Required Minimum Distribution Relief for Inherited IRAs

Date October 20, 2022
Authors
Categories

In 2019 Congress passed a law changing the required distribution rules for inherited IRAs in what is called the SECURE Act. These rules apply to all other qualified retirement plans such as 401(k) plans. Before the SECURE Act distributions from inherited retirement accounts could be spread over a beneficiary’s life expectancy (known as the Stretch IRA).

The SECURE Act ended the Stretch IRA for the vast majority of taxpayers requiring the assets in an IRA to be paid out on or before December 31st of the tenth calendar year following the death of the IRA owner (the “10-Year Rule”). The 10-Year Rule applies to inherited IRAs from an IRA owner who died after 2019. Inherited IRAs before 2020 still benefit from the Stretch IRA rules.

An exception to the 10-Year Rule applies where the IRA is left for one or more certain beneficiaries known as “Eligible Designated Beneficiaries” who generally can qualify for the lifetime payout that applies in a manner similar to Stretch IRA. Eligible Designated Beneficiaries include the IRA Owner’s surviving spouse, the IRA Owner’s minor children, a disabled or chronically ill beneficiary, or a beneficiary who is no more than 10 years younger than the IRA Owner. However, an IRA that is left for a non-Eligible Designated Beneficiary must meet the 10-Year Rule.

Prior to the IRS issuing proposed regulations in February 2022, it is safe to say all tax professionals interpreted the SECURE Act to mean that the 10-Year Rule did not require annual distributions (required minimum distributions or RMDs). We concluded a beneficiary could take distributions at any time during the 10-year period as long as the IRA assets were fully distributed by December 31st of the tenth calendar year following the death of the IRA owner.

The proposed regulations surprisingly require annual RMDs and then the inherited IRA must be totally distributed by December 31st of the tenth calendar year following the IRA owner’s death. For example, if an IRA owner died June 10, 2020, after having begun RMDs, the IRA beneficiary of the inherited IRA was required to receive an RMD starting in 2021 and each year thereafter and all remaining assets of the IRA must be distributed by December 31, 2031.

Many beneficiaries of inherited IRAs subject to the 10-Year Rule did not take RMDs out in 2021 and 2022. The penalty for not meeting the RMD requirements is 50% of the amount required to be distributed. The IRS just announced that no penalties will apply for the failure to take RMDs subject to the new rules in 2021 and 2022. The penalty for not taking RMDs from an inherited IRA will first apply for the 2023 year.

There is no indication the IRS will allow those who did take RMDs in 2021 and 2022 from an inherited IRA subject to the 10-Year Rule to repay those RMDs and claim a refund for 2021 or reduce their 2022 taxes. However, a beneficiary of an inherited IRA subject to the 10-Year Rule who received an RMD in 2022 can put it back in the IRA within 60 days of receipt and avoid paying tax on the RMD in 2022.

The RMD rules have become too complicated and require an understanding of all the subtle facets of the rules to ensure the best result. Please contact a member of the HBK team to discuss your specific circumstances.

Speak to one of our professionals about your organizational needs

"*" indicates required fields

hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



Three Things Small Business Owners Should Be Discussing with Their CPAs Right Now

Date March 14, 2022
Authors Peter Roupas
Categories

Contributing Authors: Peter Roupas, CPA, JD, Amelia Mateer, CPA, Josh Masters,CPA, Nabat Mammedova, CPA, Joyce Gebrosky, and Mary Manolakos

If you’re a small business owner and haven’t yet filed your 2021 business tax return, you’re likely talking to your CPA right now. With the deadline looming, you might be in a hurry to complete your return and put taxes behind you, so you can focus on other more pressing business matters. But don’t rush. There are several things to discuss with your CPA before you finalize your return, including some changes in the tax law resulting from the COVID pandemic that could generate substantial savings for you and your business.

Here are three issues that as a small business owner you’ll want to discuss with your CPA:

Employee Retention Credit

The Employee Retention Credit (ERC) is incredibly generous and broad. It can yield a cash refund of up to $7,000 per employee, per quarter. To qualify, your business must have experienced a 20% decrease in revenue in any quarter compared to that same quarter in 2019 (i.e. to pre-COVID levels). For most businesses, the credit expired after quarter three.

Some small business owners, in particular sole proprietors organized as single member LLCs, are overlooking the ERC. Remember, you need only one employee other than yourself to qualify for the credit. Assume, for example, your business has one employee, an administrative assistant and bookkeeper, whose salary for the year is $40,000. You could potentially receive a credit of $7,000 per quarter for quarters one, two, and three. That’s a total credit of $21,000, a significant cash inflow for a small business owner. For businesses with more than one employee, multiply that credit by your number of employees, and you can understand the magnitude of this generous credit.

If you’re a start-up business, and don’t have 2019 revenues, that doesn’t preclude you from taking the credit. Talk to your CPA to determine if your business qualifies as a Recovery Startup Business.

Many businesses, particularly those with 2021 annual revenues that were similar to pre-COVID levels, are surprised to discover that they qualify for the credit. Remember, if your sales dipped by 20% in a particular quarter compared to 2019, you may qualify. Hence, businesses who experience inconsistent revenues from quarter to quarter during the year should be extra mindful to perform those sales comparisons to 2019!

If you qualify for the ERC, your 2021 tax return will be impacted, as the expenses related to the credit are not deductible, which means an increase in taxable income. So be sure to factor this spike when tax planning with your CPA.

Business Meals

New and more generous tax deductions are available for 2021 food and beverage expenses. The rules—some of the changes are considered temporary by the IRS—include:

  • Meals are 100 percent deductible if purchased from a restaurant between December 31, 2020, and January 1, 2023. The IRS defines a restaurant for purposes of this provision as a business that prepares and sells food or beverages for immediate consumption. The definition does not extend to businesses that primarily sell pre-packaged food or beverages not specifically for immediate consumption, like grocery stores; beer, wine, and liquor stores; and vending machines. Nor is an eating facility located on the business’s premises considered a restaurant, even if it’s operated by a third-party.
  • The 50 percent deduction limitation still applies to food and beverage purchases made at non-restaurants.
  • Entertainment expenses remain non-deductible. However, food and beverages purchased at an entertainment event can be deducted if stated separately from the entertainment costs. They can be on a separate bill or listed as separate line items on the bill.

To ensure you maximize your food and beverage deductions, be sure to discuss those expenses with your CPA.

Retirement Plan Options

Tax time is always an appropriate time to discuss your retirement plan funding options with your CPA, as you have until the filing deadline, including extensions, to make your contribution. Have your CPA run different scenarios to determine the appropriate amount to contribute. And if you need more time to determine your contribution for 2021, consider filing an extension.

If you don’t currently have a retirement plan, setting one up now can yield a tax deduction for 2021. And if you have a retirement plan, consider upgrading to another plan, particularly if your earnings for the year increased over previous years, or if you anticipate increases in your future earnings.

Business owners have several plans to choose from, each with its set of rules and requirements:

Traditional IRA:

  • Must have earned income
  • Maximum annual contribution amount: $6,000 (an additional $1,000 for ages 50 and older), or amount of earned income if less than $6,000
  • Contribution deadline: April 18, 2022 for 2021 contributions
  • Advantages: contributions are generally tax-deductible; earnings are tax-deferred until withdrawn
  • Self-Employed IRA (SEP):

  • Must have self-employment income
  • Maximum annual contribution amount: 20 percent of net self-employment income after self-employment tax deduction, up to a maximum of $58,000
  • Contribution deadline: due date of return, including extensions
  • Advantages: easy to set up and maintain; allows you to choose how funds are invested; you are immediately 100 percent vested; no reporting requirements; does not require recurring contributions
  • SIMPLE IRA:

  • For employers with fewer than 100 employees
  • Eligible employees must have earned at least $5,000 in any two prior years and are expected to earn at least that much in the current year
  • Employee can elect to defer up to $13,500 (an additional $3,000 for ages 50 and older)
  • Employer can either match employee deferral dollar for dollar up to 3 percent of the employee’s wages, or contribute 2 percent of wages, up to $290,000, for all employees
  • Advantages: higher contribution limits than a SEP; not as complicated as a 401k
  • 401(k):

  • Any employer can set up a 401(k) plan
  • Eligible employees can elect to defer up to $19,500 (an additional $6,500 for ages 50 and older)
  • Advantages: the maximum deduction for employer and employee; employers allowed to match employee contributions; employee is generally fully vested sooner; plan is managed by professionals; easy for employees to contribute, usually through payroll deductions
  • So before you finalize your business return this season, be sure to pause and consider whether you’ve fully vetted the above considerations. The tax savings could be significant.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



    Are You Prepared for the July 15 Tax Filing Deadline? Here Are Some Reminders to Help You Comply

    Date July 8, 2020
    Authors Frederik Sdrenka
    Categories

    Preparing for the tax deadline is normally a process of gathering documentation together, scheduling a meeting with your accountant, and going to their office to discuss how the past year has gone. However, with the unprecedented times that we are dealing with due to COVID-19, this tax deadline is proving to be a much different story than in past years. There are many additional considerations for tax year 2019 and planning and preparing well are some of the best ways to ensure a smooth filing during this rough time.

    Tax Documents

    Many taxpayers have gotten accustomed to the shoebox filled with receipts and documents to drop off to their accountant every year. In a more virtual, online world this tradition has been slowly fading away, and in a COVID-19 world, it is quickly becoming a thing of the past. Many offices all around the country, and even the world have been closed and the workforce has shifted to a telecommuting rat race. When it comes to handing in your tax documents, this has shifted to a more electronic process of scanning in documents and emailing them rather than physically dropping them off to the office.

    Tax Deadline

    The biggest change this tax season has been the extension of the tax deadline from 4/15 to 7/15. The IRS announced this extension to offer relief to taxpayers by granting additional time in order to file and pay their taxes. There was discussion about pushing the deadline back even further, however, the IRS announced on June 30th that they will not be extending the deadline beyond July 15th. Taxpayers who still need more time can file an extension as in previous years, which would extend the filing deadline to October 15th, 2020. As always, this extension extends the time to file, but not to pay. All taxes due must be paid by July 15th. For those taxpayers suffering from liquidity issues as a result of the current environment, the IRS offers payment plans that may help mitigate interest and penalties due to late payments.

    Estimated Tax Payments

    The deadline extension has not only affected tax filings, but estimated tax payments as well. The 1st and 2nd quarter estimated payments were both pushed back from April 15th and June 15th, to July 15th. This means that for taxpayers filing their tax returns and making estimated quarterly payments, they will need to make all of these on July 15th.

    IRA/HSA Contributions

    The deadline extension has also extended the time to make an IRA or HSA contribution for 2019. This means that taxpayers who plan on contributing to an individual retirement account or a health savings account will now have until July 15th, 2020 to do so.

    As always, HBK is here to help with any of your tax compliance needs. If you have any questions regarding the tax deadline, please contact your HBK tax advisor.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



    IRS Issues New Rollover Rules for 2020 RMDs

    Date July 2, 2020
    Categories

    The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, eliminated the Required Minimum Distribution (RMD) from defined contribution plans and IRAs for 2020. The waiver of RMDs for 2020 does not apply to defined benefit plans. For taxpayers who had already taken their RMD for 2020, the law provided a 60-day rollover period during which the funds could be put back into an eligible retirement account without triggering tax consequences. On Tuesday, June 23, 2020, the IRS issued Notice 2020-51 which extends the period that RMD recipients have to rollover the RMD taken this year until August 31, 2020. Thus, regardless of when the RMDs were taken in 2020, a recipient has until the end of August to roll the funds into an eligible retirement plan.

    In addition to the rollover opportunity, the notice provides that an IRA owner or beneficiary who has already received an RMD for 2020 may repay the funds to the distributing IRA by August 31, 2020. The repayment will not be treated as a rollover for purposes of the one rollover per 12-month period limitation or the restriction on rollovers for inherited IRAs under §408.

    Finally, the notice provides two sample amendments that employers may use to give plan participants and beneficiaries whose RMDs are waived a choice of whether to receive the waived distribution, as well as 12 Q&As which provide further guidance regarding other issues related to the relief. Importantly, Q&A-3 modifies Notice 2007-7 by specifying that if an employee died in 2019, a non-spouse designated beneficiary has until the end of 2021 (rather than 2020) to make a direct rollover and use the life expectancy rule.

    With these changes to RMDs for 2020, an opportunity exists to either skip the RMD or repay the distribution already taken by the deadline in order to reduce taxes. Also, equity values are still slightly negative year-to-date in 2020, so by not taking a distribution you can avoid selling when values are decreased. However, this decision should be reviewed with your trusted advisor taking into consideration your cash needs and alternative sources of funds.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



    IRS Releases FAQs on Coronavirus related Retirement Plan Changes Found In the CARES Act

    Date May 12, 2020
    Authors Sarah Gaymon
    Categories

    The IRS recently released FAQs on coronavirus-related relief for retirement plans and IRAs (found here: https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers). Specifically, this page provides insight as to the position the IRS may take with respect to the special distribution options, rollover rules for retirement plans, and the permissible loans from certain retirement plans found in the CARES Act.

    The FAQs provide details as to what constitutes a coronavirus distribution, and what the requirements are in order to be a qualified individual. The FAQs also detail the loan relief under the CARES Act. Some key questions answered in the FAQs are as follows:

    • Coronavirus distributions will generally be included in income ratably over three years, beginning with the year 2020, assuming that 2020 is the year that the distribution is received. A taxpayer may elect to include the entire distribution in gross income for the year of the distribution.
    • Coronavirus distributions can be repaid within three years after the date that the distribution was received. If the distribution is repaid, the taxpayer will have the option to file an amended federal income tax return to claim a refund of the tax attributable to the amount of the distribution that was previously included in income. If the three-year repayment period is not yet closed, no income would need to be included for years remaining after the distribution has been repaid.
    • Employers have the option to adopt the distribution and loan rules under the CARES Act. An employer can decide to what extent they decide to amend the plan provisions to allow for the coronavirus related distributions. Even if an employer does not treat the distribution as coronavirus-related, a qualified individual is able to treat a distribution that meets the requirements of a coronavirus-related distribution as coronavirus-related on the individual’s federal income tax return.
    • Retirement plan administrators may rely on an individual’s self-certification that they meet the requirements to be classified as a qualified individual unless the plan administrator knows the individual does not meet the requirements.
    • Qualified individuals can designate eligible distributions from retirement plans on Form 1040 when filing their income tax returns. Form 8915-E (which is expected to be available before the end of 2020) will be used to report the amount of the coronavirus distribution included in income for the year as well as the repayment of these distributions.
    • Retirement Plan Administrators will be required to report the coronavirus-related retirement plan distributions on Form 1099-R even if the repayment takes place in the same year. The IRS is expected to provide more information on how to report these distributions at a later time.

    If you have any questions about whether any of the provisions in the CARES Act apply to you, or any questions regarding the recently released FAQs, please contact your HBK Tax advisor.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



    SECURE Act

    Date December 21, 2019
    Authors Amy L. Dalen
    Categories

    On December 20 the President signed into law two spending packages that will fund the government through the rest of the fiscal year. Included in the spending packages were the Setting Every Community Up for Retirement Enhancement (SECURE) Act, and a number of tax provisions, many of which may have an impact on your future financial planning. HBK is currently reviewing these important provisions and will be providing a more in-depth look at what many of these provisions may mean for you. For now, the following provides a quick overview of some of the more impactful provisions:

    SECURE Act Provisions

    • The age at which individuals need to start taking required minimum distributions (RMDs) has increased from age 70 ½ to age 72 (note that this increase only applies for individuals who have not reached the age of 70 ½ on or before December 31, 2019);
    • There is no longer an age cap for individuals to make contributions to Individual Retirement Accounts (IRAs);
    • Inherited IRAs must now be paid out over a ten (10) year period, and cannot be stretched out over the lifetime of the non-spouse beneficiary;
    • Up to $10,000 held in a Section 529 plan may now be used to pay off student debt; and
    • Up to $5,000 may be withdrawn, penalty free, from a Section 401(k) plan in order to help with the costs of childbirth or adoption (income taxes still apply).

    Other Tax Provisions

    • Many taxes that were enacted as part of the 2010 health care reform law have been repealed, including the 2.3% medical device excise tax and the 40% excise tax on high-cost health insurance plans (known as the “Cadillac tax”);
    • A number of tax credits have been extended, including the work opportunity tax credit, credits for energy-efficient homes, and credits for health insurance costs of eligible individuals;
    • The high tax rate on investment income of private foundations has decreased from 2% to 1.39%;
    • The transportation fringe benefit tax that was imposed on tax-exempt organizations by the Tax Cuts and Jobs Act of 2017 has been eliminated; and
    • The changes made to the tax rates imposed on children’s unearned income (known as the “kiddie tax”) have been eliminated, so that the income will no longer be taxed at the higher tax rates of trusts and estates, but will now be taxed at the highest marginal tax rates of the child.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



    Secure Act: Retirement Tax Law Changes & More, Part I

    Date June 27, 2019
    Authors James M. Rosa
    Categories

    Congress is great at titling laws with acronyms. The SECURE Act is yet another one of that category of bills with cutesy names with greater emphasis on creating a word than making sense, in this case, “Setting Every Community Up for Retirement Enhancement Act of 2019,” which, contrary to its title, has nothing to do with communities per se. This bill has passed the House with overwhelming bipartisan support and is paired with a similar bill in the Senate. The Senate effort to pass this legislation is currently stalled.

    We expect many of the following proposals to become law:

    • Eliminate the age 70-1/2 cutoff at which workers are no longer allowed to contribute to IRAs;

    • Increase the age at which required minimum distributions must be made from an IRA or employer sponsored qualified retirement plans, like 401(k) plans, from age 70-1/2 to age 72;

    • Limit the period of time that distributions from inherited IRAs and inherited employer sponsored qualified retirement plans would be required to be paid out to 10 years rather than the life expectancy of their beneficiaries. Exceptions to this limit are likely to include spousal rollovers and inherited retirement accounts where the beneficiary is a minor or disabled;

    • Permit employers to automatically escalate their employees’ contributions up to 15% of pay, which is an increase from the prior limitation of 10%;

    • Increase the tax credits provided to small businesses who start up retirement savings plans and/or include automatic enrollment from $500 to $5,000;

    • Allow graduate students and postdoctoral to save for retirement based on their stipends/fellowships, and allow home healthcare workers to save based on “difficulty of care” payments, which are otherwise not counted as compensation;

    • Create a safe harbor that employers can use when they are choosing group annuity issuers to support 401(k) plan lifetime income stream options;

    • Require plan sponsors to tell the participants about how much monthly retirement income their assets might produce; and

    • Expand Section 529 education savings accounts to include such categories as apprenticeships and homeschooling expenses.

    The proposed changes to the required distribution period from IRAs and other employer sponsored qualified retirement plans will significantly accelerate distributions. Let’s look at this example:

    An individual age 25 inherits a $1,000,000 IRA. The required distributions under current law would be paid out over the life expectancy of the 25-year old, which would be 58.2 years. The SECURE Act would require the beneficiary to withdraw everything from the inherited IRA over 10 years. Under current law, the initial required distribution for the 25-year-old beneficiary would be $17,182 ($1,000,000 divided by 58.2). In the second year, the minimum amount required to be distributed would be the balance at the beginning of the second year divided by 57.2. In each successive year the divisor would be reduced by 1. Ultimately, the full amount would be distributed within the 58.2-year period. If the required minimum amount is not distributed, the beneficiary would be subject to a 50% penalty on the amount not distributed.

    The SECURE Act would not require a distribution in the first year. The total amount in the IRA would be required to be fully distributed within the 10-year period in any manner the IRA beneficiary decides. The entire IRA could be distributed on the last day of the 10-year period. The SECURE Act will require a beneficiary to plan distributions over the 10-year period more carefully.

    We will address planning issues associated with these proposed changes to the required minimum distribution rules in future articles.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



    Utilizing the Increased IRA Contribution Limits to Reduce Tax

    Date November 14, 2018
    Authors Sarah N. Gaymon
    Categories

    The IRS has finally increased the annual contribution limits for IRAs. Since 2013, individuals could make contributions to traditional and roth IRA accounts up to $5,500 (or $6,500 if over the age of 50 using the catch-up contribution provision). As a result of the increase, the allowable contribution amount will be $6,000 beginning in 2019, or $7,000 for those over the age of 50. Depending on their income tax situation, an individual could receive a deduction to their adjusted gross income (AGI) on their tax return for all or part of the contribution made to a traditional IRA in a particular year.

    The tax code generally allows contributions to a traditional IRA plan in an amount equal to the lesser of the annual contribution limit or 100% of the individual’s taxable compensation. If a taxpayer is married, each spouse can make a contribution up to the annual contribution limits provided that the compensation of both spouses combined is at least equal to the amount contributed. Once an individual reaches age 70 ½, contributions to a traditional IRA, whether deductible or not, are no longer permitted. The deductibility of traditional IRA contributions depends on several factors; first, whether or not the individual has a retirement plan with their employer, and second, the filing status of the taxpayer.

    The chart below summarizes the rules in effect for 2019 if the individual taxpayer has a retirement plan with an employer when determining the contribution deduction limits that will apply.

    Filing Status Full Deduction Available Partial Deduction Available No Deduction Available
    Single or Head of Household If Modified AGI is $64,000 or less If Modified AGI is over $64,000 but less than $74,000 If Modified AGI is over $74,000
    Married Filing Jointly or Qualifying Widow(er) If Modified AGI is $103,000 or less If Modified AGI is over $103,000 but less than $123,000 If Modified AGI is over $123,000
    Married Filing Separately N/A If Modified AGI is less than $10,000 If Modified AGI is over $10,000

    If the individual does not have a retirement plan with an employer, the chart below summarizes the rules in effect for 2019 when determining the contribution deduction limits that will apply.

    Filing Status Full Deduction Available Partial Deduction Available No Deduction Available
    Single, Head of Household or Qualifying Widow(er) For any Modified AGI N/A N/A
    Married Filing Jointly or separately with a spouse not covered by an employer plan For any Modified AGI N/A N/A
    Married Filing Jointly with a spouse covered by an employer plan If Modified AGI is $193,000 or less If Modified AGI is over $193,000 but less than $203,000 If Modified AGI is over $203,000
    Married Filing Separately with a spouse covered by an employer plan N/A If Modified AGI is less than $10,000 If Modified AGI is over $10,000

    In situations where an individual may be unsure of whether or not they qualify, there are planning opportunities to consider. Married individuals should consider making spousal IRA contributions in a year where only one spouse may be working. If the income limits are met, this can double the available deduction to $12,000 (or $14,000 if both spouses are over 50 years old making catch-up contributions). If an individual is self-employed, consider utilizing business expenses and the home-office deduction, if available, to reduce the earned income. In addition, consider other retirement options that may exist for self-employed individuals, which may increase the retirement deduction available. A SEP IRA is a retirement plan commonly used by self-employed individuals which allows for a higher deduction.

    For individuals with low income for the year, consider taking advantage of the non-refundable Saver’s Credit. This credit is available to individuals when income is less than $64,000 if married filing joint, $32,000 if single or married filing separately, or $48,000 if filing as head of household, and can be up to 50%, 20% or 10% of the total contribution.

    When the deduction is available, an individual should consider making contributions to a traditional IRA. This will allow an individual to both save towards retirement and reduce the amount of tax paid in the year of contribution. As an added benefit, the timeline for making an IRA contribution is the due date of the tax return for the year the contribution will be deducted. This means that the 2019 due date for making a contribution to an IRA is April 15, 2020 when the tax return is due. Planning can be done throughout the year to adjust income to maximize the contribution deduction.

    In addition, the ability to analyze the cost benefit of maxing out the deduction exists at the time of filing the tax return. With an overall decrease in tax rates due to the Tax Cuts and Jobs Act (TCJA), and the 10% increase in the IRA contribution limit, this is the perfect time to evaluate ways to make use of this option when planning for retirement and lowering taxes.

    Please contact a member of the HBK Tax Advisory Group with any questions.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.



    Inherited IRAs Bring Special Tax Issues

    Date February 11, 2016
    Authors
    Categories

    When inheriting an IRA, a surviving spouse has several options. He or she can remain the beneficiary of the account. As an alternative, if the spouse is the sole beneficiary, he or she can instead treat the inherited IRA as his or her own.

    If there are multiple beneficiaries, the account can be divided up so the spouse’s share is in its own account. When a spouse makes this decision, the IRA is simply retitled in his or her name. Since the account is then considered the spouse’s, he or she can then name new beneficiaries.

    But be careful: Generally, withdrawals are subject to a 10 percent federal income tax penalty if the spouse has not reached age 591/2. In addition, there can be penalties if the spouse does not take required withdrawals at the proper time. For example, the first required minimum distribution must be taken by the spouse by April 1 of the year after he or she turns 701/2. In other words, if the surviving spouse turns 701/2 this year, the minimum distributions must start by April 1 of next year.

    Speak to one of our professionals about your organizational needs

    "*" indicates required fields

    hbkcpa.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.