Monthly Archives: December 2014

Don’t Make These Money Mistakes When Inheriting an IRA

No Money Mistakes - Yes to IRA Inheritance

While it’s important for investors to determine who will assume an individual retirement account (IRA) upon their death, it can be equally as important for those inheriting an IRA to understand what to do with the money – including how to avoid costly mistakes.

Here are a few tips for those who are beneficiaries of IRAs, sorted by spouse and non-spouse recipients:

Spouse Inheriting an IRA

When a spouse is named as a beneficiary on a traditional IRA account, the easiest way to handle the transfer of money without it being taxed is to retitle the IRA and put it in his or her own name. This allows the beneficiary to keep the tax-deferred status. When the beneficiary reaches the age of 70-1/2, he or she must take the required minimum distributions (RMDs).

Where a spouse can misstep is forgetting to retitle the IRA in his or her own name, and taking the full lump sum all at once to pay for living expenses, which means the spouse has to pay taxes on the money right away. If he or she can defer the withdrawals over time instead of taking the lump sum, then the beneficiary avoids paying taxes on the entire amount, all at once.

Here’s where the situation gets a little trickier: If the beneficiary of a traditional IRA is a spouse younger than age 59-1/2, then there is also a 10 percent penalty for early withdrawal on top of the income tax. Young spouses who need some of the money can avoid the penalty by retitling the account as an inherited IRA, making sure to retitle the account again in his or her name alone at 59-1/2 years old to defer withdrawals until the required minimum distributions go into effect.

What if the account is a Roth IRA rather than a traditional setup? There is no tax penalty or income tax owed if you withdraw the money, since the tax is taken out when the money is contributed. However, you eliminate the opportunity to grow the existing funds, tax-free, in the future.

Non-Spouse Inheriting an IRA

If you are a non-spouse, such as a child or parent, who is the beneficiary of a traditional IRA account, then your options are not quite as simple. Particularly, the biggest difference is that you don’t have the liberty of rolling over the funds into your own name.

To take advantage of the ongoing tax-deferred gains, you should retitle the account as an inherited IRA. While the IRS will require that you take RMDs every year, starting right away, you can still reinvest the funds from the RMDs to continue growing your money. If you inherit a 401(k) instead of an IRA, then you can also retitle the account as an inherited IRA to protect the status of the funds.

Here’s where non-spouse beneficiaries make mistakes: If you decide to cash out the account, then you must pay income tax on the full amount and you lose the tax shelter that an IRA affords. This is a huge money fumble, because you lose money now and in the future.

Questions about inherited retirement accounts?

Guidant Wealth Advisors’ senior staff can explain the rules and provisions of assuming IRAs, 401(k) accounts, and other investments. Please contact us to discuss your options in managing and maximizing retirement funds.

Income Tax Changes for 2015: IRA, 401(k) & Retirement Accounts

Rich with Opportunities - Tax Changes 2015

The Internal Revenue Service (IRS) has announced a bevy of income tax changes for 2015, including some positive amendments for owners of IRA, 401(k) and other retirement accounts. Here, a few opportunities that investors may want to consider in the coming year:

  • 401(k) Maximum Contribution Increase for Employees: The IRS has increased the maximum contribution limit to $18,000 – up from $17,500 during the past year. Employees 50 years of age and older also get a bump in the catch up contribution limit, from $5,500 to $6,000 in 2015.
  • Single 401(k) Maximum Contribution Increase for Employee and Employer: The employee limit will rise to $18,000 from $17,500 (the same as the above), and the employer can make an additional contribution. The total contribution may not exceed $53,000 for the year (up from $52,000).
  • SEP IRA Contribution Cap Increase: Self-employed individuals with a SEP IRA can now contribute up to $53,000 for 2015, up from $52,000. This, of course, must be no more than 25 percent of the employee’s compensation.
  • Simple IRA Maximum Contribution Increase for Employees: The IRS has increased the maximum contribution limit to $12,500 – up from $12,000. Employees 50 years and older also get a bump in the catch up contribution limit, from $2,500 to $3,000 in 2015.
  • Roth IRA Phase-Out Range Increases for Married & Single Filers: The IRS has imposed new phase-out limits for single filers and married couples who are filing jointly on their 2015 incomes taxes. For singles, the income phase-out range is $116,000-131,000, up from $114,000-129,000. For married couples filing jointly, the new range is $183,000-193,000, up from $181,000-191,000 in 2014.
  • New Phase-Out Ranges for Traditional IRA Contributions: The income phase-out ranges for taxpayers who want to make traditional IRA contributions and participate in workplace retirement plans have increased for 2015. For singles, the deduction is phased out if the individual’s income is between $61,000 and 71,000, up by a thousand dollars from the previous year. For married couples filing jointly, the spouse who is covered by a workplace retirement plan has an income phase-out range of $98,000-118,000, an increase of $2,000. For the IRA contributor who is not covered by a workplace retirement plan but is married to someone who is covered, the phase-out goes into effect if the couple’s income is $183,000-193,000, up by $2,000 from the previous year.
  • Death Tax (Estate Tax) Deduction Increase: The income tax code has changed for 2015 regarding estate tax deductions. Up from $5.34 million in 2014, the new $5.4 million limit means that anything above this new limit will be taxed by the IRS. For couples, the limit simply doubled to $10.8 million.

Looking for what hasn’t changed in regards to retirement accounts?

According to the IRS, there are no income tax changes for 2015 that impact IRA or Roth IRA accounts. Maximum contribution limits remain the same as they were in 2014.

Not sure if these tax changes impact you?

Get in touch with Guidant Wealth Advisors to see if you qualify for these limit increases in 2015. You can contact us online or at (847) 330-9911.

Is 2015 the year of retirement? Answer these financial questions first.

Waiting to Retire - Finance Questions

Almost done waiting for retirement, and just a few financial matters to go over.

If the coming year is one you’ve been daydreaming about (retirement, finally), then there’s no doubt finances have also been on your mind. Before you empty your desk and move into that second home, let’s take a look at some financial questions that deserve your honest answers, so you can confirm 2015 is indeed THE year.

What am I doing with my 401(k) after retirement?

Many employees believe that with retirement comes the obligation to rollover a 401(k) to an IRA account. But that just isn’t the case. In fact, there may be financial advantages to keeping your 401(k) plan right where it is, instead of transferring funds to the IRA. Talk to a financial advisor about your current retirement accounts before you do anything, and be sure that – whatever you decide – you do it within the mandatory 30 days after you leave your job.

When will I take Social Security payouts?

The notion that social security benefits can provide you with a comfortable retirement is a fairytale – and a widespread one at that. Today’s retiree can benefit the most by waiting to take social security payouts, because it means more money in the long run. Check with your retirement advisor about the best time for you to begin taking benefits.

How will Medicare affect my financial plan?

There are many factors that influence how Medicare insurance impacts your finances, including: income, supplemental insurance, out-of-pocket expenses, and premium hikes. If you’re retiring early, then you won’t need to worry about enrolling in Medicare until you reach 65; however, for those older than 65 and who have been relying on employer-provided insurance, it’s time to see what changes are going to happen after retirement. You should also consult your financial planner before you enroll in any new insurance programs.

The wait is almost over, and you’re about to enter the prime of your life. Take these ideas into account today, so that your tomorrow can be as carefree as you’ve imagined it.

The Biggest Tax Advantage of Charitable Giving

charitable-donations

One of the most powerful tax advantages available to charitable givers is one that some people don’t realize exists.

Whether you regularly make monetary donations to local organizations throughout the year or are thinking about making your first charitable contribution this season, the act of giving to others is a powerful one. It is also one that impacts you financially, so it’s important to understand how the IRS interprets your gifts before you present them.

Specifically, we’re talking about charitable contributions that come from appreciable stock. Anytime you take that percentage of stock and write a check directly to an organization, the IRS rewards you with a nice little deduction on your income taxes – and a side of capital gains tax. But there is a way to avoid the capital gains tax and get the deduction – it’s called “in kind” charitable contributions.

“In Kind” Donations

When you choose to make an “in kind” donation, you basically take the appreciable stock and donate it “as is.” In this case, it means transferring the donation as stock instead of cash, which allows you to forego the capital gains tax, qualify for the tax deduction, and provide the charitable gift you normally would. This is the biggest tax advantage for those who want to start or continue supporting a favorite not-for-profit or local organization.

Thinking about an end-of-year charitable gift?

Always talk to your financial advisor or accountant before making any charitable donations. Guidant Wealth Advisors can help determine where you have gains and how to donate them in the most financially responsible (and rewarding) manner possible. Contact us online to set up a time to talk.