Vernoia, Enterline + Brewer, CPA LLC

Posts tagged ‘Roth IRA’

IRS Permits High-Earner Roth IRA Rollover Opportunity

ira_3Are 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…)

Still Time to Contribute to an IRA for 2016

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.

ira (more…)

Age 50 or Older? Catch-Up Contributions Are For You

retireesAre 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…)

FAQ: What is the Roth IRA contribution limit for 2016?

senior couple hugging on sail boat or yacht in seaIndividuals 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…)

Surviving spouse may roll over Roth IRAs payable to trust

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.

Roth IRAs

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.

IRS analysis

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.

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FAQ: Should I convert to a Roth IRA before 2012 ends?

With 2013 bearing down on us, we hope you have a moment to spare from holiday preparation for some good old-fashioned year-end tax planning. By now you must be familiar with the term “fiscal cliff” and how the expiring provisions, tax rates, and budget appropriations may affect small business, big business, and politics in Washington, DC. However, the looming expiration dates for the Bush-era tax cuts and other tax provisions set to become effective in 2013 may also have consequences for how you save for retirement. This year we have advice for IRA account holders in particular:

Avoiding increased tax. If you have a traditional individual retirement account (IRA) and you are thinking about converting to a Roth so you can accumulate tax-free earnings, you might want to do it before the year ends. First, if you are in a high-income tax bracket, your taxes are likely to increase if the Bush-tax cuts expire. Converting from a traditional IRA to a Roth IRA creates a taxable event, and you may lose more money to the government by converting in 2013 than you would if you convert before 2012 ends.

Secondly, taxpayers whose projected 2013 adjusted gross income (AGI) will approach $250,000 (or $200,000 for single filers) may want to avoid converting their traditional IRA in 2013. The addition of their IRA assets to their AGI may push them within the income range limits for taxpayers subject to the 3.8 percent tax on net investment income that goes into effect in 2013.

Please note that the converted IRA assets would not themselves be subject to the 3.8 percent surtax. However the surtax would apply to any investment income the taxpayer has. Such investment income would include items such as (but not limited to) dividends, rents, royalties, interest, except municipal-bond interest, capital gains, and income from the sale of a principal residence worth more than the $250,000/$500,000 exclusions.

Undoing a conversion. You might be asking what would happen if you convert to a Roth IRA in 2012 and then Congress extends the current tax rates. In such cases, you would have until October 15, 2013 to undo the transaction. You could put the money back into your traditional IRA as if you had never converted in the first place. In other words, there would be no taxable event.

2010 conversion and deferral. Taxpayers who already converted their traditional IRA to a Roth IRA in 2010 were given a one-time privilege of deferring half of the income from the conversion to 2011 and the other half until 2012. If taxpayers elected to defer their IRA conversion income in this way, the 2012 tax year has arrived. They must report that second half of their conversion income on their 2012 tax returns. If you are a taxpayer who must report income from a previous Roth IRA conversion in 2012, it might not be in your best interest to generate additional income by converting yet another IRA before the year ends.

Contributions. The 2012 year-end will also bring several changes to the rules on IRA contributions, which may affect your planning. In 2013, the limits on maximum annual contributions to an IRA will go up from $5,000 to $5,500 ($6,500 for contributors age of 50 and over, up from $6,000 in 2012). This increase in contribution limits is the first time the IRS has adjusted the limit since 2008.

The adjusted gross income level at which taxpayers must begin to phase-out their contributions will also go up in 2013:

Income levels for a traditional IRA contribution




$59,000 to $69,000

$58,000 to $68,000

Married (filing jointly)*

$95,000 to $115,000

$92,000 to $112,000

Married (filing jointly)**

$178,000 to $188,000

$173,000 to $183,000

*If the spouse who makes the IRA contribution is covered by a workplace retirement plan.
**If the contributing spouse is not covered by a workplace retirement plan, but is married to a spouse who is covered.


Income levels for a Roth IRA contribution




Singles $112,000 to $127,000 $110,000 to $125,000
Married (filing jointly) $178,000 to $188,000 $173,000 to $183,000

However, tax planners should note that the deadline for making IRA contributions for the 2012 tax year remains unchanged. You still have until your filing date, which is April 15, 2013, to make contributions for 2012.