Tag Archive for Retirement

Saver’s Credit Can Help You Save For Retirement

Low- and moderate-income workers can take steps to save for retirement and earn a special tax credit.

The saver’s credit, also called the retirement savings credit, helps offset part of the first $2,000 workers voluntarily contribute to traditional or Roth Individual Retirement Arrangements (IRAs), SIMPLE-IRAs, SEPs, 401(k) plans, 403(b) plans for employees of public schools and certain tax-exempt organizations, 457 plans for state or local government employees, and the Thrift Savings Plan for federal employees. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply as a result of contributing to retirement plans. Read More

Written by | Posted in Individual • Retirement • Tax Planning

Tax Implications of Retiring Overseas

Are you approaching retirement age and wondering where you can retire to make your retirement nest egg last longer? Retiring abroad may be the answer. But first, it’s important to look at the tax implications because not all retirement country destinations are created equal. Here’s what you need to know.

Taxes on Worldwide Income

Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. This would be the case even if all of their assets were moved to a foreign country. The bottom line is that you may still be taxed on income Read More

Written by | Posted in Individual • International • Retirement

Unrelated Business Taxable Income For An IRA

In a previous article, we discussed the concept of Unrelated Business Taxable Income (UBTI) as it relates to non-profit organizations. If you have a self-directed IRA, you may be surprised to know that UBTI may also apply to your IRA. An IRA is a tax-exempt entity, under IRS rules. Note that the IRA itself is the tax exempt entity and the tax would be paid by the IRA, not the owner of the IRA.

The basic rules for UBTI in an IRA are pretty much the same as for any non-profit organization, but there are a couple of issues that may be encountered more commonly with an IRA. If a non-profit entity has UBTI, it will be subject to tax on that income at the applicable corporate rates. The purpose of this is to level the playing field for for-profit entities that must pay tax on their income. Read More

Written by | Posted in Non-Profit Tax • Retirement

2015 Pension Plan Limitations

IRS Announces 2015 Pension Plan Limitations; Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015

According to IRS Newswire, on October 23, 2014, Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015. Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment. Read More

Written by | Posted in Individual • IRS • Retirement • Small Business

IRS Clarifies Application of One-Per-Year Limit On IRA Rollovers, Allows Owners of Multiple IRA’s A Fresh Start In 2015

If you have an IRA beware of this new rule that limits the number of IRA Rollovers that are not “trustee to trustee” to one per year.

When you receive a distribution from a traditional IRA or your employer’s plan, you would normally report it as income unless you rollover that distribution to another IRA no later than 60 days after the day you receive the distribution from your traditional IRA or your employer’s plan. In the absence of a waiver or an extension, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer’s plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions as discussed later under Early Distributions. Read More

Written by | Posted in Retirement • Tax Planning • Tax Tips

“MyRA”… A New Retirement Buzz Word Or A Dud?

President Obama signed a presidential memorandum in January of 2014 directing the Dept of Treasury to create “myRA”. The memorandum states myRA to be a “a new simple, safe and affordable “starter” retirement savings account that will be initially offered through employers and will ultimately help low and moderate income Americans save for retirement”.

The proposal is that beginning in late 2014, with this retirement savings account individuals will be able to open accounts and begin contributing to them every payday. myRAs will be initially offered through employers, balances will never go down, and there will be no fees. myRAs will hold a new retirement savings bond that will be backed by the U.S. Treasury. Read More

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40% of Big Firm Partners Retiring Within Decade

High Net Wealth Partners Retiring

On April 28, 2014 The American Lawyer published its annual (2014) Big Law report in which it found that 16% of partners in the US’ largest 200 law firms by revenue are 60 years old or older, with at least 8% 65 or older.  These 16% of big firm partners will be retiring over the next five years.  Moreover, right behind this retiring group are 28% more partners that have reached at least 50 years of age.

While these thousands of retiring partners leading up to retirement may have been earning between $750,000 and $3 million annually, most also have lifestyles that correspond to spending this level of income.  These retiring partners are now asking Read More

Written by | Posted in Estate Planning Tax • Individual • Retirement

Retirement

Let’s face it, we all know this country is facing a retirement crisis. The first of the Baby Boomers turned 65 and started retiring in 2011. The number of Boomers retiring each year will rise rapidly over the next decade or more. Before the end of this decade, Boomers will be turning age 65 at the rate of 8,000 per day.

This massive retirement of Baby Boomers will stretch our health care and health delivery systems to the max and beyond. Our public safety net – entitlements – has long been poorly managed, ill-thought-out and threadbare. Imagine what will happen as tens of millions of Boomers retire.

Yet the worst part of all is that so few people or families have saved anywhere near enough Read More

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Retirement Plan Recharacterization – Part III

Lessons I’ve Learned

The following are some important lessons I’ve learned in defending (and preparing) tax returns for people who engaged this concept of recharacterization:

1. Generally, both the election to recharacterize and the transfer must take place on or before the due date for filing the tax return for the year for which the contribution or conversion was made to the first IRA.

2. To add even more salt to the water special procedures are available that allow someone who has already filed a timely tax return to recharacterize contributions for up to six months after his or her tax return’s due date exclusive of extensions. Read More

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Retirement Plan Recharacterization – Part II

Transfer of Allocable Earnings

One of the more difficult aspects of recharacterization for taxpayers to pick up on is the fact that if you recharacterizes a contribution or a Roth IRA conversion amount you must include in the transfer any earnings allocable to the contribution or conversion being recharacterized according to Reg. Sec. 1.408A-5.

If you recharacterize a contribution you must include in the transfer any earnings allocable to the contribution. If there was a loss, the amount transferred must be reduced by the amount of the loss. In most cases, the amount of the earnings that needs to be transferred is determined by the IRA trustee or custodian. Read More

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Estate Planning Part 3 – Old Age

TaxConnections Blog Picture After a lifetime of working, retirement sounds like it would be fun.  When you get to retirement there are lots of changes in your life and one of them should be your estate planning.  At this point your kids are grown and maybe you have grandchildren.  Reworking your will and trusts to include grandchildren and account for other changes in the family can be important.

Gifting can play a major role in your estate planning.  In Minnesota, the estate and gift exemptions are only $1M so annual gifts can be useful in keeping an estate under the $1M threshold.  A couple of kids plus spouses, plus a few grandchildren can make for a big gifting base.  In 2013 you can gift $14,000 to each person without filing a gift tax return.  If you are so inclined, you could gift $14,000 to each person and quickly reduce the assets in your estate.

Another way to change your estate planning is to change the beneficiary designations on your retirement plan accounts.  IRAs and 401ks can be a great way to skip generations in your estate planning.  When a non-spousal beneficiary receives an IRA or 401k from an estate, they are required to make minimum distributions each year.  Those minimum distributions are based on the age of the beneficiary.  A 55 year-old child that inherits an IRA will need to withdraw 3.4% each year, while a 25 year-old grandchild only has to withdraw 1.7% each year.  That can make a huge difference over time as the account grows tax free.  Each family situation is different and the needs of the family and each beneficiary can vary, but it’s important to update your estate planning at each stage of your life.

Written by | Posted in Estate Planning Tax • IRS

Saving And Budgeting Is A Science

Saving money can be a tricky proposition for many people.  The first step to saving is creating a budget  –   a detailed budget.  This is not a guestimate based on your recollection of prior month expenses; this needs to be an exact science.  First figure out your monthly income and then take out the taxes (payroll and income taxes).  If your withholding doesn’t cover your tax liability each year, consider changing your withholding so the monthly withholding covers all your taxes for the year.  From there I like to set aside savings.  Retirement may be 40 years in the future or it might be just around the corner, but saving for retirement is always one of my top priorities.

The tax code allows you some choices when saving for retirement.  Most employers offer a 401(k) plan and at least a partial match of your contributions.  If the employer is willing to match 6% of your salary, then the first place to save is 6% of your salary.  If you don’t, you are leaving money on the table right off the bat.  Nowadays many employees can choose between the Roth and traditional 401(k)s  –   the Roth/traditional works like the IRAs.  For a traditional you get a tax deduction when you put the money in, but it is taxed when you take it out in retirement.  For a Roth, the money is not deductible when it goes in and then it is not taxed when it comes out in retirement.  I prefer the Roth for most people, but to each their own depending upon the circumstances.  Keep in mind that you can make both a 401(k) and an IRA contribution.  Sometimes people think it is one or the other, but you can do both. Read More

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