Did You Forget Your June 15th Estimated Payment? How to Prevent Missed Quarterly Tax Payments

Created on Tuesday, 22 June 2010 04:49

Written by Tom Luhn

Like most of us, something that only has to be done four times a year is often forgotten.  And so it goes with quarterly estimates.  These late or forgotten payments can cause you to incur underpayment penalty.

The US Treasury offers a payment mechanism that may help. It is the “Electronic Federal Tax Payment System,” or “EFTPS” for short.

EFTPS is a secure, free system where, after enrollment, you can schedule required quarterly federal payments up to one year in advance.  These payments you set up ahead of time will automatically be made on the dates you select – no longer will you need to remember when a payment is due.

Using EFTPS will also eliminate the very real possibility that your check will be credited to someone else’s account or – worse yet – lost in transit.  The system allows you to initiate payments via the Internet or by telephone.

For more information, and to begin making electronic payments, visit the EFTPS Web site at www.eftps.gov.

The Roth 401(k) - A Good Alternative to the Roth IRA?

Created on Thursday, 03 June 2010 09:03

Written by Brian Wynne

As my colleague mentioned last week, the income limitations on Roth IRA conversions (moving qualified retirement plan or traditional IRA assets into a Roth IRA) were removed beginning in 2010.  That change opens the door for all taxpayers to take advantage of the Roth IRA – specifically the tax-free growth (as opposed to tax-deferred in a 401(k) or traditional IRA) and the lack of required minimum distributions (RMDs).  You pay the tax once on conversion to move those pre-tax assets into post-tax assets, and then (after meeting the age and time requirement) any future distributions are 100% tax free, including all future earnings as long as you live.

Current Roth Contributions

Even though the income limitations on Roth conversions were lifted, the income limit on annual Roth contributions is still in place ($105,000-$120,000 for single taxpayers, $167,000-$177,000 for married taxpayers).  That keeps annual Roth contributions out of reach for higher-income individuals. 

There is another option, however:  starting in 2006, employers were allowed the option of including a Roth component of their 401(k) plan – called a Roth 401(k).  The contribution limits are the same as a regular 401(k) ($16,500 in 2010), but instead of getting a tax deferral on the amount (the contribution is excluded from your pay and taxed later during your retirement); the amounts are taxed currently and can be distributed tax-free in the future, just like a Roth IRA.  This is a great option for a taxpayer who earns too much to be eligible for Roth IRA contributions, but wants to take advantage of the tax-free growth.  One other note: employer contributions cannot be allocated to the Roth account – those are still taxable on withdrawal. 

The catch is that the Roth 401(k) is not exactly like a Roth IRA.  We already know the annual contribution limits are higher, which is an advantage.  And the Roth 401(k) is not restricted by income limitations—another advantage. 

To Convert, or Not to Convert: That is the Question for IRA Owners

Created on Monday, 24 May 2010 04:38

Written by Eric Fletcher

The Roth IRA can be an extremely powerful vehicle for retirement savings.  Although contributions to a Roth IRA do not provide a current tax deduction, future withdrawals (once you reach the age of 59 and a half) are totally tax-free.  For high net worth taxpayers, whose income is not anticipated to decline substantially after retirement, the benefit of a current deduction can be far outweighed by the tax-free withdrawal of the presumably appreciated investments in the future.

More Benefits of the Roth IRA

Furthermore, the lack of an annual required minimum distribution from the Roth IRA can provide for additional tax-free growth.  While traditional IRAs mandate that the account owner must make annual withdrawals beginning after they reach age 70 and a half, Roth IRA owners and inheriting spouses are not required to make any lifetime distributions.  If assets and income outside of the IRA are sufficient to cover the expenses of the retiree, the Roth IRA can be left untouched allowing the assets to continue to appreciate tax-free.  

The New HIRE Act Hiring Incentives and Retention Credit. Is Your Spouse Eligible?

Created on Thursday, 13 May 2010 04:24

Written by Glenn Bailey

A new law can provide you a payroll tax savings for hiring new workers, and may allow you to take advantage of them if you hire your spouse. The Hiring Incentives to Restore Employment Act, P.L. 111-147 provides two tax benefits for employers that hire workers this year: payroll tax forgiveness for hiring unemployed workers and a tax credit for as much as $1,000 for keeping them on the payroll for at least one year.

Under this law qualified employers get to skip paying the employer’s 6.2% share of Social Security taxes on wages paid in 2010 to a newly hired qualified individual. A “qualified individual” is one who:

Begins employment with the employer after Feb. 3, 2010 and before Jan. 1, 2011;

Certifies by signed affidavit or Form W-11, under penalties of perjury, that they haven't been employed for more than 40 hours during the 60-day period ending on the date the employee begins employment with the qualified employer;

Was not hired to replace another employee of the employer unless that other employee left voluntarily or for cause (including downsizing); and

Is not related to the qualified employer in any of the following ways;  an individual cannot be the taxpayer's children or their descendants, siblings or step-siblings, parents or an ancestor of their parents, step-parents, niece or nephew, uncles, or aunts, or in-laws. They also can’t be their dependent. The rules don't mention a spouse.  They also can’t be a person who owns, directly or indirectly, more than 50% of the business.