Insights: The C&J Blog
We offer clients educational insights that help them make sense of the current market & economic environment. Each monthly investment letter is written by our investment analyst and contains candid insight and perspective that facilitates a clearer and deeper understanding of our views. Alongside our monthly investment letters, we also maintain a blog that touches on a variety of topics relating to financial planning and investing. If there is a question or topic on your mind that you’d like for us to discuss in a future investment letter, feel free to let us know at email@example.com.
A Health Savings Account is a tax-advantaged medical savings account that helps people pay for qualified out-of-pocket medical expenses. What are the withdrawal rules for HSAs? Are there special considerations that must be taken into account.
1. Withdrawals can be taken at any time. There is no holding period like with Roth IRAs. The entire withdrawal (including any earnings) is tax-free as long as there is a corresponding qualified medical expense. The medical expense must be incurred by either the owner or his or her spouse or dependents. Additionally, the medical expense does not need to occur in the same taxable years as the withdrawal. Instead, the medical expense must simply occur before the withdrawal is made.
What are 72(t) payments?
72(t) payments are a series of substantially equal periodic payments made from an IRA that can be used to avoid the 10% penalty for early distributions. Payments must last the greater of 5 years or until the IRA owner reaches age 59½. When using a 72(t) schedule, a number of changes are prohibited. If these changes occur, the 10% penalty (and interest) is applied retroactively to all distributions made prior to age 59½.
Don’t Make These Three IRA Investing Mistakes
1. Late Investments
If you waited until the last minute in 2018 to make an IRA contribution for 2017, you missed earning up to 15 months of pre-tax investment returns on your contribution.
Avoid the mistake by making your IRA contribution for 2018 now. This will provide an additional year’s worth of pre-tax investment returns that you will receive pre-tax compounding for potentially decades to come, until they are finally distributed. And you’ll get these extra returns for every year that you make your contribution early, rather than late.
Don’t sweat a mistake! If it later turns out that you are ineligible to make the contribution, you can fix the error without penalty up to October 15th of the year after the year for which the contribution was made. Excess contributions can be withdrawn, and eligible IRA or Roth IRA contributions can be recharacterized as being made to a traditional IRA, and vice versa.
Are you a good Roth conversion candidate?
When you do a Roth conversion, your pre-tax funds will be included in your income in the year of the conversion. This will increase your income for the year of the conversion, which may impact deductions, credits, exemptions, phase-outs AMT alternative minimum tax), the taxation of your Social Security benefits and more.
The trade-off is the big tax benefit down the road. But, a Roth conversion isn’t for everyone. Make an appointment to answer these questions together before going through with a conversion.
Beware of making these 3 IRA investing mistakes …
1. Late Investments
If, like so many people, you made your IRA contribution for 2017 only recently in 2018, just before the 2017 tax return filing deadline, you missed earning up to 15 months of pre-tax investment returns on your contribution.
Don’t repeat that mistake. Make your IRA contribution for 2018 now. This will provide an additional year’s worth of pre-tax investment returns compared to making the contribution at the last moment in April 2019. You will also get pre-tax compounding on these extra returns for potentially decades to come, until they are finally distributed. And you’ll get these extra returns for every year that you make your contribution early, rather than late.
Don’t worry about making a mistake. If it later turns out that you are ineligible to make the contribution, you can fix the error without penalty up to October 15th of the year after the year for which the contribution was made. Excess contributions can be withdrawn, and eligible IRA or Roth IRA contributions can be recharacterized as being made to a traditional IRA, and vice versa.
Continue Reading …
One of the many issues facing self-employed individuals is how to save for retirement. One option is to open a traditional or Roth IRA. However, the annual maximum contribution is low in terms of retirement planning. In 2018, it’s $5,500 if you are under age 50 or $6,500 if you are age 50 and over. The self-employed often look to adopt employer-sponsored retirement plans. While there are a number of options, the Solo 401(k) is one of the most popular arrangements. Not only does the Solo 401(k) produce higher contribution levels than other arrangements, but employer contributions are tax deductible! There are pros and cons for retirement savings for the self-employed.
What are Spousal IRAs & Who Can Contribute to One?
Spousal IRAs are designed to allow a working spouse to make IRA contributions for a spouse who does not have enough earned income to make their own IRA contributions.
There are some key requirements that must be met:
- The spouses must be legally married and file a joint federal tax return. This includes same-sex couples.
- The spouse receiving the contribution must have less compensation, or no compensation, than the spouse making the contribution.
- The IRA account must be held in the name of the spouse for whom the contribution is made. If Gina is the working spouse and the contribution is made for George, then the IRA account must be in George’s name. George has complete control over the IRA account. He can name his own beneficiaries, invest the funds as he wishes, and take withdrawals whenever he wants.
Did you know there are free IRS Tax Tools that can help minimize your tax bill and manage your taxes all year round? Most taxpayers are unaware of them. The are located on their website.
Here are a 12 of the best IRS tax tools including links.
1. IRS Audit Technique Guides
These are the same guides that IRS tax examiners use when conducting an audit. The Freedom of Information Act require the IRS to provide these audit guides
These guides can be very helpful in aligning your 2017 tax return with audit guidelines. It can also help you eliminate audit risk by having better knowledge of the law and IRS rules and procedures.
More than 50 audit guides are available on the IRS web site for free download. They cover topics including: Executive Compensation, Lawsuit Awards and Settlements, Business Consultants, Architects, Attorneys, Cash Intensive Businesses, Golden Parachutes, Split Dollar Life Insurance, Veterinary Medicine, the Wine Industry, and dozens more.
Do you think you understand all the rules that govern your Roth IRA? Not so fast! There are many misconceptions as to how these complicated accounts work. Here are 5 Roth IRA facts that might surprise you:
1. You are never too old to contribute. If you have earned income and your modified adjusted gross income is below a certain level, you can contribute to a Roth IRA. Your age does not matter. This often comes as a surprise to taxpayers because you cannot contribute to a traditional IRA once you reach the year you turn 70 ½. Roth IRAs are different. Age is never a barrier to making tax year contributions.
Here are six things to know about investing IRA funds in Bitcoin.
Bitcoin is receiving a surge of publicity as a possible IRA investment, and a number of new firms have recently started targeting the “Bitcoin IRA” market.
1. There is no such thing as a “Bitcoin IRA.” Although the term is often seen in the media and advertising, there is no such thing any more than there are “stock market IRAs.” Legally, a “Bitcoin IRA” is simply an IRA like any other, except that its custodian permits investments in Bitcoin.
2. Bitcoin is not an “IRS Approved” investment. This claim is frequently made in advertising, but the IRS does not approve investments. In fact, the IRS has issued a notice specifically to IRA owners headlined “The IRS Does Not Approve IRA Investments” and warning against what it calls the “Fraudulent ‘IRA Approved’ Sales Pitch.”
IRAs can invest in Bitcoin simply because they are allowed to invest in almost anything except collectibles and life insurance. When the term “IRS Approved” misleadingly implies some sort of endorsement, it may cast doubt on the bona fides of the party making the claim. The IRS warns: “Avoid any investment touted as ‘IRA Approved’ or otherwise endorsed by the IRS.”