3/18/2015

Transcription

1 IRA Training for Professionals 2015 IRA Season (for 2014 contributions) Tax Planning Tips and Solutions for IRA and Small Business Owners By Denise Appleby, CISP, CRC, CRPS, CRSP, APA General Disclaimer This information is for general information purposes only and is not intended to be used as tax or legal advice. You may need additional material to answer some questions related to the course topic. Appleby Retirement Consulting Inc. All rights reserved. Not to be reproduced in whole or in part in any form without permission from Appleby Retirement Consulting Inc. About Us Appleby Retirement Consulting Inc. provides IRA/Retirement Plans products and services to Financial, Tax and Legal professionals. These include: o o o o o o Technical consulting Training Reference materials Marketing materials Newsletters Content for newsletters, websites etc. 1

2 Your Presenter Denise Appleby, CISP, CRC, CRPS, CRSP, APA Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA tools and resources for financial professionals. She has more than 15 years in the IRA and defined dcontribution i plans fields, and has co authored several books and written over 400 articles on IRA rules and regulations. Visit for more information about Denise Appleby Agenda Legislative/Regulatory Update SEP IRAs for Small Businesses Avoiding Common IRA Mistakes Overlooked Tax Benefits for IRAs Tracking Nontaxable Amounts Overlooked Tax Benefits for Inherited IRAs Update IRA To IRA Rollovers Bobrow v. Commissioner, T.C. Memo One IRA to IRA rollover per year Announcement The IRS will apply the Bobrow interpretation o Applies on a per IRA basis up to 12/31/2014 o Applies on a per individual id lbasis as of 01/01/2015 Announcement o All traditional, SEP, SIMPLE and Roth IRAs are aggregated o Transitional Rule applies 12 months not calendar year. Starts when distribution is received Applies only to IRA to IRA rollovers 2

3 Update After Tax from QP & 403(b) Generally, if qualified plan/403(b) account balance includes after tax amounts, distribution includes pro rated amount of pre tax after tax o Exception for pre 1987 balance Under Notice require pro rata rule for split distributions Notice eliminates pro rata requirement SEP IRAs for Small Businesses Definition: IRA Based Retirement Plan for Small businesses Eligible Employer: Any business entity Deadline to establish: Tax filing due date, plus extension for business Deadline to fund: Tax filing due date, plus extension for business SEP IRAs : Employee Eligibility Employees age 21 and over Employees who worked 3 of the 5 years preceding years Employees who earn at least $550 0during the year ($600 for 2015) Employer can make requirements less restrictive 3

4 SEP IRAs : Excludable Employee Employees covered by a union agreement /collective bargaining agreement Nonresident alien employees who have received no U.S. source wages, salaries, or other personal services compensation from the employer SEP IRAs : Contributions Maximum Contribution: Lesser of 25% of employee s compensation or $52,000 for 2014/$53,000 for 2015 Maximum Deduction: 25% of eligible compensation paid to employees o Compensation is capped at $260,000 ( $265,000 for 2015) Discretionary : Allows flexibility SEP IRAs : Documentation Employer: SEP IRA Agreement o IRS Model 5305 o Prototype o Individually designed See handout for when each can be used Employee: Traditional IRA Agreement o Custodian may require a copy of employers SEP IRA Agreement 4

5 SEP IRAs : Benefits Deductions for contributions Start up credit 50% up to $500 of the qualified startup costs per year for 3 years Provide retirement nest egg for business owner and employees SEP IRAs : Features Contributions are immediately 100% vested No nondiscrimination testing No 5500 filing Low complexity Low administrative cost Contribution flexibility ( discretionary) SEP IRAs Checklist Ensure that SEP Adoption agreement is current Ensure that all eligible employees receive contributions Check for ownership in other businesses by business owner 5

6 IRA Mistake: No Eligible Income Contribution cannot exceed eligible income Compensation (eligible income) for Purposes of an IRA Includes... Does not include... o wages, salaries, etc. o earnings and profits from property. o commissions. o interest and dividend income. o self employment income. o pension or annuity income. o alimony and separate o deferred compensation. maintenance. o income from certain partnerships. o nontaxable combat pay. o any amounts excluded from income. Mistake: No Eligible Income Contribution cannot exceed income o Spouse's income can be used o Must file joint tax return o Must have sufficient compensation to cover contributions for both spouses ( if both contribute) Mistake: Exceed Roth Income Limit Contributions not allowed for some MAGI Tax Filing Status 2014 MAGI 2015 MAGI Allowed contribution Single $114,000 or less $116,000 or less 100% $114,000 - $129,000 $116,000 - $131,000 Partial $129,000 or more $131,000 or more None Married filing jointly $181,000 or less $183,000 or less 100% $181,000 - $191,000 $183,000 -$193,000 Partial $191,000 or more $193,000 or more None Married filing separately Less than $10,000 Less than $10,000 Partial $10,000 or more $10,000 or more None 6

7 IRA Mistake: Exceeding Age Limit Exceeding age limit for Traditional IRAs o No contribution for year age 70 ½ and after o Can make contribution in 70 ½ year for previous year Claiming Deduction When Ineligible Claiming a deduction when not eligible o Employer should indicate on Form W 2 if covered by an employer plan o If covered or married to someone who is, eligibility for deducting Traditional IRA contribution depends on modified adjusted gross income (MAGI) and tax filing status Deductibility for Active Participants Deductibility limit when covered under an employer plan Tax Filing Status 2014 MAGI 2015 MAGI Allowed deduction Single $60,000 or less $61,000 or less 100% $60,000 $70,000 $61,000 $71,000 Partial $70, or more $71,000 or more None Married filing jointly or a qualifying widower, and active Married filing jointly. Not active, but spouse is active Married filing separately $96,000 or less $98,000 or less 100% $96,000 $116,000 $98,000 $118,000 Partial $116,000 or more $118,000 or more None $181,000 or less $183,000 or less 100% $181,000 $191,000 $183,000 $193,000 Partial $191,000 or more $193,000 or more None Less than $10,000 Less than $10,000 Partial $10,000 or more $10,000 or more None 7

8 Confusing Eligibility with Deductibility Misunderstanding effects of coverage under employer sponsored retirement plans o Coverage under employer plan does not affect eligibility to contribute to Roth IRA o Coverage under employer plan does not affect eligibility to contribute to Traditional IRA o Coverage under employer plan only affects eligibility to deduct contribution to Traditional IRA Other Common IRA Mistakes Missing contribution deadline o Tax filing deadline ( April 15). No extensions o Must indicate year on contribution o Use IRS Approved delivery service List at: / y Missing RMD Deadline o Generally December 31 o April 1 of following year for year of age 70 ½ Exceeding limit o Lesser of 100% of compensation or $5,500 + catch up Fixing IRA Contribution Mistakes Exceed Contribution limit o Return of excess contribution o Applying excess to future year Exceed droth IRA MAGI o Recharacterize to Traditional IRA o Return of excess o Applying excess to future year 8

9 Fixing IRA Contribution Mistakes Exceed Age Limit for Traditional IRA o Recharacterize to Roth IRA o Return of excess Miss RMD Deadline o Request waiver of penalty if eligible Overlooked Tax Benefits : Deduction Deduction helps to offset cost of funding IRA o 100% deduction: Not covered (nor married to someone who is) under an employer plan o Covered: Deductibility determined by MAGI and tax filing status o Employer plans: Coverage rules determined by type of plan SEP IRA & profit Sharing Plan Money Purchase Pension, Plan Target Benefit Plan Defined Benefit Plan 401(k), 403(b), SIMPLE IRA Overlooked Tax Benefits : Deduction Deductibility limit when covered under an employer plan Tax Filing Status 2014 MAGI 2015 MAGI Allowed deduction Single $60,000 or less $61,000 or less 100% $60,000 $70,000 $61,000 $71,000 Partial $70, or more $71,000 or more None Married filing jointly or a qualifying widower, and active Married filing jointly. Not active, but spouse is active Married filing separately $96,000 or less $98,000 or less 100% $96,000 $116,000 $98,000 $118,000 Partial $116,000 or more $118,000 or more None $181,000 or less $183,000 or less 100% $181,000 $191,000 $183,000 $193,000 Partial $191,000 or more $193,000 or more None Less than $10,000 Less than $10,000 Partial $10,000 or more $10,000 or more None 9

10 Overlooked Tax Benefits :Svrs Credit Savers Credit Savers Credit: Nonrefundable tax credit for eligible individuals Can hl help to offset cost of funding IRAs Capped at $1,000 for the year Must meet several requirements, including adjusted gross income (AGI) Overlooked Tax Benefits : Svrs Credit Savers Credit Must be at least 18 years of age Should not be a full time student, and Must not be claimed as a dependent on someone else s return. Income must be below certain amounts (next slide) Tax Benefits for IRAs: Savers Credit 2014 Thresholds Credit Rate Married and files a Files as head of Other category of filers joint return household Over Not Over Over Not Over Over Not Over 50% $ $36,000 $ $27,000 $ $18,000 20% $36, % $39,00 0 0% $60,00 0 $39,000 $27,000 $29,250 $18,000 $19,500 $60,000 $29,250 $45,000 $19,500 $30,000 $45,000 $30,

11 Tax Benefits for IRAs: Savers Credit 2015 Thresholds Credit Rate Married and files a Files as head of Other category of filers joint return household Over Not Over Over Not Over Over Not Over 50% $0.00 $36,500 $0.00 $27,375 $0.00 $18,250 20% $36,500 $39,500 $27,375 $29,625 $18,250 $19,750 10% $39,500 $61,000 $29,625 $45,750 $19,750 $30,500 0% $61,000 $45,750 $30,500 IRAs: Tracking Nontaxable Amounts IRS Form 8606: o Filed to report nondeductible contributions to Traditional IRAs o Keeps track of nontaxable balance o Filed for distributions/conversions when owner has after tax balance o Prevents taxation of nontaxable amounts Tax Forms to File Form 8606 to track basis o Nondeductible IRA contributions o Distributions and conversions of basis Form 5329 to report penalties and excise tax o Early distribution penalty o RMD penalty or penalty waiver request o Excise tax on excess IRA contributions 11

12 Your Source for Retirement Tools We can help you with: Questions about Traditional and Roth IRAs Employer plan suitability determination Tax reporting requirements General questions about IRAs and employer plans Thank You Thank You for listening! Appleby Retirement Consulting Inc