Archive for the ‘Retirement’ Category

Expert’s Expert on IRAs

May 19, 2013

Where does an expert turn for answers on IRAs? Whenever possible, I turn directly to the law: Internal Revenue Code, regulations, IRS rulings and court cases. Sometimes I want a reliable way to get to an answer more quickly though, and fortunately there’s a great way to do that. I reach for one of the most valuable books in my library, Life and Death Planning for Retirement Benefits by Natalie B. Choate. This 600-page reference would be overkill for an investor who might have an occasional question about how to deal with an IRA or other retirement account. For a financial advisor or tax professional who regularly deals with retirement planning issues, the book is simply indispensable. I’ve referred to it often, and it never lets me down.

Basis Isolation for Roth Conversions

March 26, 2013
By Kaye A. Thomas

We first posted on the topic of basis isolation for Roth conversions some four years ago, and we continue to receive inquiries on the topic. In response, we’ve upgraded our coverage. Previously we had a single article that described and critiqued the techniques that have been proposed. Now we offer a collection of seven articles dealing with different aspects of the topic.


IRS to Issue Guidance on In-Plan Conversions

January 29, 2013

Speaking at a meeting of the Tax Section of the American Bar Association, a Treasury official said there is a plan to issue guidance concerning in-plan Roth conversions. As reported here earlier, the American Taxpayer Relief Act of 2012 expanded the availability of these transactions, which move assets from a traditional 401k or similar account to a designated Roth account within the same plan. The timing for this guidance has not yet been determined but the goal is to have it out by mid-year.

Qualified Charitable Distribution Transition Rule

January 11, 2013

The American Taxpayer Relief Act of 2012 (ATRA) extends the tax treatment of qualified charitable distributions from IRAs, so that they are available for 2012 and 2013. Because this law wasn’t enacted until January 2013, it includes a special transition rule. You can take advantage of this rule retroactively for 2012, but only if you act before the end of January 2013.


American Taxpayer Relief Act

January 3, 2013
By Kaye A. Thomas

In a last gasp effort Congress passed legislation to avert the fiscal cliff and prevent tax increases on 98% of Americans. Key features of the American Taxpayer Relief Act of 2012 (“ATRA”) include the following:

  • Existing income tax rates (including marriage penalty relief) are preserved for taxpayers with income up to $400,000 ($450,000 for couples filing jointly). A tax rate of 39.6% applies above that level.
  • Qualified dividends will continue to be taxed at capital gain rates, but a 20% rate will apply to both of these beginning at the income thresholds mentioned above.
  • The personal exemption phaseout and the Pease rule for reducing itemized deductions are revived, but at higher income levels than under prior law.
  • The law permanently fixes the alternative minimum tax (“AMT”), eliminating the recurring need for an “AMT patch.”
  • Seemingly out of nowhere, the law expands the availability of in-plan Roth conversions.
  • The estate tax provisions are more generous than might have been expected, retaining the $5 million exemption and raising the rate by only 5 percentage points, to 40%.


ATRA Expands Roth Conversions

January 3, 2013

Our book Go Roth! lists eight ways the availability of Roth retirement accounts has increased since 2005. The American Taxpayer Relief Act of 2012 (“ATRA”) adds another. Beginning in 2013, if permitted by your employer’s plan, you can convert an existing 401k, 403b or 457b account to a Roth account, even if you aren’t eligible to take a distribution.


Roth Conversions Ahead of 2013 Tax Increases

September 20, 2012
By Kaye A. Thomas

High-income individuals have special reasons to consider Roth conversions before the end of 2012. They can benefit in two ways:

  • Scheduled increases in income tax rates could make it more expensive to convert to a Roth after 2012.
  • These same increases, together with other increases targeting investment income, could significantly enhance the post-conversion benefits.

This post is an excerpt from the new edition of our book Go Roth!, which is now available. Click here for details.


403b Compliance Isn’t Universal

July 31, 2012

The IRS Employee Plans Compliance Unit is conducting a survey of colleges and universities to assess their compliance with the universal availability rule for 403b plans. This rule says that with limited exceptions, all employees must be eligible to participate when such a plan is offered. Interim results of the survey indicate that many of these institutions fail to comply with the rule, excluding certain categories such as administrative employees or adjunct faculty. While certain exclusions are permitted (such as employees normally working fewer than 20 hours per week and certain student employees), employers offering these plans are not permitted to impose other restrictions on participation.

This rule is a condition for qualification of the plan, so correction of the problem will be mandatory. In some cases employers may be required as part of the correction process to make plan contributions for employees who were improperly excluded.

IRA Enforcement Initiative

June 23, 2012

Let’s be honest: reports of the Treasury Inspector General for Tax Administration do not make for fascinating reading. And you are hearing this from someone who feasts on items like the new regulations dealing with portability of deceased spousal unused exclusion amount for estate and gift tax purposes. So hats off to Kelly Greene for an excellent article in the Wall Street Journal discussing how one of those reports appears likely to spur new enforcement efforts from the IRS in relation to IRAs. Among the issues:

  • Failure to take required minimum distributions after age 70½
  • Failure to complete a rollover within 60 days
  • Failure to comply with rules for inherited IRAs

In light of an expected increase in enforcement, this is a good time for taxpayers and their advisors to determine whether they have problems in this area and what corrective measures are appropriate.

2010 Roth Conversions Prompt Erroneous Notices

June 19, 2012

Remember 2010? That was the year many people took advantage of the opportunity to convert a traditional retirement account to a Roth with a delayed tax cost. As reported by Amy Feldman for Reuters, it turns out that IRS computers didn’t get the message in all cases. Due to a glitch in the way they talked to one or more  electronic filing software systems, they aren’t connecting the dots on some of the returns: they see the money coming out of the traditional account, but not the Roth conversion that allows a delay in reporting that income. Result: a message from the IRS saying you owe additional taxes on your 2010 return. No need to panic if you receive this unwelcome message. Just make sure you respond promptly, enclosing a copy of the Form 8606 that was part of your 2010 return (or have your tax pro do this for you).

Good reading: If you like, you’ll also like Amy Feldman’s twice-monthly tax column for Reuters.

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