Dec 20

When Do I need to take My Required Minimum Distributions (RMD) From My IRA?

The terms of an independent retirement account or annuity must include several minimum distribution rules, which Congress imposed to ensure that IRAs are primarily used as retirement savings media, not as vehicles to build wealth for transmission to heirs. As discussed below, these rules provide separately for distributions to IRA owners and distributions to beneficiaries after the death of an IRA owner. An IRA owner is an individual who establishes and contributes to an IRA for the benefit of himself or herself and his or her beneficiaries.

When Do I need to take My Required Minimum Distributions (RMD) From My IRA?Minimum distributions to IRA owners

An IRA must, by its terms, require the account or annuity to be fully distributed not later than April 1 of the year following the calendar year during which the IRA owner attains age 70 and 1/2 or be distributed by annual or more frequent payments over a period beginning by that date and continuing not longer than for the owner’s life, the lives of the owner and his or her beneficiary, or a period not longer than the life expectancy of the owner or the owner and beneficiary. April 1 of the year following the calendar year during which the owner reaches age 70 and 1/2 is the required beginning date.

How are minimum distribution requirements satisfied in the case of multiple Traditional IRAs?

Minimum distributions must be determined separately for each IRA. If an individual is owner of more than one IRA, however, the sum of the minimum distributions from all of them may be satisfied by distributions from any of them. This aggregation rule generally applies only to IRA owners. It does not allow an IRA held as beneficiary to be combined with other IRAs, whether held as owner or as beneficiary. However, two or more IRAs held as beneficiary of the same decedent may be aggregated if minimum distributions are being determined under the same life expectancy rule. IRA distributions cannot satisfy distributions under Internal Revenue Code Section 403(b) contracts and vice versa. Also, distributions from Roth IRAs cannot satisfy minimum distribution obligations under a traditional IRA or an Internal Revenue Code Section 403(b) contract.

What do I need to report when making a minimum IRA distribution?

Trustees, custodians, and issuers of IRAs (trustees) must make reports on minimum distributions to IRA owners and the IRS. If a minimum IRA distribution is required for a calendar year as of the beginning of which the IRA owner (or a surviving spouse who has elected to be treated as owner) is alive, the trustee holding the IRA as of December 31 of the preceding year must provide a statement to the owner by January 31 of the distribution year. The statement must indicate that a minimum distribution is required for the year, state the date by which the distribution must be made, and either state the amount of the distribution (calculated assuming that the sole beneficiary of the IRA is not a spouse more than 10 years younger than the IRA owner) or offer to compute the amount. The statement must also inform the owner that this information will be provided to the IRS. A trustee must also file Form 5498 (IRA Contribution Information) with the IRS for each calendar year for which a minimum distribution is required. This form need not state the amount of the minimum distribution.

No reporting to beneficiaries or the IRS is required with respect to IRAs of deceased owners. Also, although the minimum distribution rules for IRAs generally apply to Internal Revenue Code Section 403(b) contracts, no reporting is required with respect to such a contract, whether the employee is living or dead.

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Oct 17

What are the minimum distribution requirements of an IRA?

The terms of an independent retirement account or annuity must include several minimum distribution rules, which Congress imposed to ensure that IRAs are primarily used as retirement savings media, not as vehicles to build wealth for transmission to heirs. As discussed below, these rules provide separately for distributions to IRA owners and distributions to beneficiaries after the death of an IRA owner. An IRA owner is an individual who establishes and contributes to an IRA for the benefit of himself or herself and his or her beneficiaries.

What are the minimum distribution requirements of an IRA?Minimum distributions to IRA owners

An IRA must, by its terms, require the account or annuity to be fully distributed not later than April 1 of the year following the calendar year during which the IRA owner attains age 70 and 1/2 or be distributed by annual or more frequent payments over a period beginning by that date and continuing not longer than for the owner’s life, the lives of the owner and his or her beneficiary, or a period not longer than the life expectancy of the owner or the owner and beneficiary. April 1 of the year following the calendar year during which the owner reaches age 70 and 1/2 is the required beginning date.

Note: there are no required minimum distributions for a Roth IRA

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Apr 23

Retirement And Educational Savings Tax Planning Tips To Lower Taxes In 2017

Here’s another article written by Adam Bergman for Forbes.com

Now that the tax filing deadline has passed for the 2016 tax year, this is a perfect time to start thinking about some simple ways to boost retirement savings and at the same time lower overall tax liability for 2017.

Start Thinking IRA: For 2017, the maximum IRA contribution is $5,500, or $6,500 if you are over the age of fifty. Contributions can generally be made in pre-tax, after-tax, or Roth.  A pre-tax IRA, also known as a traditional IRA, is one of the more popular ways to save for retirement that also offers tax advantages. Contributions made to a traditional IRA may be fully or partially deductible, depending on your circumstances, and, generally, amounts in a traditional IRA (including earnings and gains) are not taxed until distributed, which is not required until one reaches the age of 70 1/2.

Retirement And Educational Savings Tax Planning Tips To Lower Taxes In 2017An after-tax IRA, also known as a non-deductible IRA, is a traditional IRA that contains nondeductible contributions. Nondeductible contributions to traditional IRAs often occur when one makes too much to make a deductible contribution, or is limited because of employer 401(k) plan contributions. When one takes a distribution from an after-tax IRA, the portion of the distribution coming from nondeductible contributions is tax-free, although, any income and earnings generated from that after-tax contribution would be subject to tax, and a 10% early distribution penalty if the individual is under the age of 59 1/2.

A Roth IRA is an improved version of the after-tax nondeductible IRA.  Although one does not benefit from a tax deduction for contributions, all of the qualified distributions, including earnings, come out tax-free. To contribute to a Roth IRA, ones modified adjusted gross income must fall below the annual limits for your filing status (which is $196,000 if filing jointly for 2017). One can withdraw contributions any time, but must be 59 1/2 years old and you must have had a Roth IRA open for at least five tax years before one can withdraw income and gains without tax or penalty.

Business Owners Rejoice:  Owning a business in 2017 can have some significant retirement tax benefits, if one is aware of them. The scope of the benefits is somewhat dependent on whether the business has full-time employees other than the owners.  For example, a sole proprietor or a business entity with no full-time employees, may be eligible to contribute up to $54,000 ($60,000 if the participant is over the age of fifty), to a solo 401(k) plan in pre-tax, after-tax or Roth.  Whereas, if the business has non-owner full-time employees, the business owner’s total contribution may be limited due to the cost of offering maximum employer profit sharing contributions to all employees.  Nevertheless, business owners should consult with their tax advisor to examine how establishing an employer retirement plan, such as a 401(k) plan, SEP or SIMPLE IRA for their business could potentially help their retirement savings, as well as reduce their annual tax liability.

Get to Know the 529 Plan.  A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code. Nearly every state now has at least one 529 plan available, but the plan characteristics may differ by state.   529 plans are usually categorized as either prepaid or savings plans. In general, the tax advantages of establishing and funding a 529 plan is that earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board. Contributions to a 529 plan, however, are not deductible. One may make a contribution of $14,000 a year or less to a 529 plan qualifies for the annual federal gift tax exclusion. Under special rules unique to 529 plans, one can gift a lump sum of up to $70,000 ($140,000 for joint gifts) and avoid federal gift tax, provided one makes an election to spread the gift evenly over five years Thus, establishing and funding a 529 plan may will not offer you an immediate tax deduction, but it will allow you to help your children afford college by having the contributions and earnings grow without tax over time, thereby, potentially allowing one to spend their retirement savings on other expenses.

HSA Triple Tax Benefit: IRC Section 223 allows individuals who are covered by a compatible health plan, often referred to as a High Deductible Health Plan (HDHP), to set aside funds on a tax-free basis up to the contribution limit to pay for certain out-of-pocket medical expenses. Health Savings Accounts have a triple tax benefit—funds go into the account tax-free, funds grow tax-free and remain completely tax-free when used for eligible medical expenses.  The IRS imposes certain requirements in order to be eligible to contribute to an HSA, such as one cannot be covered by Medicare.  The maximum 2017 contribution is $6750 for families, with a $1000 catch-up for individuals over the age of fifty-five.

Planning and saving for retirement does not have to be painful.  Understanding the rules and employing a consistent approach can help increase retirement savings while simultaneously reducing ones tax liability. However, a few simple retirement planning moves can help make the difference when April 17, 2018 rolls around.

For more information, please contact an IRA Expert @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Feb 12

Trump, The Fiduciary Rule And Your IRA

This article originally appeared on Forbes.com, authored by Adam Bergman –

On February 3, 2017, President Trump announced that he will use a memorandum to ask the labor secretary to consider rescinding a rule, better known as the fiduciary rules, set to go into effect in April 2017 that orders retirement advisers, overseeing about $3 trillion in assets, to act in the best interest of their clients.

The fiduciary rule, rolled out by the Obama administration, took many years to develop. The fiduciary rule aimed to protect retirement savers from bad advice and keep more money in their pockets. It also sought to indirectly change the way the industry structures its products and advisor compensation policies.

Trump, The Fiduciary Rule And Your IRAUnder the fiduciary rules, broker-dealers would be required to act in their clients’ best interest rather than encouraging money moves that directly benefit the broker’s bottom line.  Among the requirements in the rule, brokers have to justify the varying compensation they can receive for recommending one investment product over another to a retirement saver. Brokers said that rule makes sales fees on some mutual funds, known as sales loads, and some funds’ differing share-class prices problematic for accounts that charge investors for each transaction made.

Currently, if you work with a financial advisor who is a registered broker, he or she only has to recommend investments that are “roughly suitable” for you. That means if your advisor has the option between two similar mutual funds, but one pays out a higher commission, he or she can put you in that one—even if the other fund has lower fees and would boost your portfolio in the long run. In rescinding the fiduciary rules, the Trump administration wants to keep this system in place, arguing that the fiduciary rule will limit investment choices and burden the industry with unnecessary regulations.  According to The industry’s top lobby group, the Securities Industry and Financial Markets Association estimated the fiduciary rule would cost firms $5 billion to implement and another $1.1 billion annually to maintain.

The Obama Administration believed that fiduciary rules would help lower costs for American retirement account investors as well as better protect the average retirement investor from bad advice and unnecessary fees.  On the flip side, the financial industry has attacked the rules as being overly burdensome as well as potentially limiting the type of investments and advice financial advisors can offer.  To this end, in 2016, Edward Jones and some other financial advisors announced that it would stop offering mutual funds and exchange traded funds in IRA accounts that charge investors a commission and move to an account value fee based arrangement.

In the end, President Trump seemingly sided with the financial and securities industry that the fiduciary rules were overly burdensome and would limit investment options for IRA holders.  In the end, it appears that President Trump was not convinced that any lower consumer costs associated with the enactment of the fiduciary rule would be enough to overcomes its perceived shortfalls. Because the fiduciary rules have not yet been enacted into law, President Trump’s executive order rescinding the rule will have no current impact on IRA investors, however, the long-term impact could be significant for both investors and financial advisors.

For more information about the fiduciary rule, please contact us @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Jan 03

There’s Still Time to Cut Your 2016 Tax Bill

Although we’ve rung in a new year, there’s still time to cut your taxes for 2016.  If you already have an individual retirement account (IRA), you have until Tax Day to make contributions.  Contributions made to a traditional plan are usually tax-deductible, though there are income limits if your employer offers a retirement plan, such as a 401(k).  Although Roth plans are not tax-deductible, there’s still huge benefits to max out your 2016 plan, including tax-free withdrawals come retirement.

What are the maximum contribution limits?

The maximum contribution limit for an IRA for 2016 (and 2017) is $5,500 or $6,500 if you’re age 50 or older, or your taxable compensation for the year, if less. Contributions to a Roth IRA may be limited based on your filing status and income.

There's Still Time to Cut Your 2016 Tax BillIs my IRA contribution deductible on my tax return?

If neither you nor your spouse is covered by an employer retirement plan, such as a 401(k), your deduction is allowed in full.

For contributions to a traditional IRA, the amount you can deduct may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. In the case of a Roth IRA, contributions aren’t deductible.

Can I contribute to a traditional or Roth IRA if I’m covered by a retirement plan at work?

Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan). If you or your spouse is covered by an employer-sponsored retirement plan, such as a 401(k) plan and your income exceeds certain levels, you may not be able to deduct your entire contribution.

Can I establish an IRA if only one spouse has earned income for the year?

Yes. If you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return and cannot exceed the maximum IRA contributions for the year (for 2017 $5500 or $6500 if over the age of 50). It doesn’t matter which spouse earned the compensation.

How can I make a Roth IRA contribution if I earned too much money in 2017?

For 2017, if your modified adjusted gross income is below $181,000 and you file a joint return, you can make a Roth IRA contribution. For those who earned greater than $181,000 during the year, the IRS provides a formula, which will set forth the reduced maximum amount of Roth IRA contributions permitted for the year, if any.

One way to circumvent the Roth IRA income threshold rules, if to simply make an after-tax traditional IRA contribution and then convert the Traditional IRA into a Roth IRA. Since the Traditional IRA contribution was made after-tax there would be no tax on the Roth IRA conversion. This tactic was made possible when the IRS removed the income level restrictions for making Roth conversions in 2010.

Can I Make IRA contributions after age 70½

You can’t make regular contributions to a traditional IRA in the year you reach 70½ and older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

To learn more about the IRA contribution rules, please contact an IRA tax expert at 800-472-0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Nov 08

Can You Rollover Funds from One IRA to Another IRA?

A distribution from an IRA to the individual for whose benefit the account or annuity is maintained is not taxable to the recipient if reinvested within 60 days in another IRA (other than an endowment contract) for the benefit of the same individual. The rule operates on an all-or-nothing basis. The entire amount received from the old IRA must be transferred to the transferee IRA. If anything is held back, the rollover rule does not apply, and everything received from the old IRA, including any amount transferred to another IRA, is treated as a taxable distribution. However, the distribution from the old IRA need not include the taxpayer’s entire interest. An IRA can be split, for example, by rolling a portion of it into a new IRA.

Can You Rollover Funds from One IRA to Another IRA?If property other than money is received from the old IRA, that property, not substitute property of equal value or the cash proceeds of the property’s sale, must be included in the transfer to the new IRA. According to the Tax Court, the rollover contribution must be of cash if the distribution is in cash.

The privilege of rolling over from IRA to IRA may be exercised only once in a 12-month period.

 

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Oct 25

What Exactly is a Rollover IRA?

To permit tax-free transfers of retirement savings from one type of investment to another, as well as to increase the portability of qualified plan rights for employees moving from one job to another, Congress included a complicated web of rollover provisions in ERISA. These provisions cover transfers from one IRA to another, transfers from qualified pension, profit-sharing, stock bonus, and annuity plans to IRAs, and transfers from IRAs to qualified plans. An IRA may also, under limited circumstances, make a rollover distribution to a health savings account (HSA). In other words, if you receive a distribution from a qualified plan, you might decide to put some or all of the distribution amount into an IRA. The IRA that receives the qualified plan distribution is called a rollover IRA.

What Exactly is a Rollover IRA?

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Aug 30

IRS Issues New Guidance on IRA Rollovers

On August 24, the Internal Revenue Service provided a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan or individual retirement arrangement (IRA).

In Revenue Procedure 2016-47, posted on Friday on IRS.gov, the IRS explained how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. In addition, the revenue procedure includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver.

IRS Issues New Guidance on IRA RolloversNormally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. In most cases, taxpayers who fail to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS (under Revenue Procedure 2003-16).

A taxpayer who missed the time limit will now ordinarily qualify for a waiver if one or more of 11 circumstances, listed in the revenue procedure, apply to them:

  • 1. An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
  • 2. The distribution was made in the form of a check, but, that check was misplaced and never cashed;
  • 3. The distribution was deposited into an account that the taxpayer mistakenly thought was an eligible retirement plan and the funds remained in that account;
  • 4. The taxpayer’s principal residence was severely damaged;
  • 5. A member of the taxpayer’s family died;
  • 6. The taxpayer or a member of the taxpayer’s family was seriously ill;
  • 7. The taxpayer was incarcerated;
  • 8. Restrictions were imposed by a foreign country;
  • 9. A postal error occurred;
  • 10. The distribution was made on account of a levy under Internal Revenue Code Section 6331, and the proceeds of the levy have been returned to the taxpayer; or
  • 11. The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.

Note that relief is not available if the IRS has previously denied a rollover request.

Ordinarily, the IRS and plan administrators and trustees will honor a taxpayer’s truthful self-certification that they qualify for a waiver under these circumstances. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination. Other requirements, along with a copy of a sample self-certification letter, can be found in the revenue procedure.

For more information about the new IRA Rollover Rule, please contact an IRA Expert @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

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.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page