The clock is ticking down to the tax filing deadline. The good news is that you still may be able to save on your impending 2017 tax bill by making contributions to certain retirement plans. (more…)
Posts tagged ‘Roth IRA’
Are you a highly compensated employee (HCE) approaching retirement? If so, and you have a 401(k), you should consider a potentially useful tax-efficient IRA rollover technique. (more…)
The IRS reminds taxpayers that they still have time to contribute to an IRA for 2016 and, in many cases, qualify for a deduction or even a tax credit. Available since the mid 70s, individual retirement arrangements (IRAs) enable employees and the self-employed to save for retirement. Contributions to traditional IRAs are often deductible, but distributions, usually after age 59½, are generally taxable.
Are you in your 50s or 60s and thinking more about retirement? If so, and you’re still not completely comfortable with the size of your nest egg, don’t forget about “catch-up” contributions. These are additional amounts beyond the regular annual limits that workers age 50 or older can contribute to certain retirement accounts. (more…)
Individuals may contribute up to $5,500 to a traditional and a Roth IRA for 2016. This is the same limit as 2015. An individual age 50 and older can make a catch-up contribution of an additional $1,000 for the year. The contribution is limited to the taxpayer’s taxable compensation for the year, minus contributions to all non-Roth IRAs. (more…)
In a taxpayer-friendly ruling, the IRS recently determined that a surviving spouse could roll over two Roth IRAs, which were payable to a trust controlled by her, into her own Roth IRA. The taxpayer’s late husband had maintained the Roth IRAs and created the trust.
The taxpayer’s husband had two Roth IRAs. He designated a trust as the beneficiary of the two Roth IRAs, with the provision that upon his death, his wife would become the sole trustee of the trust. The husband also directed that the trust be divided into two sub-trusts (Marital Trust and Family Trust).
The husband died and the wife became the sole trustee of the trust. The wife intended to allocate the assets of the trust—except for the Roth IRAs—to Family Trust. The wife also proposed to make a distribution of both Roth IRAs to herself as beneficiary of Marital Trust. Further, the taxpayer intended to roll over the distribution into one or more IRAs set up and maintained in her own name. The taxpayer asked if both Roth IRAs would be treated as inherited IRAs and if she could roll over both IRAs into a Roth IRA maintained in her name.
The IRS explained that if the proceeds of a decedent’s IRA are payable to a trust, and are paid to the trustee of the trust, who then pays them to the decedent’s surviving spouse as the beneficiary of the trust, the surviving spouse is treated as having received the IRA proceeds from the trust and not from the decedent. The surviving spouse, the IRS further explained, cannot roll over the distributed IRA proceeds into his or her own IRA.
However, this case was different. The surviving spouse was the sole trustee of the trust and had authority under the trust to pay the IRA proceeds to herself. The IRS concluded that the wife could roll over proceeds of both Roth IRAs into a Roth IRA in her own name. The IRS also determined that the Roth IRAs were not inherited IRAs.
The definitive arrival of the New Year does not spell doom for all tax savings opportunities for 2013. A few options remain to taxpayers:
Taxpayers have until April 15, 2014, to make tax-deferred contributions to a traditional individual retirement account (IRA). The amount any one taxpayer may contribute to an IRA is limited to $5,500 per taxpayer ($6,500 for taxpayers age 50 or older).
This amount begins to phase out after the taxpayer has adjusted gross income (AGI) over a certain amount ($59,000 for single and head of household filers; $95,000 for married filers). The phase out is complete once the taxpayer’s AGI exceeds $69,000 (single and head of household filers) or $115,000 (married filers).
If the taxpayer has already contributed to an IRA for 2013 (including a Roth IRA), the allowed $5,500 contribution is reduced by the amount of those previous contributions.
Taxpayers covered under a high-deductible health plan (HDHP) also have until April 15, 2014, to make tax-deferred contributions to a health savings account (HSA). An HSA is a tax-exempt trust or custodial account established for the purpose of paying the beneficiary’s qualified medical expenses.
Taxpayers who realize they should have been making estimated payments of tax throughout the year can avoid penalties for the fourth quarter of 2013 by making an estimated tax payment on or before January 15, 2014.
Other notable tax deadlines, other than the looming April 15, 2014 deadline for individual returns, include:
March 15: Taxpayers who contributed funds during 2013 to an employer-sponsored cafeteria plan through a flexible spending arrangement (FSA) have until March 15, 2014 to use them on any qualified medical expenses. Generally taxpayers must use all funds contributed to an FSA before the end of the year, unless their employer has amended the cafeteria plan to allow a grace period up until March 15. Taxpayers who are unsure of whether or not their flexible spending arrangement provides this grace period should contact their employer.
April 1: Taxpayers that have traditional IRAs are required to start taking minimum distributions from their IRAs in the year in which they turn age 70½. These are called required minimum distributions (RMDs), and they are calculated based on the account holder’s life expectancy. RMDs are required for traditional IRAs, but not Roth IRAs.
Taxpayers who just turned 70½ during 2013 may delay the first payment until April 1, 2014. However, for all years thereafter, the taxpayer must take the RMD by December 31 of the tax year. This means that a taxpayer who delays his or her first RMD payment until April 1, 2014, will be required to report two RMDs in his or her 2014 income.
Account owners who do no withdraw the full RMD amount by the deadline will be liable for tax at the rate of 50 percent on the amount not withdrawn
For more information on the upcoming tax return filing season, please contact our offices at (908) 725-4414.