When it comes time to rollover your employer 401(k), what are your best options? Most think the best solution is to rollover your plan to an IRA. Here are six options to evaluate before making a decision. These are available to plans with employees – not all options will apply to sole proprietor plans. Most options will not apply to SEP and SIMPLE plan participants.
1. Rollover to an IRA. There are a lot of benefits to this option. Rolling over to an IRA is a tax-free transaction when a direct rollover is used to move the funds. IRAs have more investment choices and are more flexible when it comes to distributions and financial planning. You generally get better service from your advisors than you will get from the 800 number for the plan.
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.
What is an Health Savings Account (HSA)?
A Health Savings Account is a tax-advantaged medical savings account that can be used tax-free for qualified health expenses. HSAs are designed to be used in conjunction with a High Deductible Health Plan (HDHP). HSAs offer triple tax advantages: contributions are deductible, earnings are tax-deferred while in the HSA, and distributions are tax-free when used for qualified medical expenses.
1. Determine if you are eligible to make an HSA contribution. To be eligible to contribute to an HSA, you must be enrolled in an HDHP. To be an HDHP, a plan must meet certain limits on deductibles and out-of-pocket expenses. These limits are adjusted annually for inflation. You may not contribute to an HSA if you are enrolled in Medicare because Medicare is not an HDHP.
529 Educational Plans Should Be Gaining in Popularity
Now 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.
By Jim Glass, J.D.
This is the season for charitable giving. And this year it is especially so for those who want to get the most tax benefit from charity deductions before new Tax Cuts and Jobs Act becomes law. The Act effectively reduces the tax-saving value of the charitable contribution deduction for many.
While details may change, at this writing the Act increases the standard deduction on joint returns to $24,000 from $12,700, on single returns to $12,000 from $6,350, and eliminates many popular itemized deductions. Because taxpayers claim itemized deductions only when their total exceeds the standard deduction, lawmakers project that under the Act the number of taxpayers who itemize deductions may be reduced by half or more.
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Financial certifications are a commitment to the client’s best interest
You’ve decided to get serious about your financial future and want to find a financial advisor to guide your decisions. There’s a lot to consider in creating a comprehensive financial plan.
Pulling all the pieces of your financial life together—budgeting, retirement planning, saving for education, insurance, taxes, and investing—is a challenging endeavor.
Finding credentialed professionals is essential. Many professionals call themselves financial planners and most people think all financial advisors are “certified,” but this isn’t true. Only those that have fulfilled and maintained the requirements of the CFP Board can display the CFP® trademark and call themselves a CERTIFIED FINANCIAL PLANNER™.
What is a Roth IRA recharacterization?
In the simplest of terms, a Roth IRA recharacterization is an “undo.” It erases a Roth IRA conversion, and the conversion is treated as if it never occurred.
1. Meet the deadline. A Roth IRA conversion can be recharacterized until October 15 of the year after the calendar year of conversion. That means that either a January 1, 2017 or a December 31, 2017 conversion can be recharacterized through October 15, 2018. If you miss the October 15 deadline, the only way to get an extension is to go for a private letter ruling from the IRS.
Calculating Social Security Benefits are a function
of three primary factors.
How Many Years Have You Worked?
The Social Security Administration uses 35 years of earning history
▶ If you worked more than 35 years – it uses the highest 35 years of salary
▶ If you worked less than 35 years – it still uses 35 years of salary (the years you didn’t work count as $0) This rule impacts far more women than men.
Why? Many women took significant time away from work to raise one or more of their children.
IRA owners often want to invest in assets other than the usual stocks, bonds, cash, and mutual funds. The tax code does allow for IRAs to invest in most anything except for collectibles, life insurance, and S-corporation stock. So what do those “other assets” make your IRA worth?
If you invest $1,000 in a publicly traded stock it’s simple to determine the value of the investment at any time. You can look it up on your computer, smart phone, or tablet. But investing in real estate, promissory notes, a start-up business, a master limited partnership, an LLC, or any other investment option, it’s not easy to determine its investment value. Typically, the IRA custodian carries the investment on its books as the amount you originally invested. The value doesn’t change from year to year.
➤ Contributions for Retirement Planning: If you are working, have an employer plan available, and there is an employer match, make sure you are contributing enough to the plan to reach that maximum match level. Don’t forget to make your own IRA or Roth IRA contributions as well. Your participation in the employer plan has no effect on your ability to make those contributions. It could, however, affect the deductibility of your IRA contributions.
➤ Roth IRA Planning: You really want to contribute to a Roth IRA, but (and it’s a big BUT) you exceed the income limits to qualify. You can utilize a strategy called the Back-Door Roth IRA to move funds into a Roth IRA, where they can grow tax-free into retirement.
Don’t forget about Roth conversions for yourself. You can use a strategy called “filling the brackets.” You convert smaller amounts each year to keep yourself from going into a higher tax bracket. When it comes time to do the tax return, maybe some numbers have changed and you converted too much. No problem! You have until October 15 to recharacterize all or part of your Roth conversion. You “undo” it and do not owe income tax on the amount you recharacterize.