This post was written with the assistance of Ashleigh Zeller from the Firm's Benefit Plan sector.
With many employers now offering a Roth 401(k) component with their retirement benefits, you may be wondering which option works best for your retirement planning purposes. Like most questions involving tax planning matters, the answer is rarely straightforward.
In this post, we’ll look at the differences between Roth and traditional 401(k) plans, as well as Roth IRA and Roth 401(k) plans, and cover some of the tax consequences you may incur when using these retirement savings strategies.
If you own a business, employing your child can be a great opportunity to teach valuable lessons about earning, saving and hard work. It is also an excellent tax-savings strategy for you and your child. However, before you bring your college kid on your payroll for the summer, there are a number of regulations and savings strategies to keep in mind.
Required Minimum Distribution (RMD) planning for those who are turning 70 ½ in 2012.
If you have a 401(k) or traditional IRA plan and are turning 70 ½ this year you are now subject to the RMD rules. These require you to take at least a minimum distribution from your plan based on its balance. The law says the distribution must be taken by April 1st of the year after you turn 70 ½. While sometimes it makes sense to defer the income as long as possible, this may not be the year to do it. We don’t know what tax rates will look like in 2013, but they are currently scheduled to go up absent any congressional action to adjust them. There is also a new 3.8% “Medicare” tax on investment income to the extent your adjusted gross income (AGI) exceeds $200k (single) or $250k (married). If your income is expected to exceed this threshold it may make sense to take the distribution in 2012. You should also consider that if you wait until 2013 to take your RMD you still would need to take the 2013 RMD in 2013, resulting in additional income for that year. If your AGI was otherwise close to the income limit the 2 payments may push it over the top.
Last week the IRS released its annual “Dirty Dozen” Tax Scams for 2014 as a reminder to be on the lookout for fraud and take steps to protect sensitive information as you file your taxes. Not surprisingly, identity theft tops this list.
Tax-related identity theft continues to grow – last year 1.6 million Americans were victims within the first half of the year. It is essential to be on the lookout for scams and take the necessary precautions with your social security number and other personal information.
Under current law, 2011 is the final year a charitable contribution can be made from an IRA, (by an individual age 70 ½ or older), directly to a qualified tax-exempt charity. This type of distribution is called a “qualified charitable distribution”. The distribution is not taxed to the donor, and counts towards fulfilling the required minimum IRA distribution amount (RMDs) that must be withdrawn each year.
If a “qualified charitable distribution” is made, no itemized deduction is allowed. However, since the distribution is not included in taxable income, the 50%-of-AGI limitation that cash contributions are generally subject to does not apply.