Articles tagged with: contribution limit

Fall Financial Reminders

Here are some important things to note as the year comes to a close.

 As every calendar year ends, the window slowly closes on some notable financial deadlines and opportunities. Here are several to keep in mind before 2016 arrives.

Don’t forget that IRA RMD. If you are older than age 70½ and own one or more traditional IRAs, you have to take your annual IRA required minimum distribution (RMD) by December 31. If you are being asked to take your very first RMD, you actually have until April 1, 2016 to take it – but your 2016 income taxes may be substantially greater as a result. (Note: original owners of Roth IRAs never have to take RMDs from those accounts.)1

Did you recently inherit an IRA? If you have and you weren’t married to the person who started that IRA, you must take the first RMD from that IRA by December 31 of the year after the death of that original IRA owner. You have to do it whether the original account is a traditional IRA or a Roth IRA.2

You might want to divide that inherited IRA into multiple inherited IRAs before New Year’s Eve, thereby promoting a lengthier payout schedule for younger inheritors of those assets. This move must be made by the end of the year that follows the year in which the original IRA owner died. Otherwise, any co-beneficiaries receive distributions per the life expectancy of the oldest beneficiary. Check with the IRA custodian to see if it will permit this.2

Can you contribute more to a 401(k), 403(b), 457 or TSP plan? You have until December 31 to boost your 2015 contribution. This year, the contribution limit on both plans is $18,000 for those under 50, $24,000 for those 50 and older.3

Can you do the same with your IRA? The traditional and Roth IRA contribution limit for 2015 is $5,500 for those under 50, $6,500 for those 50 and older. (You must have employment compensation to make IRA contributions.) Some taxpayers earn too much to make Roth IRA contributions – above $131,000 AGI, an individual filing as single or head of household can’t make a Roth contribution for 2015, and neither can joint filers with AGI exceeding $193,000.4

Ever looked into a Solo(k) or a SEP plan? If you have self-employment income, you can save for the future using a self-directed retirement plan, such as a Simplified Employee Pension (SEP) plan or a Solo 401(k). You don’t have to be exclusively self-employed to set one of these up – you can work full-time for someone else and contribute to one of these while also deferring some of your salary into the retirement plan sponsored by your employer. Contributions to SEPs and Solo 401(k)s are tax-deductible. December 31 is the annual deadline to set one up, and if you meet that deadline, you can make your contributions for the current year as late as April 15 of next year.5

You can contribute up to 25% of your net self-employment income to a SEP for 2015 – up to $53,000. For a Solo 401(k), the same $53,000 limit applies – but you can reach it by contributing a mix of Roth or pre-tax salary deferrals and up to 25% of your net self-employment income (20% if your business is an LLC or sole proprietorship). You are allowed to defer up to $18,000 in salary and up to 20%/25% of net self-employment income into a Solo 401(k) for 2015, and up to $24,000 and up to 20%/25% net self-employment income if you are 50 or older. (If you contribute to another employer’s 401(k) plan, the sum of your employee salary deferrals plus your Solo(k) contributions can’t be greater than the aforementioned $18,000/$24,000 limits.)5,6

Do you need to file IRS Form 706? If you are wealthy and your spouse passed away in 2015, this may be necessary. Executors of estates use Form 706 to notify the IRS of the size of an estate. If a gross estate and adjusted taxable gifts of a decedent exceed the estate tax exemption (currently $5.43 million), the executor of that estate must file Form 706 after the decedent’s passing. If the decedent’s gross estate and adjusted taxable gifts are less than the estate tax exemption, Form 706 should be filed anyway to show the IRS that the unused portion of the decedent’s estate tax exemption may be carried over to the surviving spouse. A new IRS rule says that executors filing returns after July 31, 2015 for estates exceeding the estate tax exemption must inform both heirs and the IRS about the value of certain types of assets so that tax won’t be underreported should these assets be sold. (See your tax advisor for details.)7,8

Are you feeling generous? You could gift appreciated securities to charity before 2015 ends – you may take a charitable deduction for them on your 2015 1040 form and avoid capital gains taxes on the shares. You may want to gift a child, relative, or friend – a single taxpayer can gift up to $14,000 this year to as many other individuals as desired, and a couple may jointly gift up to $28,000 to as many individuals as they wish. Just remember the current $5.43 million/$10.86 million lifetime exemption.3

Mike Moffitt may be reached at ph# 641-782-5577 or email mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   Citations.

1 – fool.com/investing/general/2015/09/29/mrd-requirements-for-your-retirement-accounts.aspx [9/29/15]

2 – retirementwatch.com/IRASample1.cfm [10/13/15]

3 – cnbc.com/2015/09/12/its-time-to-maximize-those-year-end-investment-moves.html / [9/12/15]

4 – 401k.fidelity.com/public/content/401k/home/vpcontributionlimits [10/13/15]

5 – kiplinger.com/article/saving/T047-C001-S003-retirement-plans-for-self-employed-workers.html [9/9/14]

6 – irafinancialgroup.com/solo401kcontributionlimits.php [10/13/15]

7 – finance.zacks.com/must-file-irs-form-706-9433.html [10/13/15]

8 – tinyurl.com/nmjdd96 [8/7/15]

 

 

Financial Considerations for 2015

Is it time to make a few alterations for the near future?

2015 is less than two months away. Fall is the time when investors look for ways to lower their taxes and make some financial changes. This is an ideal time to schedule a meeting with a financial, tax or estate planning professional.

How do economists see next year unfolding? Morningstar sees 2.0-2.5% Gross Domestic Product (GDP) for the U.S. for 2015, with housing, export growth, wage growth, very low interest rates and continuing vitality of energy-dependent industries as key support factors. It sees the jobless rate in a 5.4-5.7% range and annualized inflation running between 1.8-2.0%. Fitch is far more optimistic, envisioning U.S. GDP at 3.1% for 2015 compared to 1.3% for the eurozone and Japan. (Fitch projects China’s economy slowing to 6.8% growth next year as India’s GDP improves dramatically to 6.5%.)1,2

The Wall Street Journal’s Economic Forecasting Survey projects America’s GDP at 2.8% for both 2015 and 2016 and sees slightly higher inflation for 2015 than Morningstar (with the Consumer Price Index rising at an annualized 2.0-2.2%). The Journal has the jobless rate at 5.9% by the end of this year and at 5.5% by December 2015.3

The WSJ numbers roughly correspond to the Federal Reserve’s outlook: the Fed sees 2.6-3.0% growth and 5.4-5.6% unemployment next year. A National Association for Business Economics (NABE) poll projects 2015 GDP of 2.9% with the jobless rate at 5.6% by next December.4

What might happen with interest rates? In the Journal’s consensus forecast, the federal funds rate will hit 0.47% by June 2015 and 1.17% by December 2015. NABE’s forecast merely projects it at 0.845% as next year concludes. That contrasts with Fed officials, who see it in the range of 1.25-1.50% at the end of 2015.3,4

Speaking of interest rates, here is the WSJ consensus projection for the 10-year Treasury yield: 3.24% by next June, then 3.58% by the end of 2015. The latest WSJ survey also sees U.S. home prices rising 3.3% for 2015 and NYMEX crude at $93.67 a barrel by the end of next year.3

Can you put a little more into your IRA or workplace retirement plan? You may put up to $5,500 into a traditional or Roth IRA for 2014 and up to $6,500 if you are 50 or older this year, assuming your income levels allow you to do so. (Or you can spread that maximum contribution across more than one IRA.) Traditional IRA contributions are tax-deductible to varying degree. The contribution limit for participants in 401(k), 403(b) and most 457 plans is $17,500 for 2014, with a $5,500 catch-up contribution allowed for those 50 and older. (The IRS usually sets next year’s contribution levels for these plans in late October.)5

Should you go Roth in 2015? If you have a long time horizon to let your IRA grow, have the funds to pay the tax on the conversion, and want your heirs to inherit tax-free distributions from your IRA, it may be worth it.

Are you thinking about an IRA rollover? You should know about IRS Notice 2014-54, which lets taxpayers make “split” IRA rollovers of employer-sponsored retirement plan assets under more favorable tax conditions. If you have a workplace retirement account with a mix of pre-tax and after-tax dollars in it, you can now roll the pre-tax funds into a traditional IRA and the after-tax funds into a Roth IRA and have it all count as one distribution rather than two. Also, the IRS is dropping the pro rata tax treatment of such rollover amounts. (Under the old rules, if you were in a qualified retirement plan and rolled $80,000 in pre-tax dollars into a traditional IRA and $20,000 in after-tax dollars into a Roth IRA, 80% of the dollars going into the Roth would be taxed under the pro-rated formula.) The tax liability that previously went with such “split” distributions has been eliminated. The new rules on this take effect January 1, but IRS guidance indicates that taxpayers may apply the rules to rollovers made as early as September 18, 2014.6  

Can you harvest portfolio losses before 2015? Through tax loss harvesting – dumping the losers in your portfolio – you can claim losses equaling any capital gains recognized in a tax year, and you can claim up to $3,000 in additional losses beyond that, which can offset dividend, interest and wage income. If your losses exceed that limit, they can be carried over into future years. It is a good idea to do this before December, as that will give you the necessary 30 days to purchase any shares should you wish.7

Should you wait on a major financial move until 2015? Is there a chance that your 2014 taxable income could jump as a consequence of exercising a stock option, receiving a bonus at work, or accepting a lump sum payout? Are you thinking about buying new trucks or cars for your company, or a buying a building? The same caution applies to capital investments.

Look at tax efficiency in your portfolio. You may want to put income-producing investments inside an IRA, for example, and direct investments with lesser tax implications into brokerage accounts.

Finally, do you need to change your withholding status? If major change has come to your personal or financial life, it might be time. If you have married or divorced, if a family member has passed away, if you are self-employed now or have landed a much higher-salaried job, or if you either pay a lot of tax or get unusually large IRS or state refunds, review your current withholding with your tax preparer.

Mike Moffitt may be reached at  ph# 641-782-5577 or mikem@cfgiowa.com.

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC.  Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor.  Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – news.morningstar.com/articlenet/article.aspx?id=666682&SR=Yahoo  [9/29/14]

2 – 247wallst.com/economy/2014/09/30/downside-risks-to-global-gdp-growth/ [9/30/14]

3 – projects.wsj.com/econforecast [9/30/14]

4 – blogs.wsj.com/economics/2014/09/29/business-economists-see-lower-interest-rates-than-the-fed-sees-in-late-2015/ [9/29/14]

5 – shrm.org/hrdisciplines/benefits/articles/pages/2014-irs-401k-contribution-limits.aspx [11/1/13]

6 – lifehealthpro.com/2014/09/30/irs-blesses-split-401k-rollovers [9/30/14]

7 – dailyfinance.com/2013/09/09/tax-loss-selling-dont-wait-december-dump-losers/ [9/9/13]