by Jean Miller | News, Retirement, Tax, Tax Planning - Individual, Tax Preparation - Individual
The Treasury Department has announced retirement plan contribution limits, which are adjusted annually, for 2019. Because inflation has gone up a bit recently, contribution limits are also going up, which means you can save more money next year.
The maximum pre-tax contribution limit for an Individual Retirement Account (IRA) is increasing to $6,000 in 2019 after a six-year stall at $5,500. An extra $500 may not seem like a big deal, but the investment will compound over time, making the increase especially valuable for younger workers. For example, an investment of $500 annually will amount to an extra $100,000 in retirement savings over 35 years.
Employees who participate in a 401(k) or similar workplace retirement plan can expect an increase from $18,500 in 2018 to $19,000 in 2019. That limit will also apply to 403(b), the Federal Government’s Thrift Savings Plan (TSP), and most 457 plans. As a result of this change, workers can defer paying income tax on approximately $42 more per month.
For those 50 years old and over, catch-up contribution limits remain the same for 2019: $6,000 for workplace plans and $1,000 for IRAs. All of this combined means that savers over 50 have the potential to stash away $32,000 in 2019.
The maximum amount of annual compensation that can be taken into account when determining employer and employee contributions is increasing in 2019 from $275,000 to $280,000. However, highly compensated employees may face additional limits on contributions. Earning more than $120,000 in 2018 may qualify you as highly compensated for 2019 contribution limits, and earning more than $125,000 in 2019 may qualify you as highly compensated for 2020 contribution limits.
If you have any questions or would like to review your retirement plan contribution amounts together, please give me a call at 317.549.3091 or email me to schedule an appointment.
by Daniel Kittell | Estate / Trust Tax - Individual, Estate Planning - Individual, News, Tax Planning - Individual, Tax Preparation - Individual
You have several options when you inherit an IRA, so it’s no wonder that most people on the receiving end have questions about taking distributions, tax implications, and incorporating the inheritance into their existing financial plan. For starters, it helps to distinguish if you’ve inherited the IRA from a spouse or someone else.
For spousal beneficiaries, you can roll over the inherited IRA into your existing IRA and the earnings will continue to grow tax-deferred. You won’t have to start taking required minimum distributions (based on life expectancy) until you reach age 70 ½, but you’ll pay a 10% early-withdrawal penalty for funds you take from the account before age 59 ½.
Spousal beneficiaries are also entitled to any of the methods available to non-spousal beneficiaries, which include:
- Lump-sum payment: when you’re taking the money from an inherited traditional IRA, you won’t be charged a 10% early withdrawal penalty, even if you’re under age 59 ½, though you will still have to pay taxes on the money.
- Five-year distribution plan: there are no required minimum distributions, but all the money will need to be withdrawn from the account by the end of five years.
- Life expectancy method: if the original owner was older than the beneficiary, the beneficiary can use their own age and the IRS Single Life Expectancy Table to calculate how much they’re required to withdraw from the account each year (failure to take out the minimum requirement will result in a 50% penalty on the amount that was not withdrawn on time).
It’s important to note that non-spousal beneficiaries aren’t permitted to roll an inherited IRA into an existing IRA, and they must begin withdrawing assets no later than December 31 of the year after the account holder passed away.
Roth IRAs can usually be inherited tax-free, but you can’t keep the funds in the account forever. Non-spousal beneficiaries have to take annual distribution from the account based on their life expectancy (using IRS guidelines), starting the year after the original IRA owner dies, while spouses have the option of rolling a Roth IRA into their own account. Another option is to withdraw all of the money in the account within five years.
If you are in a similar situation and have questions about an inherited IRA, please feel free to contact me via email at [email protected].
by Pete McAllister | Accounting News, News, Retirement, Tax Planning, Tax Planning - Individual
Often, for Baby Boomers or older generations, starting your career meant finding a company in your desired field and, unless there were layoffs or the company went bankrupt, staying there until you retired. Today, we live in the land of the Millennial, who now make up almost 35% of today’s workforce. But, for the Millennial generation, staying with the same company, and sometimes even in the same career, is grossly uncommon. According to analysis performed by LinkedIn, those who graduated college between 2006-2010 had, on average, three different jobs within their first five years in the workforce.
So what does that mean for retirement? You may find yourself asking, even if you’re not a Millennial, does that mean I should never switch companies? Will I ever be able to retire? Although finding a new career path or taking a leap of faith with a new company should not be discouraged in any way, too much jumping around may put you, and your retirement funds, at a greater risk, and here’s how:
- Waiting periods for 401(k)’s – Many companies require you to be employed for anywhere from three months to a year before they allow you to join their retirement program, meaning you are missing out on months you could be contributing if you move jobs too frequently.
- Distribution of Employer Matches – Many retirement plans also require you be with the company for a certain amount of time before you can take employer-matched funds out when you leave, a requirement you may never meet if you don’t stick around long enough.
- “Cashing out” can hurt your wallet – If you have only been with a company for a short time, but already began contributing to a 401(k), it may seem more appealing to simply cash out the small funds you have in the account. However, cashing out that money will mean you not only get taxed on the sum, but will also receive a 10% early distribution penalty.
Solutions to combat retirement fund shortage include opening an IRA, rolling your 401(k) funds into an IRA if you leave a company, or rolling funds into a 401(k) plan at your new company if your new employer permits transfers. Although the annual IRA contribution allowance is lower than that of a 401(k), any advisor would tell you that putting something into a retirement fund is better than not contributing at all. Many might say to just remain in your current role, but if a switch is needed, or gets you closer to your personal or financial goals, then consider your future beyond the workforce and take your retirement into your own hands.
If you have any questions, please contact me at [email protected].
