Archive for roth ira rules

The Roth Option

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Monday, April 30th, 2012

one big piece of news in the federal retirement arena lately was the announcement that federal employees (well, some federal employees anyway) will be able to opt in to the Thrift Savings Plan’s new Roth option starting may 7.

This new benefit has been in the process of being implemented since the TSP Enhancement Act was signed into law in 2009. The TSP has been working diligently to implement the benefit for all active federal employees and (eventually) members of the uniformed services.

The new feature will affect almost every aspect of the TSP. in fact, starting may 7, you’ll find most of the forms and publications available on the TSP website will have 2012 revision dates so that information relative to the Roth TSP option is included.

It’s important to consider several questions when weighing whether to put some of your savings in a Roth account:

  • What is the difference between contributing pre-tax dollars to the TSP vs post-tax dollars?
  • When borrowing or withdrawing funds from the TSP, how will those distributions will affect the traditional and Roth balances in your TSP account?
  • how will contributing to the Roth TSP affect your taxes today and in the future? (I wrote a column addressing this issue in March.)
  • When withdrawing money after you separate from federal service, how will the distribution affect the taxes you owe, including early withdrawal tax penalties and required minimum distributions?

Fortunately, the TSP has provided some answers to these and other key questions. if you’re a TSP participant, you already should have received a pamphlet called 2012 Roth: a new TSP Element. There’s additional information in the January/February and April editions of TSP Highlights. And the TSP has produced a two-minute video providing a brief overview of the new option.

By the time may 7 arrives, there will be even more resources available to answer almost all of your questions, except the critical one: should you participate in the Roth TSP? That you’ll have to decide for yourself after evaluating the advantages and disadvantages of saving post-tax dollars that will grow tax-free.

The most important thing to know is that the Roth TSP is not a Roth IRA. if you decide to allocate some of your future contributions to the Roth TSP, you will be paying income tax on those contributions first. you won’t pay tax on the earnings as long as you wait to make a withdrawal until you are at least 59 ½ (or disabled or deceased) and your withdrawal is made at least five years after the beginning of the year in which you made your first Roth contribution.

if you’re interested, check with your payroll or benefits office in human resources to see when you can submit a request to allocate contributions from your basic pay to the Roth option. Some systems will be ready for business on may 7 and others in June. Some systems won’t be ready to accept Roth contributions until later this year.

if you have more questions about the Roth option, you can ask the TSP’s Executive Director, Greg Long, who will be will be our guest on the For your Benefit program on Federal News Radio on may 14 at 10 a.m. ET. Email your questions or call the show live at 202-465-3080.

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Family finances – Timely year-end tax tips

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Sunday, December 4th, 2011

By Mary Beth FranklinKiplinger’s Money Power Published: Saturday, November 26, 2011 at 12:30 a.m. Last Modified: Tuesday, November 22, 2011 at 12:42 p.m.

Although current tax rates are scheduled to remain in effect through 2012, anything could happen as Congress and the White House grapple with ways to shrink the federal budget deficit. The bottom line: “Take all the deductions you can this year because next year is up in the air,” advises Philip Liberatore, a certified public accountant in La Mirada, Calif.

Feed your 401(k). Money you contribute to your plan is excluded from your income (if it’s not a Roth), lowering your tax bill. if you’re not yet on track to max out your 2011 contributions, direct some extra dollars to your retirement plan during your last few pay periods. this year, workers can contribute up to $16,500 to employer-based plans. Workers 50 and older can contribute up to $22,000.

Improve your home. The home-energy tax credit expires at the end of this year; it’s worth 10 percent of the cost of new windows, doors, skylights, insulation, and heating and air conditioning systems, up to a maximum $500 credit (but no more than $200 can be allocated to new windows). you must install the upgrades by December 31 in order to claim the credit, but you can’t claim it for 2011 if you already took advantage of $500 or more of energy tax credits in previous years.

Give to charity. you can write off donations to a charitable organization, if you itemize tax deductions. A few bags full of gently used clothes and household items can add up to hundreds of dollars in deductions, but valuing those donations can be difficult. find estimated values free at turbotax.intuit.com/personal-taxes/itsdeductible.

Send cash donations to your favorite charity by December 31 and hang on to your canceled check or credit card receipt as proof of your donation. if you contribute $250 or more, you’ll also need an acknowledgment from the charity.

If you plan to make a significant gift this year, consider donating appreciated stocks or mutual fund shares that you’ve owned for more than one year. your charitable-contribution deduction is the fair-market value of the securities on the date of the gift, not the amount you paid for them, and you never have to pay tax on the profit.

If you’re age 70 1/2, you must take annual minimum withdrawals from your IRAs or pay a steep penalty — 50 percent of the amount you fail to withdraw. but this year you can direct up to $100,000 of your IRA distribution to a charity and exclude it from income. Although you can’t claim a charitable deduction for the donation, reducing your adjusted gross income could make you eligible for other income-related tax breaks.

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Taxing Social Security

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Thursday, November 24th, 2011

November 02, 2011

Many new retirees assume that Social Security income is tax-free. That is not always the case.

The Social Security Amendments of 1983 opened the door to taxes on some SSI, depending on the amount of income someone earns in a calendar year.

How much of your SSI is potentially taxable? As much as 85 percent under certain conditions. four factors determine how much of your SSI will be taxed:

  • The total amount of income that you earn.
  • where it comes from.
  • Your taxpayer filing status.
  • Your provisional income — a Modified Adjusted Gross Income calculation which you can figure out by using Worksheet 34-1 in IRS Publication 915 or the Social Security Benefits Worksheet in the instruction booklets for IRS Form 1040 and Form 1040A.

How is provisional income determined? In simple terms, this is calculated using your adjusted gross income, minus one-half of your Social Security benefits. (Tax-free interest from investments such as muni bonds also becomes provisional income.)

How much income can you earn before your SSI is taxed? The 2011 limits are pretty straightforward:

  • Single person: up to 50 percent of your SSI can be taxed if your provisional income is greater than $25,000, and up to 85 percent of your SSI can be taxed if your provisional income exceeds $34,000.
  • Married/head of household: up to 50 percent of your SSI can be taxed if your provisional income is greater than $32,000, and up to 85 percent of your SSI can be taxed if your provisional income exceeds $44,000.

Who doesn’t have to worry about this? If your only source of income is Social Security or equivalent retirement railroad benefits, it is unlikely that your SSI will be taxed and you may not even need to file a federal return.

In 2011, Social Security benefits are tax-exempt for single taxpayers with provisional incomes under $25,000 and married/head of household taxpayers with provisional incomes under $32,000.

What can be done to reduce — or avoid — the tax? If you are close to hitting either the 50 percent or 85 percent tax levels, you may want to think twice about moves that could take your provisional income over the threshold — for example, receiving a sizable chunk of profit from selling a stock, or converting a traditional IRA to a Roth IRA.

Here are some common moves people make with the input of a qualified tax or financial professional:

  • Delaying some investment income, rental income or pension income until the following tax year.
  • Shifting assets from accounts or investments producing reportable income — like CDs — into tax-deferred alternatives.
  • Working less.
  • Ramping up pre-tax contributions to an IRA, 401(k) or 403(b)
  • Lowering interest income — such as income from CDs.
  • Lowering tax-exempt interest income from muni bonds, federal tax refunds, veteran’s benefits, gifts and other sources.

Before Dec. 31 rolls around, it might be wise to consider the different ways to manage taxes on your Social Security benefits.

Some new SSI recipients may be taken aback by the tax they end up paying. Alternatively, you can plan to reduce it. Now would be the time to talk with a financial advisor to explore how you might be able to stop your Social Security Income from being taxed.

Glen Harding is a financial advisor and owner of Harding’s Wealth Managers, a Registered Investment Advisory firm in Gilbert. Visit hardingswealthmanagers.com, call 610-681-3714 or email . Glen will endeavor to answer all questions.

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First time home buyer with Roth IRA?

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Friday, July 22nd, 2011

I am a little bit confused about this…
I'm opening a Roth IRA now. If I go to buy a home in a few years, can I take money out of the Roth IRA if necessary? what is with the 5 year rule?

Most mutual funds or brokerages do not charge fees for an IRA… I wouldn't pay anything….

You can withdraw contributions 5 years after you made them tax and penalty free for any reason…

In addition to that, you can pull our $10,000 for a first time home purchase… but only after 5 years.

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Roth or traditional IRA help please?

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Wednesday, July 20th, 2011

My wife is a stay at home mom, she does not have any income. Can she still put money in an IRA? Are the rules different if we are talking about a traditional or Roth IRA? does it matter that I (her husband) have a 401K at work? Are there annual limits? I guess I could put the money in my name, not so sure we want to do that. Any reference material out there? thanks for any help.

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On the internet Media Providers

By karen · Comments (0)
Tuesday, July 12th, 2011

Online announcement solutions consider announcement which are well informed and disseminated using the web by internet websites. Help to learn effectively for anyone to discover the hottest facts and information with just a sensitive mouse-click away. On the net announcement solutions may be categorised into 3 classes reported by nations depending on the design in their internet websites.

The first classification could be the U . s . on the internet announcement solutions. There are numerous on the internet announcement solutions in this particular classification such as Boston ma World, Fox Information, Chicago, il Tribune, The Red onion, and Chicago Periods for starters. You start with made from within the design of the internet websites, the colours that they can use often reflect the colours of This country’s nationwide the flag, which can be reddish colored, pink, and white-colored. How big the their concept print styles are regular dimension 12, and are also conveniently understandale.

The structure in their design will not be standardized by which the saying items are everywhere and disorganized. In terms of space, the line is not as close up to one another. In addition, they may have numerous copy which aren’t aligned. Having said that, websites like these heap rapidly, plus they are easy to browse through. The logos and graphics during these internet websites all appear to have an equivalent common seem.

The subsequent classification could be the United kingdom on the internet announcement solutions for instance, BBC, Each day Voice, and also the Separate. These United kingdom versions have light and better shades with regard to their design rather than the U . s . versions, by which they use the variety of naklejki scienne shades like reddish colored, aqua, orange, and dark colored. The print styles that they can use are generally Arial and Periods New Roman with the size of 12. Concerning their structure, they may have numerous copy and thumbnails. They likewise have many headlines within a column, and so they have research discos. Additionally, there are numerous promotions on either side in the page boundary. Such sites heap rapidly and they’re easy to browse through. Than the U . s . versions, their logos are usually more functional and simple.

Finally, the last classification is other Worldwide on the internet announcement solutions. In comparison with all the U . s . and United kingdom on the internet announcement solutions, other Worldwide versions usually exhibits better plus much more desirable shades for their design. Orange, pink, lemon, and eco-friendly include the shades used in their design. How big the their concept print styles are typical dimension too, that is definitely 12, by which the well match with all the color, consequently making it look as observation-finding and catching and exhibiting an excellent color compare. The structure in their design has many copy too, which can be found reported by partitions in the announcement. Additionally, they may have a couple of variants in the announcement regarding ex<x>pressions, a single from your ex<x>pressions and another British ex<x>pressions &amp a 3rd international ex<x>pressions like People from france or Spanish language. The websites are easy to browse through also it lots quickly. Something else is the fact other international versions have different designs and styles with regard to their logos subject to what sort of paper.

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Your Finances: Several sources for home down payments

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Sunday, July 3rd, 2011

By Laura Medigovich Published: 2:00 AM – 06/12/11

Many people have the primary goal of owning a home. the challenging part is saving up enough money for a down payment. in a perfect world, a 20 percent down payment is ideal. So, if your dream home is $200,000, the down payment would be $40,000.

Traditionally, you would have saved for the $40,000 down payment over a number of years. Homebuyers today want to take advantage of the market’s low interest rates and discounted home prices, which means they may not have had the time to save for the entire down payment. in light of this, they are often coming up with their down payment from a variety of sources.

For some, retirement accounts seem like a ready source of cash for a down payment. When considering if this is the best option for you, just remember — by tapping into retirement money, you are borrowing from your future to pay for today.

If you have an employer sponsored account, such as a 401(k), and the plan allows for loans, then borrowing from your 401(k) could be an option. in most cases, loans from a 401(k) must be repaid within five years, but the repayment periods for loans to purchase a primary residence are usually longer.

While this may seem like a great option, it doesn’t mean there aren’t cons to using 401(k) money. Loan payments back to your 401(k) will be made with after-tax dollars, yet when you retire, withdrawals will be taxed as ordinary income. So in essence, you will be taxed twice on the loan money. also, if you leave your job before the loan is repaid, any outstanding balance will need to be repaid, usually within 60 days. if it is not paid in the allotted time frame, the outstanding loan balance will be treated as a withdrawal and federal and state taxes will be due in addition to a 10 percent penalty if you are younger than 59

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Who can help with a IRA – Roth Conversion strategy?

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Sunday, July 3rd, 2011

I have an IRA in the 6 figures range. In 2010 anyone regardless of AGI will be allowed to convert IRA accounts to Roth IRA accounts. the advantage of this is that all future gains will be tax free.

The rules regarding what IRA investments can be in are rather loose so you are not restricted to just stocks, bonds and the usual stuff.

Under this conversion, I'll need to pay tax on the value of my account that has not previously been taxed.

I am thinking that there might be a way (loophole) to have my IRA invested in something that has an artificially low value at the time of conversion (2010) but has a high value in 2011 or other time in the future. What ideas do you have of such a scenario?

What you're gonna have to realize is that the IRA, although banned by the English Parliament, will never be subdued. Historically, the English have had to be fought out of every country they have occupied and Ireland is no exception. Without the proper representation in the British government, the IRA is forced to resort to military guerrilla tactics to obtain their freedom. the sooner they gain political and social sovereignty, the sooner the violence and terrorist bloodshed can stop. Or maybe you should consult a CPA for questions like this as opposed to using yahoo as a way to point out that you have a six figure account, and that your life problems consist of trite rich-boy B.S that no one but you, and possibly the people you were trying to impress with your "question", care about.

you need a financial advisor/attorney to take you through it. you don't need a banker/accountant who wants your business.
you'll pay for the advice, but save a good deal in taxes.

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If I put $5K in my Roth IRA today, but wind up making more $ in '09 than Roth/Tax rules allow, what do I do?

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Monday, June 20th, 2011

If I max out my Roth IRA contribution now, but my 2009 AGI ends up exceeding that which is allowable to have a Roth contribution, what do I do to fix the issue?

You will need to take the money out of this Roth or you could convert this amount to a non-deductible traditional IRA. Talk to your financial person and they will help you through the process

Laura H – H&R Block – Senior Tax Advisor 5
**This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided.

You can "recharacterize" the contribution as a traditional IRA contribution. This essentially means to move the money from the Roth to a regular IRA. Note: If you are also in an employer plan (such as a 401K) and make too much to contribute to a Roth, then you also make to much to DEDUCT you traditional IRA contributions, so your traditional IRA contribution would be non-deductible. If you are not in an employer plan, then you can deduct the traditional IRA contribution; there is no income limit.

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