Periodically, we post articles here. Let us know if there's a topic of interest you'd like to see addressed.
Saving for Retirement: Required Minimum Distributions (RMDs)
Required Minimum Distributions
Third in our series of articles related to saving for retirement.
Various forms of retirement savings are "tax deferred," meaning that the savings put into them is money on which you've not yet paid income taxes. This may be because it was pre-tax payroll deductions into your company's 401(k) or because it was contributions you made to your IRA and then got to deduct on your income taxes. Further, if you made non-deductible contributions to an IRA, the growth of the money so invested is not taxed until it's distributed from the IRA (typically into a taxable account, and from there, spent). …
Saving for Retirement: Roth IRAs
The second in a series on various options for retirement savings. If you haven't already seen it, you might like to read Saving for Retirement: Traditional IRAs first.
Named after the late Senator William Roth of Delaware, who pushed for the creation of this variation on the traditional IRA account, the Roth IRA came into being in 1997. Like a traditional IRA account, a Roth IRA account is part of your overall IRA.
Like a traditional IRA account, a Roth account or investment may be an annuity, a brokerage account, a bank or CD account, a mutual fund account, or even a self-directed plan (with the use of a third-party custodian, which may allow one to own real estate or other non-publicly-traded investments). …
Saving for Retirement: Traditional IRAs
The first of a series of articles addressing how an individual may save in various types of retirement accounts.
This article addresses traditional IRAs to which an individual contributes directly. These are not employer-based plans, though there are some issues with employer-based plans which do affect these, either in how much one may deduct, or in some cases, an IRA to which both an individual and his employer may add funds. For some discussions about employer-based plans, both for regular employees and for the self-employed (which includes partners in partnerships), come back soon and look for future articles in this series.
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1099 update
As discussed in our article "1099s and you," the 2010 Healthcare act introduced a new 1099 reporting requirement for businesses which would have created a substantial new paperwork burden for all businesses and people with self-employment income. It would have required the issuance of a 1099 to any provider of goods or services to whom the business paid over $600 per year. Not just a receipt or an invoice, or keeping the receipt or invoice provided by that provider of goods or services, but a 1099 - issued to the business who bought the goods or services, as well as to the IRS.
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Who should own your kid's 529?
There is no single way to save for college which is best for everybody. The 529 plan, a recent innovation, may be one of the best, but it creates as many questions as answers. An earlier generation of savers used UTMA and UGMA accounts to save in their kids names in order to save in income taxes along the way, but UTMA and UGMA accounts lost much of their value with some recent tax updates, and they've always suffered certain defects with respect to what happens when someone else - the child in this case - actually ends up owning the assets.
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Year-End 2010
When Losses are a Good Thing
It's time for year-end tax management moves and there are a variety of strategies to consider this year, particularly with respect to the special treatment of Roth conversions in 2010, the potential expiration of the '01 and '03 tax cuts, not to mention the fact that the Estate Tax is coming back (and similarly, but more subtle in the implications, the Generation-Skipping tax). And perhaps we'll have time to address them in another News and Notes article, but today's topic is about a tax management strategy which is useful almost every year: harvesting capital losses.
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Taking a Mulligan on a Roth IRA Conversion
Roth IRA conversions have been in the headlines a lot in 2010, since the income cap for conversions went away. Fidelity recently did a study, however, and found that only 30% of investors who are eligible for Roth conversions were aware of the ability to undo those conversions via re-characterization.
In the game of golf, a mulligan is a do-over - a chance to retake a tee shot that you took and wish to pretend didn't happen so you can do it again. As we've discussed here before, many folks have an opportunity to convert traditional IRAs (usually with tax-deferred savings) into Roth IRAs (with savings which will not be taxed in the future). …
1099s and You (and the new Health Care Law)
We've all gotten 1099s. IRS Form 1099 is any of a variety of reporting forms used when one entity pays another entity under certain circumstances. A copy goes from the payer to the payee, and the payer also sends a copy to the IRS.
Some 1099s you've probably received: if you have an interest-bearing savings or checking account at a bank and you've earned more than $10 in interest in a year, you got a 1099-INT from the bank. This is partly why the bank requires your social security number to open the account.
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Can I put money into a Roth IRA?
Roth IRAs are getting to be more and more popular, and for good reason. We have no certain knowledge about future tax rates, but it seems quite likely that they've no place to go but up. With a Roth IRA, you pay taxes now on the money that goes in, and in the future, that money -- and whatever it's grown to -- comes out tax free.
But wait, there's more! Unlike traditional IRAs or other pre-tax employer-based retirement plans, there are no Required Minimum Distributions from a Roth IRA. Once you turn 70-1/2, you must start taking money out of traditional IRAs -- and paying taxes on those distributions. …
Billionaire dies in 2010 - pays no estate tax
As we've discussed before, 2010 is a very strange year for the federal estate tax. Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax rate decreased and size of an estate which would pay no estate taxes increased until, in 2009, a $3.5 million estate would not pay taxes. And then, this year, in 2010, the estate tax went away altogether -- for just the one year. Due to the way the estate tax repeal was structured, in order to reduce the apparent cost of the repeal, it was set to be repealed and then to spring back in 2011 to the same level it was back in 2001. …
Another reason to avoid Frequent Flier Rewards credit cards
In an earlier News and Notes article here, we discussed credit card rewards programs. The bottom line at that time was that generally, the best deals are cash back. Nobody has blackout dates on cash, you can use it in small increments, cash doesn't expire. And on a dollar-for-dollar basis, some of the most generous programs were cash programs (ie. when you come up with reasonable estimates for what points of various sorts are worth were you to buy with cash whatever those points got you).
Now, according to a Wall Street Journal article, a study has just quantified how infrequently folks can actually use those frequent flier miles to get "free" plane tickets:
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Extended deadlines for undoing certain Roth IRA transactions
This came up recently while discussing a Roth conversion. The folks in question had done a Roth conversion in 2009 and filed their 2009 taxes in April 2010. Now they're not sure that they meant to do that conversion in 2009 and are considering undoing it. (There may be a variety of reasons for undoing such a conversion, mostly beyond the scope of this note).
So the question posed was - okay - can it still be undone? How?
Normally, the deadline for an IRA re-characterization is the tax filing date for the tax year in which the transaction you're trying to undo took place. …
Treasury I-Series Savings Bonds
May 1, 2010 - the Treasury has announced the new interest rates for I-Bonds. The fixed-rate attached to all newly issued I-Bonds for the next six months is 0.20%. The semiannual inflation-rate, used in computing the interest on all outstanding I-Bonds, is 0.77%. These two rates are combined into a composite earnings rate for newly issued I-Bonds of 1.74%.
Some background:
US Treasury Savings Bonds. We've all heard of them, and many of us got them as gifts when we were young. The old versions were paper certificates with a face value on them which was twice the price that folks paid for them. …
IRS Tax Tips for 2010
The IRS has a huge collection of useful and (well, if you're like me) interesting tax tips about all sorts of tax-related issues. Here's the link:
And a couple of tips of particular interest:
Errors to Avoid at Tax Time (such as missing SSNs, math errors, etc)
Nine Things You Should Know About Penalties (ie. paying late, failure to file, etc)
Standard or Itemized Deductions (really good stuff to know)
Additional Standard Deduction for Real Estate Taxes (until recently, if you took the standard deduction, you couldn't deduct your property taxes. …
The Life-Cycle of a Taxable Investment
Roth IRAs, Traditional IRAs and Taxable investments
Lately there's been a lot of talk about Roth IRAs, particularly about the possibility of converting traditional IRAs into Roths. The trigger for much of this discussion is the fact that as of the beginning of 2010, many more people are now eligible to make the conversion. Until now, the law allowed conversions only for folks whose income was below $100,000. That cap has now been lifted, so suddenly many folks who previously couldn't consider conversions now can.
The Estate Tax is Back!
Don't get excited. It never really went away. But the big news today, Thurs, Dec. 3, 2009, is that the House passed a bill which is of great importance to anyone who is planning his estate -- and that should mean just about everyone.
While the larger topic of estate planning is an essential one and we will discuss it in greater detail in an upcoming News and Notes article, we are going to focus only on the estate tax, what was going to happen in 2010, and why this legislation is so important.
Let's start with some background about the federal estate tax.
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UGMA, UTMA and 529 Plans
A question often comes up amongst folks of a certain age regarding UGMA/UTMA accounts. Namely, since many of our parents used them for us about a generation ago, are they still tools that we should be considering for our college savings for our kids today. Or, perhaps of slightly greater complexity, if they already have a UGMA or UTMA account for their kids, what, if anything, should they do with them?
So what are UGMA/UTMA accounts, anyway? UGMA stands for the Uniform Gifts to Minors Act, which was passed in 1956 to provide a uniform set of rules which individual States could adopt to make it more convenient for folks to transfer assets to minors. …
Credit Card Rewards
Which bank should I use to save for college?
While everyone's circumstances are different, in many cases, the best way to save for college, especially if one's kids are fairly young, is through a 529 plan. 529s are tax-advantaged savings plans offered by each state.
With a 529 plan, your investments grow tax-free. You put in after-tax money (meaning you do not get a tax deduction for putting the money in -- if you're familiar with IRAs, it's more like a Roth IRA rather than a deductible traditional IRA) and when the money is ultimately spent for your kids college expenses, it comes out with no taxes due on the growth of the investments. …
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