The tax deal reached by Congress and the President in December included a provision which retroactively extends the ability of taxpayers to contribute tax-free to authorized charities from their IRA (up to $100,000). The issue that is unique with the charitable IRA rollover is that because the bill wasn't passed until mid-December, but is retroactive to January 1, 2010, Congress gave taxpayers the ability to elect to treat a charitable rollover made in January 2011 as if it were made on December 31, 2010. There is only a short window of opportunity to take advantage of the incentive.
Showing posts with label Retirement. Show all posts
Showing posts with label Retirement. Show all posts
Tuesday, January 25, 2011
January 31 Deadline for Charitable IRA Rollovers
Eligible taxpayers still have a few more days to make tax-free contributions to charities from an IRA. This provision had expired on December 31, 2009, but was renewed for 2010 in the tax bill passed by Congress last month. The National Association of Enrolled Agents has more coverage, from one of their weekly news updates for members:
Thursday, November 4, 2010
Required Minimum Distributions
I've received a few questions recently about "required minimum distributions" (RMDs), so I will address the basics of RMDs in this article.
If you're over age 70 1/2, you may be required to take an RMD from your retirement accounts. Non-spouse beneficiaries who inherit IRAs or 401(k) funds may also be subject to RMD rules BEFORE the beneficiary turns 70 1/2.
The RMD is calculated using actuarial tables found in IRS Publication 590. Different tables are used for different situations. Most people will use the "Uniform Lifetime Table" for age 70 1/2 RMDs, but that's not always the case.
The RMD must generally be taken by December 31st of each year. There is an exception for the year of the first RMD, when the RMD must be taken by April 15th of the following year.
For 401(k) and other employer-provided retirement plans, people over age 70 1/2 do NOT have to take an RMD if they are still working (unless the person is a greater-than-5% owner, in which case they DO have to take the RMD even if still working). This does not apply to IRAs; you must take an RMD from your IRA even if you're still working.
One important note: Roth IRAs are NOT subject to RMD rules, but Roth 401(k) money IS subject to RMD rules.
If you don't take the RMD, you can be subjected to a 50% excise tax.
RMDs can be simple, but they can also be very complex, especially for non-spouse beneficiaries or for married people where there is more than a 10-year difference in age between the two spouses. It is best to consult a tax or investment professional to make sure the RMD is calculated correctly.
DISCLAIMER: The above information does NOT constitute tax advice and is presented for general informational purposes only. Please consult a tax or investment professional to discuss your unique situation.
If you're over age 70 1/2, you may be required to take an RMD from your retirement accounts. Non-spouse beneficiaries who inherit IRAs or 401(k) funds may also be subject to RMD rules BEFORE the beneficiary turns 70 1/2.
The RMD is calculated using actuarial tables found in IRS Publication 590. Different tables are used for different situations. Most people will use the "Uniform Lifetime Table" for age 70 1/2 RMDs, but that's not always the case.
The RMD must generally be taken by December 31st of each year. There is an exception for the year of the first RMD, when the RMD must be taken by April 15th of the following year.
For 401(k) and other employer-provided retirement plans, people over age 70 1/2 do NOT have to take an RMD if they are still working (unless the person is a greater-than-5% owner, in which case they DO have to take the RMD even if still working). This does not apply to IRAs; you must take an RMD from your IRA even if you're still working.
One important note: Roth IRAs are NOT subject to RMD rules, but Roth 401(k) money IS subject to RMD rules.
If you don't take the RMD, you can be subjected to a 50% excise tax.
RMDs can be simple, but they can also be very complex, especially for non-spouse beneficiaries or for married people where there is more than a 10-year difference in age between the two spouses. It is best to consult a tax or investment professional to make sure the RMD is calculated correctly.
DISCLAIMER: The above information does NOT constitute tax advice and is presented for general informational purposes only. Please consult a tax or investment professional to discuss your unique situation.
Friday, October 29, 2010
IRS Releases Retirement Plan Limits for 2011
The contribution limits to IRAs and other retirement plans will stay the same in 2011 as they were in 2010. The contribution limit to an IRA will remain at $5,000 for people under the age of 50, and $6,000 for people age 50 and older. The contribution limit to a 401(k) plan will remain at $16,500 for those under the age of 50, and $22,000 for those age 50 and older.
Wednesday, October 27, 2010
Roth Conversions
The rules on converting a traditional IRA to a Roth IRA have been relaxed for 2010, opening the door to more taxpayers to make this conversion.
Contributions to a traditional IRA are generally tax deductible. Distributions from a traditional IRA are generally considered to be taxable income.
Contributions to a Roth IRA are post-tax, meaning you get no tax deduction when you make a contribution. However, distributions from a Roth IRA are generally tax-free.
Taxpayers have always been able to convert a traditional IRA to a Roth IRA, but only if their income was less than $100,000. For 2010, the income limitation has been removed. Meaning, anyone can now convert a traditional IRA to a Roth IRA. And, a bill was recently signed into law that allows Roth conversions within 401(k) plans as well.
When you make a conversion, the money in your traditional IRA/401(k) is treated as being distributed to you, so you’ll have to claim it as income and pay tax on it. For 2010 conversions only, you will have the option of claiming half of the amount as income in 2011 and the other half as income in 2012.
Example:
John has $40,000 in a traditional IRA account that he wants to convert into a Roth IRA in 2010. John will have to claim the $40,000 as income on his tax return. He can elect to claim all $40,000 on his 2010 return, or claim $0 in 2010, $20,000 in 2011 and $20,000 in 2012.
The upside to a Roth conversion is that a Roth account will provide you with tax-free income at retirement. That being said, the decision on whether to convert a traditional IRA/401(k) to a Roth account is complex and involves many variables. In general, a Roth conversion is advisable if think you will be in the same or higher tax bracket at retirement, you have a long time to go before retirement, and if you can afford to take the current tax hit. You should consult with both a tax advisor such as me, and your investment advisor, before making a final decision on whether to convert.
Contributions to a traditional IRA are generally tax deductible. Distributions from a traditional IRA are generally considered to be taxable income.
Contributions to a Roth IRA are post-tax, meaning you get no tax deduction when you make a contribution. However, distributions from a Roth IRA are generally tax-free.
Taxpayers have always been able to convert a traditional IRA to a Roth IRA, but only if their income was less than $100,000. For 2010, the income limitation has been removed. Meaning, anyone can now convert a traditional IRA to a Roth IRA. And, a bill was recently signed into law that allows Roth conversions within 401(k) plans as well.
When you make a conversion, the money in your traditional IRA/401(k) is treated as being distributed to you, so you’ll have to claim it as income and pay tax on it. For 2010 conversions only, you will have the option of claiming half of the amount as income in 2011 and the other half as income in 2012.
Example:
John has $40,000 in a traditional IRA account that he wants to convert into a Roth IRA in 2010. John will have to claim the $40,000 as income on his tax return. He can elect to claim all $40,000 on his 2010 return, or claim $0 in 2010, $20,000 in 2011 and $20,000 in 2012.
The upside to a Roth conversion is that a Roth account will provide you with tax-free income at retirement. That being said, the decision on whether to convert a traditional IRA/401(k) to a Roth account is complex and involves many variables. In general, a Roth conversion is advisable if think you will be in the same or higher tax bracket at retirement, you have a long time to go before retirement, and if you can afford to take the current tax hit. You should consult with both a tax advisor such as me, and your investment advisor, before making a final decision on whether to convert.
Subscribe to:
Posts (Atom)
