retirement

What Qualifies As A “Coronavirus-Related Distribution” From A Retirement Plan?

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As you may have heard, the Coronavirus Aid, Relief and Economic Security (CARES) Act allows “qualified” people to take certain “coronavirus-related distributions” from their retirement plans without paying tax.

So how do you qualify? In other words, what’s a coronavirus-related distribution?

Early distribution basics

In general, if you withdraw money from an IRA or eligible retirement plan before you reach age 59½, you must pay a 10% early withdrawal tax. This is in addition to any tax you may owe on the income from the withdrawal. There are several exceptions to the general rule. For example, you don’t owe the additional 10% tax if you become totally and permanently disabled or if you use the money to pay qualified higher education costs or medical expenses

New exception

Under the CARES Act, you can take up to $100,000 in coronavirus-related distributions made from an eligible retirement plan between January 1 and December 30, 2020. These coronavirus-related distributions aren’t subject to the 10% additional tax that otherwise generally applies to distributions made before you reach age 59½.

What’s more, a coronavirus-related distribution can be included in income in installments over a three-year period, and you have three years to […]

By |June 23rd, 2020|ira, New Tax Laws, retirement, roth ira|0 Comments

A Nonworking Spouse Can Still Have An IRA

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It’s often difficult for married couples to save as much as they need for retirement when one spouse doesn’t work outside the home — perhaps so that spouse can take care of children or elderly parents. In general, an IRA contribution is allowed only if a taxpayer has compensation. However, an exception involves a “spousal” IRA. It allows a contribution to be made for a nonworking spouse.

Under the spousal IRA rules, the amount that a married couple can contribute to an IRA for a nonworking spouse in 2020 is $6,000, which is the same limit that applies for the working spouse.

Two main benefits

As you may be aware, IRAs offer two types of benefits for taxpayers who make contributions to them.

  1. Contributions of up to $6,000 a year to an IRA may be tax deductible.
  2. The earnings on funds within the IRA are not taxed until withdrawn. (Alternatively, you may make contributions to a Roth IRA. There’s no deduction for Roth IRA contributions, but, if certain requirements are met, distributions are tax-free.)

As long as the couple together has at least $12,000 of earned income, $6,000 can be contributed to an IRA for each, for […]

By |June 2nd, 2020|contributions, ira, retirement|0 Comments

IRA Account Value Down? It Might Be A Good Time For A Roth Conversion

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The coronavirus (COVID-19) pandemic has caused the value of some retirement accounts to decrease because of the stock market downturn. But if you have a traditional IRA, this downturn may provide a valuable opportunity: It may allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

The key differences

Here’s what makes a traditional IRA different from a Roth IRA:

Traditional IRA. Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you (or your spouse) participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax deferred.

On the downside, you generally must pay income tax on withdrawals. In addition, you’ll face a penalty if you withdraw funds before age 59½ — unless you qualify for a handful of exceptions — and you’ll face an even […]

By |April 28th, 2020|investment, ira, New Tax Laws, retirement, roth ira|0 Comments

IRS Extends Some (But Not All) Employee Benefit Plan Deadlines

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The IRS recently issued Notice 2020-23, expanding on previously issued guidance extending certain tax filing and payment deadlines in response to the novel coronavirus (COVID-19) crisis. This guidance applies to specified filing obligations and other “specified actions” that would otherwise be due on or after April 1, 2020, and before July 15, 2020. It extends the due date for specified actions to July 15, 2020.

Specified actions include any “specified time-sensitive action” listed in Revenue Procedure 2018-58, including many relating to employee benefit plans. The relief applies to any person required to perform specified actions within the relief window, and it’s automatic — your business doesn’t need to file any form, letter or other request with the IRS.

Filing extensions beyond July 15, 2020, may be sought using the appropriate extension form, but the extension won’t go beyond the original statutory or regulatory extension date. Here are some highlights of Notice 2020-23 specifically related to employee benefit plans:

Form 5500. The relief window covers Form 5500 filings for plan years that ended in September, October or November 2019, as well as Form 5500 deadlines within the window as a result of a previously filed […]

By |April 22nd, 2020|business, contributions, employer, hsa, retirement|0 Comments

Numerous Tax Limits Affecting Businesses Have Increased For 2020

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An array of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2020. Here are some that may be important to you and your business.

Social Security tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019).

Deductions

  • Section 179 expensing:
    • Limit: $1.04 million (up from $1.02 million for 2019)
    • Phaseout: $2.59 million (up from $2.55 million)
  • Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:
    • Married filing jointly: $326,600 (up from $321,400)
    • Married filing separately: $163,300 (up from $160,725)
    • Other filers: $163,300 (up from $160,700)

Retirement plans

  • Employee contributions to 401(k) plans: $19,500 (up from $19,000)
  • Catch-up contributions to 401(k) plans: $6,500 (up from $6,000)
  • Employee contributions to SIMPLEs: $13,500 (up from $13,000)
  • Catch-up contributions to SIMPLEs: $3,000 (no change)
  • Combined employer/employee contributions to defined contribution plans (not including catch-ups): $57,000 (up from $56,000)
  • Maximum compensation used to determine contributions: $285,000 (up from $280,000)
  • Annual benefit for defined benefit plans: $230,000 (up from $225,000)
  • Compensation defining a highly compensated employee: $130,000 (up from $125,000)
  • Compensation defining a “key” employee: $185,000 (up from $180,000)

Other employee benefits

  • Qualified transportation fringe-benefits employee income exclusion: $270 per month (up […]

4 New Law Changes That May Affect Your Retirement Plan

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If you save for retirement with an IRA or other plan, you’ll be interested to know that Congress recently passed a law that makes significant modifications to these accounts. The SECURE Act, which was signed into law on December 20, 2019, made these four changes.

Change #1: The maximum age for making traditional IRA contributions is repealed. Before 2020, traditional IRA contributions weren’t allowed once you reached age 70½. Starting in 2020, an individual of any age can make contributions to a traditional IRA, as long he or she has compensation, which generally means earned income from wages or self-employment.

Change #2: The required minimum distribution (RMD) age was raised from 70½ to 72. Before 2020, retirement plan participants and IRA owners were generally required to begin taking RMDs from their plans by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the early […]

By |February 4th, 2020|ira, New Tax Laws, retirement|0 Comments

New Law Helps Businesses Make Their Employees’ Retirement Secure

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A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.

  1. Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.
  2. There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new […]
By |February 4th, 2020|New Tax Laws, retirement|0 Comments

What Lenders Look for in a Succession Plan

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Business owners are urged to create succession plans for the good of their families and their employees. But there’s someone else who holds a key interest in the longevity of your company: Your lender.

If you want to maintain a clear path to acquiring the working capital your business may need after you’ve stepped down, it’s important to keep your lender apprised of your progress in putting a carefully considered succession plan in place.

A viable successor

One key operational issue that lenders look for in a succession plan to address is, simply, who will lead the enterprise after you? For family-owned businesses, finding a successor can be difficult. Children or other relatives may be qualified but have no interest in taking the reins. Or they may want to be involved but have insufficient experience.

To reassure your lender about issues such as these, take the time to identify and nurture future leaders. […]

By |January 13th, 2020|succession planning|0 Comments

3 Last-Minute Tips That May Help Trim Your Tax Bill

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If you’re starting to fret about your 2019 tax bill, there’s good news — you may still have time to reduce your liability. Three strategies are available that may help you cut your taxes before year-end, including:

1. Accelerate deductions/defer income. Certain tax deductions are claimed for the year of payment, such as the mortgage interest deduction. So, if you make your January 2020 payment this month, you can deduct the interest portion on your 2019 tax return (assuming you itemize).

Pushing income into the new year also will reduce your taxable income. If you’re expecting a bonus at work, for example, and you don’t want the income this year, ask if your employer can hold off on paying it until January. If you’re self-employed, you can delay your invoices until late in December to divert the revenue to 2020.

You shouldn’t pursue this approach if you expect to land in a higher tax […]

By |December 11th, 2019|deduction, deductions, investment, retirement, tax planning|0 Comments

Using Your 401(k) Plan to Save This Year and Next

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You can reduce taxes and save for retirement by contributing to a tax-advantaged retirement plan. If your employer offers a 401(k) or Roth 401(k) plan, contributing to it is a taxwise way to build a nest egg.

If you’re not already contributing the maximum allowed, consider increasing your contribution rate between now and year end. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

With a 401(k), an employee elects to have a certain amount of pay deferred and contributed by an employer on his or her behalf to the plan. The contribution limit for 2019 is $19,000. Employees age 50 or older by year end are also permitted to make additional “catch-up” contributions of $6,000, for a total limit of $25,000 in 2019.

The IRS just announced that the 401(k) contribution limit for 2020 will increase to $19,500 (plus the $6,500 catch-up contribution).

A traditional 401(k)

A traditional 401(k) offers many benefits, including these:

  • Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure […]
By |November 13th, 2019|401k, retirement|0 Comments