7 Ways an Excess IRA Contribution Can Happen to You

Excess IRA ContributionsNot all contributions to IRAs belong there. When a contribution is not permitted in an IRA, it is an excess contribution and needs to be fixed. Some excess contributions are easy to understand. Others may be a bit trickier to grasp. Here are 7 ways an excess IRA contribution can happen to you:

1. Blowing Past the Annual Limit

If you contribute more than the annual limit to an IRA for the year that will be an excess contribution. For 2018, the limit is $5,500 for those under age 50 and $6,500 for those who are age 50 or over. This may seem like an easy rule to follow. You may wonder who is go spouse’s taxable compensation to fund your IRA, you may not use a multitude of different income sources including social security, rental income and investment income. You may have a high income, but not be eligible to fund an IRA. If you go ahead anyway, the result is an excess IRA contribution.

Continue reading

3 Investing Mistakes to Avoid with Your IRA

Beware of making these 3 IRA investing mistakes …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 Excess contributions can be withdrawn, and eligible IRA or Roth IRA contributions can be recharacterized as being made to a traditional IRA, and vice versa.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 

12 IRS Tax Tools

IRS Tax ToolsDid 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.

Continue reading

Tax Law Updates to 529 Educational Plans

529 Educational Plans Should Be Gaining in Popularity

529 Educational PlansNow that the dust has settled and the tax code has been “reformed,” it’s time to unpack those changes and analyze how best they can help you. One of the changes was the expansion of 529 educational plans. Under the Tax Cuts and Jobs Act, eligible expenses include up to $10,000 per person per year for K-12 educational expenses. Given the popularity and rising costs of private education, and the state income tax breaks associated with many of these accounts, 529 educational plans should see a spike in popularity.

529 Plans – A Quick Overview

529 plans were created by Congress in the mid 1990s as way for families to save money for college education expenses, which at that time had just begun to skyrocket. There are two types of 529 plans: a prepaid plan and a savings plan. We will focus on the savings plans because they are most prevalent. If you understand how a Roth IRA works, you should have a pretty good idea of how a 529 savings plan works. A 529 plan is an investment account funded with after-tax money. The earnings grow tax-free and the withdrawals are tax and penalty free as long as they are qualified. Even better, some states provide state income tax deductions for contributions! Currently, 34 states offer some type of deduction or credit for 529 plan contributions.

Continue reading

Tax Reform is Here!

2018 tax reformWhat Tax Reform Means to You

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. This far-reaching piece of legislation will overhaul the tax code. But what does the tax reform mean for you and your retirement plan? Here are some highlights.

Big Changes

Tax reform keeps seven tax brackets and lowers the top rate to 37% for individuals. The Alternative Minimum Tax (AMT) has been scaled way back. The standard deduction is doubled to $12,000 for singles and $24,000 for those who are married, filing jointly, and the child credit has been expanded. Personal exemptions are suspended.

Many popular deductions have been eliminated or scaled back. The state and local tax deduction is limited to $10,000, and the mortgage interest deduction will be limited to the first $750,000 in mortgage interest debt for new home purchases.

These changes, like most of the changes tax reform brings for individuals, are scheduled to sunset after 2025. Tax reform also brought sweeping reform to corporate taxation. Changes on the corporate side, unlike the individual side, are permanent.

Continue reading

Qualified Charitable Distribution – Tell Your CPA About It

By Beverly DeVeny, Ed Slott and Company, LLC

Qualified Charitable DistributionDid you do a Qualified Charitable Distribution (QCD) last year? Make sure the tax preparer knows about it.

The IRA custodian is not required to report a QCD transaction on Form 1099-R. Instead, it will show up as a regular distribution to the IRA owner. A regular distribution is normally a taxable event. A tax preparer, especially at this time of year, will simply look at the 1099-R and include the entire amount in the IRA owner’s income where it will become taxable.

Continue reading

Calculating the Pro-Rata Rule in 5 Easy Steps

What is the pro-rata rule?

Calculating the Pro-Rata Rule The pro-rata rule is the formula used to determine how much of a distribution is taxable when the account owner holds both after-tax and pre-tax dollars in their IRA(s). For the purposes of the pro-rata rule, the IRS looks at all your SEP, SIMPLE, and Traditional IRAs as if they were one. Even if you have been making after-tax contributions to a separate account for years, and there have been no earnings, you cannot isolate your after-tax amounts and must take your other IRAs into consideration.

Continue reading

3 Essential Questions to Ask When Preparing a Power of Attorney for an IRA

documentGiving another person the ability to make significant financial decisions and/or take actions on your behalf is not an easy thing to do. That said, various situations may arise where you no longer want to, or are able to, manager your own finances. In such cases, you want to make sure someone else can act on your behalf.

Typically, this is done via what’s known as a Power of Attorney (POA) document. This form, which is generally prepared by an estate planning attorney, grants a person – known as your attorney-in-fact (or agent – the ability to step into your shoes and make what are often critical and important decisions.

Clearly, great thought should be given to whom you name as your attorney-in-act. All too often through, that’s where the thought stops. In reality, a commensurate level of thought and discussion should take place regarding the document itself and the provisions that are incorporated into your POA.

Continue reading

C&J Roundtable Recaps First Quarter 2015 Market Trends

by Scott Smith, CIMA®

C&J Wealth AdvisorsThank you to those who attended our quarterly client roundtable last month recapping first quarter 2015 market trends. We appreciate the opportunity to engage and educate clients on topics important to them. For those who were unable to attend the client roundtable, a brief summary of our discussion is shown below.

• Monetary policy from the Federal Reserve has been a major driver of equity market returns in recent years and is the reason why equity markets have gained disproportionately to the overall economy and corporate earnings.

Continue reading

Recap of the 50th Annual Berkshire Hathaway Shareholders Meeting

50 Years of Profitable Partnership

By Scott Smith, CIMA®

Berkshire Hathaway

I recently had the privilege of attending the 50th annual Berkshire Hathaway shareholders meeting in Omaha, Nebraska. A friend and I arrived about 20 minutes after the CenturyLink Center door’s opened at 7:00 in the morning. By the time we found a seat, we were in the second to last row of the upper deck. Needless to say, there was a buzz and excitement in the air.

Continue reading