Articles tagged with: salary deferrals

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]

 

 

Taking a Loan from Your Retirement Plan = Bad Idea

Why you should refrain from making this move.

Thinking about borrowing money from your 401(k), 403(b), or 457 account? Think twice about that, because these loans are not only risky but injurious to your retirement planning.

A loan of this kind damages your retirement savings prospects. A 401(k), 403(b), or 457 should never be viewed like a savings or checking account. When you withdraw from a bank account, you pull out cash. When you take a loan from your workplace retirement plan, you sell shares of your investments to generate cash. You buy back investment shares as you repay the loan.

So in borrowing from a 401(k), 403(b), or 457, you siphon down your invested retirement assets, leaving a smaller account balance that experiences a smaller degree of compounding. In repaying the loan, you maybe repurchasing investment shares at higher prices than in the past – in other words, you will be buying high. None of this makes financial sense.1

Most plans charge a $75 origination fee for a loan, and of course they charge interest – often around 5%. The interest paid will eventually return to your account, but that interest still represents money that could have remained in the account and remained invested.1

Your contributions to the plan may be halted. Some workplace retirement plans suspend regular employee salary deferrals when a loan is taken. They can resume when you settle the loan.1

Your take-home pay may be docked. Most loans from 401(k), 403(b), and 457 plans are repaid incrementally – the plan subtracts X dollars from your paycheck, month after month, until the amount borrowed is fully restored.1

If you leave your job, you will quickly have to pay 100% of your loan back. This applies if you quit; it applies if you are laid off or fired. You will have 30-60 days (per the terms of the plan) to repay the loan in full, with interest.2

If you are younger than age 59½ and fail to pay the full amount of the loan back, the IRS will characterize any amount not repaid as a premature distribution from a retirement plan – taxable income that is also subject to an early withdrawal penalty.1,2

Even if you have great job security, the loan will probably have to be repaid in full within five years. Most workplace retirement plans set such terms. If the terms are not met, then the unpaid balance becomes a taxable distribution with possible penalties (assuming you will not turn 59½ in the year in which repayment is due). If you default on the loan, the retirement plan may bar you from making future contributions.1

Would you like to be taxed twice? When you borrow from an employee retirement plan, you invite that prospect. One, you will be repaying your loan with after-tax dollars. Two, those dollars will be taxed again when you withdraw them for retirement (unless your plan offers you a Roth option).1

Why go into debt to pay off debt? If you borrow from your retirement plan, you will be assuming one debt to pay off another. It is better to go to a reputable lender for a personal loan; borrowing cash has fewer potential drawbacks.

You should never confuse your retirement plan with a bank account. Some employees seem to do just that – in 2013, Fidelity researched participants in its retirement plans and found that 66% of those who had borrowed from 401(k)s had done so more than once. No doubt they became acquainted with the above dilemmas in the process.1

In a recent TIAA-CREF survey, 44% of those who had taken loans from their 401(k) plans said they regretted doing so. Why risk joining their ranks? Look elsewhere for money in a crisis, and borrow from your employer-sponsored retirement plan only as a last resort.2

Mike Moffitt may be reached at phone# 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 – cnbc.com/id/101848407 [9/14/14]

2 – mainstreet.com/article/why-you-cant-borrow-your-401k-and-only-way-you-should [7/24/14]