Tag Archives: ROTH IRA

Year-End IRA Reminders

Individual Retirement Accounts are an important way to save for retirement. If you have an IRA or may open one soon, there are some key year-end rules that you should know. Here are the top four reminders on IRAs from the IRS:

1. Know the limits.  You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. In some cases, you may need to reduce your deduction for traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2015, to make an IRA contribution for 2014.

2. Avoid excess contributions.  If you contribute more than the IRA limits for 2014, you are subject to a six percent tax on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2014 tax return (including extensions).

3. Take required distributions.  If you’re at least age 70½, you must take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2014. That deadline is April 1, 2015, if you turned 70½ in 2014. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax on the RMD amount you failed to take out.

4. Claim the saver’s credit.  The formal name of the saver’s credit is the retirement savings contributions credit. You may qualify for this credit if you contribute to an IRA or retirement plan. The saver’s credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000, or $2,000 for married couples. The credit you receive is often much less, due in part because of the deductions and other credits you may claim.

Please contact Tax On Wheels, LLC if we may be of assistance to you in determining IRA related calculations.  We can be reached at 803 732-4288.

Retirees Face April 1 Deadline For Retirement Plan Distributions

WASHINGTON — The Internal Revenue Service reminds taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014.

The April 1 deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2013 and receives the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014.

Affected taxpayers who turned 70½ during 2013 must figure the RMD for the first year using their life expectancy on Dec. 31, 2013 and their account balance on Dec. 31, 2012. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the Appendices to Publication 590.

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who turned 71 in 2013, for example, the first required distribution would be based on a life expectancy of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2014. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2014 RMD, this amount would be on the 2013 Form 5498 that is normally issued in January 2014.

More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov or you may contact Tax On Wheels, LLC at 803 732-4288 for tax help with your retirement plan distributions.

2014 IRA Deadlines Are Approaching

Here is what you need to know for 2014

 Provided by Milton Cooley

 Financially, many of us associate April with taxes – but we should also associate April with important IRA deadlines.

 *April 1 is the absolute deadline to take an initial IRA Required Mandatory Distribution (RMD).

*April 15 is the deadline for making annual contributions to a traditional or Roth IRA.1,2,7

Let’s discuss the contribution deadline first, and then the deadline for that first RMD (which affects only those IRA owners who turned 70½ last year).

The earlier you make your annual IRA contribution, the better. You can make a yearly Roth or traditional IRA contribution anytime between January 1 of the current year and April 15 of the next year. For example, you can make your IRA contribution for 2014 anytime from January 1, 2014-April 15, 2015.  The IRA contribution window for 2013 is January 1, 2013- April 15, 2014.1

So you have more than 15 months to make your IRA contribution for a given year. But why wait? Savvy IRA owners pour new money into their accounts each January – as early as they can – to give those dollars more months to grow and compound. (After all, who wants less time to amass retirement savings?)

You cut your income tax bill by contributing to a deductible traditional IRA. That’s because you are funding it with after-tax dollars. To get the full tax deduction for a 2014 traditional IRA contribution, you have to meet one or more of these financial conditions:

*You aren’t eligible to participate in a workplace retirement plan.

*You are eligible to participate in a workplace retirement plan, but you are a single filer with adjusted gross income of $59,000 or less. (Or if you file jointly with your spouse, your combined AGI is $95,000 or less.)

*You aren’t eligible to participate in a workplace retirement plan, but your spouse is eligible and your combined 2014 gross income is $178,000 or less.2,3

If you are the initial owner of a traditional IRA, by law you are required to stop making contributions to that IRA starting in the year you turn 70½. If you are the initial owner of a Roth IRA, you can contribute to it as long as you live.4

If you are making a 2013 IRA contribution in early 2014, be aware of this fact. You must tell the investment company hosting the IRA account what year the contribution is for. If you fail to indicate the tax year that the contribution applies to, the custodian firm may make a default assumption that the contribution is for the current year (and note exactly that to the IRS).1

So, write “2014 IRA contribution” or “2013 IRA contribution” as applicable in the memo area of your check, plainly and simply. Be sure to write your account number on the check. Should you make your contribution electronically, double-check that these details are communicated.

How much can you put into an IRA this year? You can contribute up to $5,500 to a Roth or traditional IRA for the 2014 tax year (just as you could for the 2013 tax year). If you have multiple IRAs, you can contribute up to a total of $5,500 across the various accounts. Should you contribute in excess of $5,500, you will not be rewarded for it: you have until the following April 15 to correct the contribution with the help of an IRS form, and if you don’t, the amount of the excess contribution will be taxed at 6% each year the correction is avoided.5

If you earn a lot of money, your maximum contribution to a Roth IRA may be reduced because of MAGI phase-outs, as follows.6

2013 Tax Year                                                                    2014 Tax Year

Single/head of household: $112,000-127,000              Single/head of household: $114,000-129,000

Married couples: $178,000-188,000                              Married couples: $181,000-191,000

You can’t make a Roth IRA contribution if you are married filing separately with MAGI of $10,000 or more and lived with your spouse in any part of a year.6

A last-chance RMD deadline rolls around on April 1. If you turned 70½ in 2013, the IRS gave you a choice: you could a) take your first Required Minimum Distribution from your traditional IRA before December 31, 2013, or b) postpone it until as late as April 1, 2014.7

If you chose b), you will have to take two RMDs this year – one by April 1, 2014 and another by December 31, 2014. (For subsequent years, your annual RMD deadline will be December 31.) The investment firm hosting your IRA should have already notified you of this consequence, and the RMD amount(s) – in fact, they have probably calculated the RMD(s) for you.7

Original owners of Roth IRAs will never face this issue – they are not required to take RMDs.7

Milton Cooley may be reached at 803 732-4288

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – taxmap.ntis.gov/taxmap/pubs/p590-005.htm [1/16/14]

2 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Tax-Tips-After-January-1–2014/INF12070.html [3/8/13]

3 – money.cnn.com/retirement/guide/IRA_traditional.moneymag/index2.htm [1/16/14]

4 – money.cnn.com/retirement/guide/IRA_Roth.moneymag/index3.htm [1/16/14]

5 – finance.yahoo.com/news/over-contributed-ira-401-k-151500104.html [1/2/14]

6 –  irs.gov/publications/p590/ar01.html [2013]

7 – foxbusiness.com/personal-finance/2014/01/02/missed-your-ira-rmd-deadline-here-what-to-do/ [1/2/14]

IRS Reminds Taxpayers to Report 2010 Roth Conversions on 2012 Returns

WASHINGTON — The Internal Revenue Service reminds taxpayers who converted amounts to a Roth IRA or designated Roth account in 2010 that in most cases they must report half of the resulting taxable income on their 2012 returns.

Normally, Roth conversions are taxable in the year the conversion occurs. For example, the taxable amount from a 2012 conversion must be included in full on a 2012 return. But under a special rule that applied only to 2010 conversions, taxpayers generally include half the taxable amount in their income for 2011 and half for 2012, unless they chose to include all of it in income on their 2010 return.

Roth conversions in 2010 from traditional IRAs are shown on 2012 Form 1040, Line 15b, or Form 1040A, Line 11b. Conversions from workplace retirement plans, including in-plan rollovers to designated Roth accounts, are reported on Form 1040, Line 16b, or Form 1040A, Line 12b.

Taxpayers who also received Roth distributions in either 2010 or 2011 may be able to report a smaller taxable amount for 2012. For details, see the discussion under 2012 Reporting of 2010 Roth Rollovers and Conversions on IRS.gov. In addition, worksheets and examples can be found in Publication 590 for Roth IRA conversions and Publication 575 for conversions to designated Roth accounts.

Taxpayers who made Roth conversions in 2012 or are planning to do so in 2013 or later years must file Form 8606 to report the conversion.

As in 2010 and 2011, income limits no longer apply to Roth IRA conversions.

Please contact Tax On Wheels, LLC aat 803 732-4288 if you need assistance with your ROTH Conversion.