Posts Tagged ‘Roth IRA’

Five Changes Coming to the Retirement World in 2016

Monday, January 11th, 2016

2016 changes

It’s still early in 2016, but big changes are coming in the retirement world, as it’s always changing. As you plan for retirement, it’s important to stay on top of specific changes that can affect your self-directed IRA retirement accounts, regular retirement accounts, Social Security and investment vehicles. These changes could impact your saving strategy:

The new myRA is now available

The myRA is a Roth individual retirement account (IRA) that has no fees, and the government guarantees that it will never lose its value. We talked about myRA’s back in September, and weighed the pros and cons. This is pegged as an ideal option for those who are just getting started on their retirement savings because it’s easy to set up contributions.

The saver’s credit threshold increases

People who make slightly more money might have a better chance qualifying for the saver’s credit in 2016. The limit for adjusted gross income (AGI) increased $250 to $30,750 for single filers, and for married couples filing jointly, the AGI limit rose $500 to $61,500.

Obama’s 2016 budget focuses on retirement

President Obama’s budget proposals include eliminating the special tax break for net unrealized appreciation on retirement accounts, limiting Roth conversions to pretax dollars, putting a cap on retirement savings and more.

While some or all of Obama’s proposals might not happen, these changes could impact what you can do with your retirement accounts.

No more ‘restricted applications’

The “restricted-application” option is being eliminated. Before this new law, couples would file a “restricted application” after reaching full retirement age to receive only spousal Social Security benefits while their own benefit earned delayed credits until age 70. But now, only those who were 62 years old at the end of 2015 qualify.

Rebooting ‘file and suspend’ strategy

Spouses have been using the “file and suspend” strategy to increase their Social Security benefits. Changes are coming by May. As CNBC reports, in order for your spouse to receive a benefit based on your earnings record, you need to actually be receiving benefits as well. Some extensions are possible for those 62 and over.

Getting a Head Start on Your 2016 Taxes

Monday, December 21st, 2015


Whether you’re pre-distribution or post-distribution age and have an IRA, tax-wise, things can get complicated fast. There’s a lot that goes into getting taxes ready for some of us, so why not save yourself the panic in April and get prepared now?

Is a Roth IRA for you?

With a traditional IRA, contributions are made up of pre-tax dollars, but you’ll pay taxes on future withdrawals, and traditional IRAs are subject to required minimum distribution, or RMD. In a Roth IRA, contributions are made with post-tax dollars, but future withdrawals are tax free and aren’t subjected to required minimum distribution rules.
If you hold an asset in your IRA that could have significant growth potential, like real estate or a startup, it might make sense to convert to a Roth IRA. You will pay taxes on the amount you convert, but your earnings will then grow tax free indefinitely.​

Don’t forget about your business

Contributions to SEP-IRAs, SIMPLE IRAs and solo 401Ks reduce your tax bill now and help you rack up tax-deferred investment gains for later. For example, in the 2014 tax year, you could feasibly contribute as much as $17,500 in deferred salary ($23,000 if you were 50 or older) plus another 25% of your net self-employment earnings after deducting one-half of self-employment tax and contributions for yourself, up to a maximum of $52,000 total for both contribution categories, with a self-employed 401K, for example. Contribution limits vary by plan type and the IRS adjusts the maximums annually. Just this year, for example, the solo 401(k) contribution limit increased to $53,000.

Your RMD’s

If you’re turning 70½ this year, you have to take your 2015 required minimum distribution (or RMD) by April 1 of 2016, and you also have to take your 2016 RMD by the end of the year, Dec. 31, 2016. That means you could be taking two RMDs in 2016, which might result in a higher tax bill. It is best to consult with a tax planning professional to determine how best to approach your RMD this tax season.

If you’re 70½ or older this year, you must take a 2015 required minimum distribution by Dec. 31, 2015. Remember, there are significant penalties for not taking your RMD during the correct timeframe, including potentially having the undistributed portion taxed at 50%.

What is an IRA? Roth or Traditional: Which is Better

Monday, November 2nd, 2015

roth or traditional

An Individual Retirement Account, or IRA, is an account that payments are made into bi-monthly or monthly, earnings such as interest, dividends or capital gains are accumulated, investments can be made with it through a self-directed IRA, and it is meant to supplement income after a person is retired. The account, depending on the type, whether Roth or Traditional, can be tax-free or tax-deferred.
If you’re new to the retirement planning world, and all of this new information is confusing, hang tight, we’ve got you covered.

Click image to enlarge

What is an IRA - Infographic

When Withdrawing Funds from your IRA are Penalty-Free

Monday, October 26th, 2015

IRA withdrawal

It’s not uncommon that contributions that workers make to their IRA are prematurely withdrawn. An IRA is intended to supplement income in retirement years, but as the future and some circumstances are often out of our control, an IRA is sometimes used in other ways than retirement.

Should workers need to take funds from their IRA, the money that’s withdrawn may be subject to federal and state taxes, and if the person withdrawing the money is under age 59.5 when this occurs, another early-distribution penalty of 10% may be incurred. The reason the IRS imposes these fees is to deter workers from taking distributions from their IRA early, but there are situations where the IRS will waive early-distribution penalty fees.

Health Insurance

If you lose your job, and subsequently your health insurance (unless your insurance is purchased through, or have a private plan outside of the market) and are unemployed for 12 weeks or more, you may use your IRA to pay for purchasing health insurance for yourself, your spouse, or your dependents.

Medical Expenses

If you do not have health insurance and something like an accident or medical emergency should happen, the expenses that go along with a hospital can be financially devastating. You’re able to take distributions from your IRA if your medical expenses are more than your insurance will cover for the year, or if you have no insurance at all.
You’re also eligible to pull money out of your IRA and have medical expenses covered if you have unreimbursed medical expenses that are more than 7.5 percent of your adjusted gross income. These exemptions allow you to pull the money out of your IRA without likely incurring the 10-percent early withdrawal penalty.

Your First Home

A penalty-free withdrawal of up to $10,000 ($20,000 for couples) can be taken from your IRA when you’re buying or building your first home. The funds can be used to pay for a down payment, closing costs, taxes, and other fees that go into buying a home.
The IRS sees this home as your first home only if you or your spouse have not owned a home in the last two years. It’s also important to note that this $10,000 is a lifetime limit per individual, meaning that you can’t make this withdrawal every time you buy a house. The $10,000 mark is the absolute limit for the penalty-free homebuyer provision.

College Costs

IRA distributions are allowed to pay for college costs like tuition, fees, books and supplies, and yourself, your spouse, your children or your grandchildren are eligible. Room and board expenses can also be covered for part-time students. It’s important to note that IRA withdrawals for this purpose could possibly reduce eligibility for financial aid for some students, as the IRA funds can be considered income, therefore possibly disqualifying aid. Waiting until the student is in their final year at college reduces the risk of financial aid being withdrawn.


If a doctor can determine that due to a mental or physical disability, that you’re unable to find work or stay employed, you are eligible for penalty-free distributions from your IRA. One factor though is that the disability must be expected to last the duration of your life, or result in your death. The funds can be withdrawn for any purpose in this circumstance, but make sure that you check with your IRA custodian regarding their policies for handling distributions due to disability.

In the end, most retirement advisors don’t like the idea of early distribution, but there’s no doubt it can be a life-saver in many situations. Even though the above situations are exempt from early-distribution penalties, they still may be subject to federal and state taxes. Speak with your tax professional to determine whether or not certain amounts are taxable.

Author: Tanya

Let’s Talk About the Pros and Cons of President Obama’s “myRA”

Monday, September 28th, 2015

myRA pic 3

(image credit to The Monday Face)

In the State of the Union of January 2014, President Obama announced his plans to introduce a program called “myRA” which stands for My Retirement Account. It’s specifically built for workers who may not have a current retirement account, but would like to start building a nest egg. Here are a few of the specifications for opening a myRA.

How does it work?

The account is essentially a Roth IRA, so the contributions that you make each month are made tax-free, and through direct deposit (which means that your work will first have to offer the program). Your contributions are made automatically on whatever day works best for you, like a certain day of the month, or multiple paydays within a month. If/when workers switch jobs, the account stays with you since your employer isn’t administering the account, so no worries on that front.

The funds that you deposit are invested in government savings bonds, and backed by the U.S Department of the Treasury, so savers can never lose their principal investment. The cap on myRA contributions are $5,500, a year under current limits, just like with regular Roth IRAs.

Who’s eligible?

This new program is mainly aimed at low to middle-income americans who don’t have access to employer-sponsored retirement plans. With no fees to maintain the account, and no fees to open the account, it’s ideal for the target demographic. But all workers may invest in a myRA, including those who would like to supplement an existing 401k plan, as long as their household income falls below $191,000 a year.

What are the downsides?

One of the main downsides is that it’s not a long-term retirement plan. The myRA plan is mainly meant as a kickstarter for your retirement, because once a participant’s account balance hits $15,000, or the account has been open for 30 years, they will have to roll it over to a private sector Roth IRA, where the money can continue to grow tax-free. Another downside is interest that the account will gain, you’re not going to have a huge amount of earnings on this account. The White House said the accounts will earn the same rate as the Thrift Savings Plan’s Government Securities Investment Fund that it offers to federal workers. That fund earned around 1.5 % in 2012, and had an average annual return of 3.6% between 2003 and 2012.

The lack of investment control that the account holder has might also be a downside for some. As we said above, the funds are invested in government savings bonds, and so subsequently, the opportunity for workers to have some investment freedom is out the window unfortunately.

The truth is that no one thinks this alone will fix the fact that millions of Americans have little-to-no retirement savings, but retirement advocates are cheering on the new program as an important step in the right direction.

Author: Tanya