Dec 28

Important Things to Consider Before Converting to a Roth IRA

Beginning in 2010, the modified Adjusted Gross Income (“AGI”) and filing status requirements for converting a Traditional IRA to a Roth IRA are eliminated.

Below are some important points to consider when deciding whether to convert your Traditional IRA to a Self-Directed Roth IRA LLC.

  • Do you have the ability to pay income taxes on the money you convert from your Traditional IRA?
  • Based on your income tax bracket, does it make sense to pay the entire tax due in 2017. If you expect your rate to go up, converting may be for you. If you think it will go down, then the opposite holds true.
  • Do you anticipate withdrawing Roth IRA funds for personal use within five years of conversion? If so, you may face taxes and penalties if you withdraw within five years of a conversion.

Converting a Traditional IRA to a Roth Self-Directed Roth IRA LLC has a number of tax advantages and can offer you multiple tax and investments benefits.

To learn more about converting your Traditional IRA to a Self-Directed Roth IRA LLC, please contact one of our IRA experts at 800-472-0646.

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Feb 07

Workplace Retirement Plan May Limit IRA Deductions

This article originally appeared on Forbes.com

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In general, one may be able to claim a deduction on their individual federal income tax return for the amount contributed to a pre-tax Individual retirement account (“IRA”), also known as a Traditional IRA.  Whereas, after tax or Roth IRA contributions are not tax deductible.  For 2017, the maximum IRA contribution is $5500 and $6500 if over the age of fifty. However, in the case of an individual that is covered by an employer qualified retirement plan, such as 401(k) plan, the IRA contribution amount that individual can deduct could be limited by his or her modified adjusted gross income (“AGI”).  An individual’s AGI is essentially the amount of gross income earned during the year, less certain adjustments. One can find the allowable reductions to your income on the front page of IRS Form 1040.

The two key factors in determining the amount an individual can deduct from their pre-tax Traditional IRA contribution in a given year are (i) whether the individual is covered by an employer 401(k) plan and (ii) their AGI. For individuals that are not covered by an employer 401(k) plan, they are free to deduct the full amount of their IRA contribution up to $5500 or $6500, if over the age of fifty, for 2017.  For example, if Bill Gates was no longer employed by Microsoft or any other company and was not covered by a retirement plan at work, he would be able to deduct the full amount of his IRA contribution for 2017, notwithstanding his annual gross income amount.  Whereas, if Bill Gates was still employed at Microsoft and was covered by the company’s retirement plan, he would not be able to take a deduction for his IRA contribution because his income would exceed the maximum threshold amount.   Interestingly, the Internal Revenue Service (“IRS”) rules do not distinguish whether the individual that is covered by an employer retirement plan actually participated and made contributions to the plan.  The rule states, however, that so long as the employee is covered by the employer retirement plan, that individual’s AGI will determine whether he or she can take a tax deduction for the IRA contribution.  Thus, if an individual is covered by an employer sponsored retirement plan, notwithstanding whether that individual actually made a contribution to the plan, the individual’s AGI will be the determining factor whether he or she can deduct his or her IRA contribution.  An individual that does not have access to an employer 401(k) plan has no such limitation.

For 2017, if an individual is covered by a retirement plan at work, the following table provided by the IRS will help one determine what amount of his or her IRA contribution for 2017 is tax deductible.

 
Filing Status Your Modified AGI IRA Deduction Amount
single or
head of household
$62,000 or less
______________more than $62,000 but less than $72,000________________
$72,000 or more
A full deduction up to the amount of your 2017 contribution limit
_______________Partial deduction
________________
No deduction
married filing jointly or qualifying widow(er) $99,000 or less
________________more than $99,000 but less than $119,000________________
$119,000 or more
A full deduction up to the amount of your 2017 contribution limit
_______________
Partial deduction
________________
No deduction
married filing separately Less than $10,000
______________
$10,000 or more
Partial deduction
_______________No deduction

Having the ability to contribute and deduct IRA contributions is an important aspect of many Americans’ retirement strategy.  In order to best take advantage of the existing IRA contribution and deduction rules available, it is vital that Americans with access to an employer retirement plan have a solid understanding of how the IRA contribution deduction rules work.

For more information about IRA Contribution Rules, please contact us @ 800.472.0646.

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Jul 05

Deductions You can Take from IRA Contributions if You Are Covered by a Retirement Plan at Work

For 2016, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced/phased out if your modified Adjusted Gross Income (“AGI”) is:

  • More than $98,000 but less than $118,000 for a married couple filing a joint return.
  • More than $61,000 but less than $71,000 for a single individual or head of household.
  • Less than $10,000 for a married individual filing a separate return.

Deductions You can Take from IRA Contributions if You Are Covered by a Retirement Plan at Work

If you either lived with your spouse or file a joint return and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $184,000 but less than $194,000 or more.

Please contact one of our IRA Experts at 800-472-0646 for more information.

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Jul 01

Contributing to a Roth IRA

A taxpayer’s contributions to Roth IRAs during any year may not exceed a dollar ceiling (or, if less, the taxpayer’s compensation income), reduced by deductible contributions for the year to traditional IRAs. For 2016, the dollar ceiling will be $5,500. Also, for 2016, the ceiling is raised by $1,000 for individuals who are at least 50 years old at year-end.

Roth IRA Contribution Rules for 2016The maximum contribution is the same for traditional and Roth IRAs, but this ceiling applies differently to them because contributions to Roth IRAs are after-tax funds, whereas contributions to traditional IRAs are pretax funds. Assume A contributes $3,000 to a Roth IRA for 2016, and B contributes the same amount for the year to a traditional IRA; both are taxed at 30 percent at all times. Although only $3,000 of salary income was required to fund B’s contribution, A’s contribution effectively takes pretax income of $4,286 ($4,286, less 30 percent thereof, is $3,000). If each of the IRAs earns 8 percent, and each of the contributors withdraws the accumulated funds on retirement 10 years after the contributions are made, A will have $6,477 ($3,000 plus earnings at 8 percent for 10 years), and B will have $4,534 ($6,477 less 30 percent thereof).

Taxpayer’s ability to make a Roth IRA contribution begins to phase out when your adjusted gross income (AGI) exceeds $184,000 for joint filers and $117,000 for single filers in 2016. In addition, you are not permitted to make a contribution at all when your AGI exceeds $194,000 (for joint filers) or $132,000 (for single filers). Note: with a traditional IRA you may make a contribution even if your income is high and you are covered by an employer’s plan. However, you may not be able to deduct the contribution on your return.

Contributions in excess of the maximum are subject to a 6 percent excise tax unless the excess and income thereon are distributed to the owner not later than the due date of his or her return for the year (taking extensions into account). Income included in a distribution made within this time is included in the owner’s gross income for the year of the contribution, not the year of the distribution.

As with traditional IRAs, contributions to a Roth IRA are deemed made on the last day of the year if made before the following April 15. Contributions to a Roth IRA, unlike a traditional IRA, can be made by taxpayers older than 70 1/2.

Please contact one of our Roth IRA Experts at 800-472-0646 for more information.

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Jun 08

Converting a Traditional IRA to a Roth IRA

Beginning in 2010, the Modified Adjusted Gross Income (“AGI”) and filing status requirements for converting a Traditional IRA to a Roth IRA are eliminated.

Below are some important points to consider when deciding whether to convert your Traditional IRA to a Self-Directed Roth IRA LLC.

  • Do you have the ability to pay income taxes on the money you convert from your Traditional IRA?
  • Based on your income tax bracket, does it make sense to pay the entire tax due in 2015. If you expect your rate to go up, converting may be for you. If you think it will go down, then the opposite holds true.
  • Do you anticipate withdrawing Roth IRA funds for personal use within five years of conversion? If so, you may face taxes and penalties if you withdraw within five years of a conversion.

Converting a Traditional IRA to a Roth Self-Directed Roth IRA LLC has a number of tax advantages and can offer you multiple tax and investments benefits.

To learn more about converting your Traditional IRA to a Self-Directed Roth IRA LLC, please contact one of our IRA experts at 800-472-0646.
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Jan 06

All Your 2015 IRA Contribution Limits

2015 does not bring a lot of changes to the IRA Contribution Limits.  We just wanted to reiterate the limits for all IRA plans that are available to most people.

Traditional Individual Retirement Account (IRA) – As with the last two years, the maximum amount you can contribute to a traditional IRA for 2015 is $5,500.  This is due to low inflation.  The “catch-up” contribution for those age 50 and over remains at $1,000 for a total of $6,500.  Note: if you earn less than these amounts for the year, that amount is your maximum contribution limit for the year.

All Your 2015 IRA Contribution LimitsThe phase-out for deductible IRA contributions are based on your adjusted gross income (AGI) are as follows:  For singles and heads of households who are covered by a workplace retirement plan, the phase-out is between $61,000 and $71,000.  For married couples filing jointly where the spouse making the contributions is covered by a workplace plan, the phase-out is between $98,000 and $118,000.  If your spouse is covered by a workplace plan and you are not, the phase-out is between $183,000 and $193,000.  To clarify, if you earn less than the lower amount, you get the full deduction, but if you make more than the higher amount, you receive no deduction at all (but may still contribute to a traditional plan).  If you are somewhere in between, you receive a partial deduction.

Roth IRA – Roth IRA contribution limits for 2015 are the same as traditional plans ($5,500 & $6,500) and remain unchanged from last year.

The phase-out ranges for Roth IRAs are up $2,000 from last year.  For singles and heads of households, the phase out is between $116,000 and $131,000.  For married couples filing jointly, the phase-out is between $183,000 and $193,000.  Unlike traditional plans, if you are above the phase-out maximum, you cannot contribute to a Roth IRA.  However, you may contribute to a non-deductible traditional IRA and convert it to a Roth IRA, no matter your AGI.

SIMPLE IRA – If you are a small business owner, you may have a SIMPLE IRA.  For 2015, you may contribute up to $12,500 (up $500 from 2014).  The catch-up limit for those age 50 and over is $3,000 (up $500 from 2014).

SEP IRA – Another plan for small business owners or self-employed individuals is the Simplified Employee Pension or SEP IRA.  You may contribute up to $53,000 in 2015 (up $1,000 from 2014).  This is what you can contribute as an employer.  The compensation limit used in the calculation is up $500 from last year to $265,000.

If you need help deciding which plan is best for your needs, please contact an IRA Expert at the IRA Financial Group @ 800.472.0646 today!

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Oct 09

Back to Basics – What is an Individual Retirement Account?

Individual Retirement Accounts (IRAs) exist in many forms. The most common type is the IRA or individual retirement annuity to which any person with earnings from employment may contribute. These type of IRA plans are referred to as contributory IRAs. IRAs that are used to receive assets distributed from other retirement plans are called rollover IRAs. Roth IRAs combine the features of a regular IRA and a savings plan to produce a hybrid that adheres to its own set of rules. Whereas, SEPs and SIMPLE IRAs are technically IRAs even though their rules are quite similar to those of qualified plans.

What is an Individual Retirement AccountAn IRA, like the trust under an employer’s qualified plan, is exempt from tax pursuant to Internal Revenue Code Section 408(e)(i), and an individual maintaining an IRA usually is not taxed on principal or earnings of the account or annuity until they are distributed by the trustee, custodian, or insurance company. A deductible contribution to an IRA thus offers the same tax advantage as an employer’s contribution to a qualified plan: deferral of taxation of the contributed funds and investment returns thereon until the funds are withdrawn at retirement.

What is a Traditional Contributory IRA?

Enacted in 1974 and expanded and curtailed by successive legislative changes over the ensuing years, the IRA rules were designed by Congress to stimulate savings by employees not covered by qualified plans of their employers.

In general, if you have income from working for yourself or someone else, you may establish and contribute to an IRA. The IRA can be a special account that you can set up with a bank, brokerage firm, or other institutional custodian. Alternatively, it can be an individual retirement annuity that you can purchase from an insurance company.

You may contribute a maximum of $5500 each year or $6500 if you will reach the age of 50 by the end of the year. If you are not covered by an employer’s retirement plan, you may take a deduction on your tax return for your contribution. However, if you are covered by an employer’s plan, your IRA may be fully deductible, partly deductible, or not deductible at all depending on how much gross income you have.

For example, in 2014, if you are single and covered by an employer’s plan, your contribution is fully deductible if your adjusted gross income (AGI) is less than $60,000 and not deductible at all when your AGI reaches $70,000. Between $60,000 and $70,000 the deduction is gradually phased out. For married individuals, the phaseout range is from $96,000 to $116,000, if the IRA participant is covered by an employer plan. For an IRA participant who is not covered by a plan but whose spouse is covered, the phaseout range is $181,000 to $191,000.

The comparatively low ceiling on IRA deductions is probably intended to keep IRAs from becoming a serious alternative to qualified plans for highly compensated employees. With a higher ceiling, shareholder-employees and other highly compensated employees of closely held enterprises could arrange for higher salaries and establish their own retirement programs, thus reducing the company’s incentive to create a nondiscriminatory qualified plan covering rank and file employees as well as insiders.

IRAs can be invested in securities, real estate, or virtually any other asset except life insurance, art works, precious metals, and other collectibles. An IRA, however, is subject to the Unrelated Business Income Tax (UBIT) if it engages in a trade or business, and an IRA contributor is subject to some of the prohibited transaction rules of Internal Revenue Code Section 4975, imposing excise taxes on self-dealing transactions.

IRAs must generally be nontransferable, but a transfer of an individual’s interest to a former spouse under a divorce decree or written instrument incident thereto is permitted, is not a taxable event, and the transferred asset is treated thereafter as maintained for the benefit of the transferee spouse.

Please contact one of our IRA Experts at 800-472-0646 for more information.

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Apr 04

Open a Roth IRA for 2012 by April 15!

This article is for those new to retirement savings.  If you are not saving for retirement, you have until Tax Day to start.  Doing it by this date will start your savings for last year instead of 2013.  That way, you have a full year to contribute to your IRA for this year as well.

Back in 1998, the Roth option became available as an alternative to traditional IRA.  The latter offered a tax deduction as well as tax-deferred growth.  The former offers tax-free distributions come retirement.  If you set up a Roth IRA by April 15, you may contribute up to $5,000 if your under age 50 and $6,000 if you are 50 and older.  For 2013, the limit increases $500.

As long as you have earned income for 2012, you can contribute to a Roth IRA so long as you didn’t make too much money (which is not a bad thing of course!).  Further, if your spouse earned money and you did not, you may also contribute to a Roth.  If you are single, the max your AGI can be is $112,000 and if you’re married, the max is $178,000.  If you make more than those amounts, you can contribute to a traditional IRA and then convert it to a Roth.  Once you convert, you will owe the taxes on the amount converted.

Did you know your young children can have a Roth IRA as well?  Again, all they need is earned income to be able to contribute.  The easiest way to prove that is if they earn a paycheck at a job.  However, they may be eligible if you can prove that they earned money for doing other things such as chores, babysitting and mowing lawns.  Keep detailed records for the work they’ve done, the money they earned and the time they worked.  They must be reasonable compensated for the work they do.

This is an excellent opportunity to show your child the importance of saving money.  The advice I always give is to have them decide how much of their money they want to put away for the future.  Then as a parent, you can match the amount and invest it in an IRA.  You can show them how much $20, $100 or even $1,000 can turn into a ton of money if left untouched for 50 years!  Also, this money can be used for higher education expenses without facing early withdrawal penalties.

In conclusion, if you’re considering a Roth IRA for yourself or for your child(ren), get started as soon as possible!  The more time the money is stashed, the more it will work for you!  If you need help in setting up your IRA, contact the tax experts at the IRA Financial Group who will help lead you in the right direction.

Mar 04

Are Investment Management Fees Tax Deductible?

With tax time getting ever closer, everyone is looking for every possible way to save on his/her tax bill.  One question often asked is if investment management fees are deductible.  Well, that all depends…

They are a tax-deductible expense that can be listed on Schedule on IRS From 1040.  They are lumped with unreimbursed employee expenses and tax prep fees among other items.  Unreimbursed employee expenses can include uniforms, supplies and professional dues.  All these misc. deductions are totaled and you may receive a tax deduction only if the total exceeds 2% of your adjusted gross income (AGI) from line 38 of your 1040.  If it does not, you cannot take a deduction.

Working people will hardly ever see this deduction, but when they retire, they are more likely to qualify.  Says Forbes.com contributor David John Marotta, “Even if you can’t deduct investment management fees directly, you can still pay a portion of the fee with pretax dollars. Investment management fees can be deducted directly from the accounts for which they were charged.”

Many advisers charge a fee based on the assets they manage.  For a traditional IRA, the fee is considered an investment expense, not a withdrawal and therefore it is not a taxable account.  This fee is paid with pretax dollars.  If the fees are paid directly from an IRA, it should not be listed on Schedule A.  Only expenses from a taxable account should be listed as a misc. expense.

While using money from a traditional IRA to pay fees makes sense, it does not mean the same for a Roth IRA.  It’s better to pay off Roth fees from a taxable account so you can keep as much money in your Roth.

When working with a fee-only financial planner, you have the option of paying from the account being manage or paid separately.  “Management fees are easily justified taken directly from accounts including IRA accounts where you can pay with pretax dollars,” adds Mr. Marotta.

The tax experts at the IRA Financial Group will help you save as much as you can both for retirement and come tax time.  Give them a call at 800.472.0646 or visit their website today!