to share them with you here.

Q. I have a pension fund that must be rolled over from my company. This fund has mostly pre-tax money and a little after-tax money that I contributed through the years.  Can I roll over this money (along with its accrued gains) into a Roth? If I decided to just have the after-tax money deposited in my checking account (minus the gains), could I have the gains on this after-tax money put into the rollover IRA so I wouldn’t have to pay tax on it until I start taking distributions?

A. You can roll a workplace account into a Roth IRA, and you will have to include it in your gross income for that year, according to IRS Publication 575. But you don’t include in income contributions to the account that were already taxable to you. Depending on your situation, it might be advantageous to roll the plan into a traditional IRA, keeping track of which portion is after-tax contributions, said Ed Slott, an accountant and an author on myriad IRA topics.

This strategy allows you to keep more control over how much tax you’ll need to pay in any given year, Slott said, so you can gradually convert to the Roth IRA according to what’s best for your situation. When you do convert, remember the rollover will be subject to the pro-rata rule, meaning that distributions are taxed according to the proportion of taxable versus non-taxable funds in all your IRAs.

Q. Can you roll over a pension plan into real estate, such as buying a home without paying a penalty or additional taxes? We are residents of Wisconsin; my husband is 60.

A. You can roll an employer plan into a self-directed IRA that can purchase real estate, but there are a number of restrictions on these investments, including a prohibition on buying property that you live in yourself, Slott said.

Oct 10

Realtors Using their Retirement Funds to Take Advantage of Attractive Real Estate Market

The self directed IRA LLC offers one the ability to use his or her retirement funds to make almost any type of investment on their own without requiring the consent of any custodian or person, including real estate. The IRS only describes the type of investments that are prohibited, which are very few. Whereas, the rising popularity of the individual 401K plan is a result of the EGTRRA tax law change that became effective in 2002. The law changed how salary deferral contributions are treated when calculating the maximum deduction limits for contributions to a solo 401K plan. This change created an opportunity for self-employed professionals, such as self-employed realtors to put away additional amounts toward their retirement as well as make non-traditional investments, such as real estate.

The IRS has always permitted a retirement holder to purchase real estate, raw land, or flip homes. “With IRA Financial Group’s self-directed IRA LLC and individual 401(k) plan solutions, buying rental properties is as simple as writing a check and is tax-free, “ stated Adam Bergman, a tax attorney with the IRA Financial Group. “As the manager of your Self-Directed IRA LLC or trustee of the individual 401(k) plan, the retirement account holder will have control over his or her retirement funds so that a real estate purchase can be made by simply writing a check,” stated Mr. Bergman. One major advantage of buying rental properties with a Self-Directed IRA or individual 401(k) plan is that all rental income generated by the property is tax-deferred until a distribution is taken.

Unlike a conventional retirement account, which requires custodian consent and requires high custodian fees, a real estate IRA LLC or self-directed solo 401K plan will allow one to buy real estate, including rental properties by simply writing a check. Since all the retirement funds will be held at a local bank in the name of the Self Directed IRA LLC or solo 401K plan, all one would need to do to engage in a real estate transaction is write a check straight from the retirement account.

“With IRA Financial Group’s self-directed IRA LLC or individual 401K plan solution, no longer would one need to ask the IRA custodian for permission or have the IRA custodian sign the real estate transaction documents, “ stated Maria Ritsi, a paralegal with the IRA Financial Group. “Instead, as manager of the IRA LLC or trustee of the individual 401K plan, the retirement account holder, will be able to buy rental properties simply by writing a check, “ stated Ms. Ritsi.

Read the whole article here and contact the IRA Financial Group today with any questions you have!

Oct 08

2012 IRA Contribution Limits

As we near the end of 2012, I figured this was a good time to make sure everyone was aware of the 2012 contribution limits.  This is the maximum amount of money you can contribute to your retirement plan for this year:

Traditional IRA – The limit here is $5,000.  You can contribute an additional catch-up contribution of $1,000 if you are aged 50 or older.  How much of that you can deduct from your income taxes depends on whether you have another workplace plan, like a 401(k), as well as your income.

Roth IRA – Although the plan is different than a traditional IRA, the contribution limit is the same.  $5,000 if you are under age 50 and $6,000 is you’re at least 50.

SEP IRA – If you have a simplified employee pension IRA, you can contribute up to 25% of your net self-employment income or $50,000, whichever is less.  This is nearly three times as much you can contribute to a 401k plan.

SIMPLE IRA – With a savings incentive match for employees IRA, you may contribute up to $11,500.  The catch-up amount is $2,500.

Note that no matter what plan you have, you cannot exceed 100% of your earned income.

Need help with your IRA or looking to set one up?  Contact the tax experts at the IRA Financial Group today!

Don’t forget to follow us on Twitter @BergmanIRA!