401(k) plan rollover options - retirement or changing jobs

If you're close to retirement or changing jobs, you may need to figure out what to do with the savings in your 401(k) account. This is where a 401(k) rollover comes in handy.  There are many factors that you may need to consider when it comes to selection of rollover options. Follow the “401(K) plan rollover options” to know more and make a wise decision.

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Required Minimum Distribution (RMD)

A required minimum distribution (RMD) is the amount of money that must be taken out of an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants who have reached retirement age.

Figure 1: Required Minimum Distribution (RMD)

1. Key Points

• After turning 72, retirees must take their RMD in order to avoid paying taxes.
• The RMD is the bare minimum; retirees may choose to withdraw more if they so choose.
• If a retiree has numerous retirement accounts, each account's RMD must be computed and paid out separately by the retiree.
• While the owner of the ROTH IRA is still living, the RMD requirement does not apply. While Roth 401(K) funds are subject to RMD regulations.
• The "stretch IRA," an estate planning technique that increased the tax-deferral benefits of IRAs, was largely eliminated by the SECURE Act of 2019's changes to the distribution regulations for some inherited IRAs.

2. Required Minimum Distribution

A required minimum distribution (RMD) is the amount of money that must be taken out of an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants who have reached retirement age.

Since your contributions to these kinds of IRA accounts are initially tax-free, the goal of RMDs is to ensure that you pay taxes on the money in your account. Qualified Roth IRA distributions are tax-free because contributions to your Roth IRA do not qualify for a tax deduction. For Roth accounts, there are no RMDs because the IRS has already taken its cut.

The retirement account withdrawal age increased to 72 years old in 2020. Therefore, account holders must start making withdrawals from retirement accounts by April 1 of the year they turn 72. The retiree must thereafter take the RMD amount according to the current RMD computation each succeeding year.

 

The prior year's fair market value (FMV) of the retirement account is divided by the applicable distribution period or life expectancy to arrive at the required minimum distributions. Taxpayers can use a worksheet provided by the Internal Revenue Service (IRS) to determine how much money they need to withdraw. Typically, the custodian of your accounts or the plan administrator will compute these sums and submit them to the IRS.

It should be noted that although while an account holder must take the required minimum distribution, they may also take more. It is completely lawful for the account holder to take the entire balance in the first year, but keep in mind the tax you will have to pay.

A Roth IRA is an effective tool for accumulating wealth and leaving a financial legacy because the original owner is not subject to RMDs. After inheriting the account, your beneficiaries will also benefit from years of tax-deferred earnings growth.

Once you pass away, the distribution guidelines for Roth IRAs do alter. Your Roth fund's specific withdrawal rules will vary depending on who inherits it.

Distribution rules for Roth IRAs inheritance

If a spouse inherits , the spouse, for example, can roll over the Roth assets into his or her own Roth IRA. The IRS does not impose RMDs on those inherited funds while your spouse is living.

If a Non-spouse beneficiary inherits, including children, don't have that rollover option. Those types of beneficiaries can either withdraw the funds immediately or transfer them to an inherited Roth IRA.

For instance, if a spouse inherits, the spouse can transfer the Roth assets to his or her own Roth IRA. While the spouse is still alive, the IRS does not require RMDs on those inherited monies.

Children including non-spouse beneficiaries of an inheritance are not eligible for this rollover option. Such recipients may withdraw the money right away or transfer it to an inherited Roth IRA.

Subject to certain exception, the inherited IRA following distribution rule

Beneficiaries of Roth IRAs inherited before January 1, 2020 may take RMDs over their lifetimes (based on IRS life expectancy tables).

A Roth IRA that is inherited in 2020 or later must be completely exhausted within 10 years of the account's original owner's passing. If the money has been in the account for five years or longer, withdrawals are tax-free

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Incorrect, missing Social Security numbers top list of most common tax mistakes

Incorrect, missing Social Security numbers top list of most common tax mistakes

Rejected returns can delay refund several weeks, months

At the close of each tax filing season, the IRS compiles a list of the most common errors taxpayers make when filing their tax returns. Believe it or not, incorrect mathematical calculations does not make it to the top of the list. A frequent culprit for the past several years is missing or incorrect Social Security numbers on individual income tax returns.

When an incorrect return is filed, the IRS first rejects it, then often sends a notice requesting additional information. This can delay a refund by several weeks, or even months. In other instances, the IRS may issue a refund, but for a lesser amount than what the taxpayer was expecting. This may occur when, for example, more withholding is reported on the tax return than what is stated on the W-2.

Another common filing mistake is omitting the Social Security number or taxpayer identification number of the caregiver in the child and dependent care credit input. This costly error causes the IRS to issue the refund, less the amount of the credit. Filing an amended return to correct the error will add weeks to the refund’s receipt. Likewise, omitting the Social Security number, ITIN or ATIN of a qualifying child for any of the child-related credits will slow or disqualify the credit claim.

Other common mistakes to avoid when filing taxes this year include:

• Filing too early. Filing before all relevant tax documents are available risks mistakes that lead to processing delays. Jan. 31 is the deadline for issuers to mail W-2s and 1099-NECs, so waiting until February could eliminate a processing delay.
• Missing Letters 6419 and 6475 (if applicable). The IRS-provided Letters 6419 and 6475 for the advance child tax credit and economic impact payments. These letters list the exact amount and date the IRS issued funds for these payments. Use these amounts in the tax return. Any variation from the printed amounts may result in a refund delay.
• Entering information inaccurately. Misspelled names, math errors and wrong bank account numbers slow down processing. Double check input and use direct deposit for refunds.
• Using an incorrect filing status. The Interactive Tax Assistant on IRS.gov helps taxpayers choose the correct status. Additionally, [Business Name] can help taxpayers determine the best status based on personal and financial information.
• Forgetting to sign forms. An unsigned tax return isn’t valid. In most cases, both spouses must sign a joint return. Exceptions apply for some members of the armed forces or taxpayers with a valid power of attorney.

 

The IRS compiles income, payment and other information in each taxpayer’s account. Differences between what taxpayers report and what is in the account lead to processing delays. Taxpayers can create an IRS online personal account to access the data the IRS has on file. Use interactive assistant tools on the IRS website to calculate eligibility. Save IRS notifications received in the mail. The IRS encourages taxpayers to e-file and use direct deposit for refunds. 

 

Taking a few minutes to double check your tax return before you send it to the IRS, whether you mail it or electronically file, will increase the likeliness that IRS issues your refund in a timely manner. The IRS encourages taxpayers to e-file. By e-filing your tax return, many common errors may be avoided or corrected by the computer software. Contacting Surya Padhi at Sure Financials is the easiest way to e-file.  Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals. Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for contact information.

 

Sure Financials and Tax Services LLC

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TAX YEAR 2023 Changes

• Refer IRS Notice 2022-55,
• Individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 for 2022.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000.
• The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch up contribution limit for individuals aged 50 and over is not subject to an annual cost of living adjustment and remains $1,000.
• Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase out ranges for 2023:
• For single taxpayers covered by a workplace retirement plan is increased to between $73,000 and $83,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, is increased to between $116,000 and $136,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, is increased to between $218,000 and $228,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
• The income phase-out range for taxpayers making contributions to a Roth IRA is increased to
• between $138,000 and $153,000 for singles
• between $129,000 and $144,000 for heads of household,
• between $218,000 and $228,000 for married couples filing jointly,
• between $0 and $10,000 for a married individual filing a separate return
• The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.

 

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Tax Tips: Why you must file Form 8606?

What it is?

Form 8606 is a tax form that must be filed if nondeductible contributions were made to an individual retirement account (IRA) during the tax year. It is also necessary if you have received Roth IRA dividends, certain other IRA payments, or converted certain accounts to a Roth IRA during the year.

Why you need to file?

Taxpayers need to file form 8606 in the following cases

• When you are making Nondeductible IRA contribution
• When your IRA consists of both deductible and nondeductible contribution. It helps to track basis in IRA.
• To Identify basis reduces tax when you take IRS distribution.
• To calculate taxable and nontaxable portion of distribution.

 

In the following circumstances, taxpayers must submit Form 8606.

• When contributing to a Nondeductible IRA
• When your IRA includes both tax-deductible and nontax-deductible contributions. It aids in IRA base tracking.
• Identifying basis decreases tax liability when receiving an IRS dividend.
• Determine the taxable and nontaxable portion of the distribution.

How and Where to File it?

Form 8606 can be e-filed or paper-filed with the rest of your annual tax return when you e-file Form 1040 and any other tax forms, as well as any tax payments. Form 8606 can be filed alone; see form 8606 for details and mailing address.

What are the consequences of non-compliance?

If Form 8606 was not filed to indicate nondeductible contributions, it is considered that the contributions were deductible.

The IRA will have no tax basis and a $50 penalty will be assessed if the taxpayer fails to complete Form 8606 to disclose a nondeductible contribution and does not provide an acceptable explanation.

What is the best practice?

File Form 8606 annually. If you forgot to file Form 8606, you must revise your tax return to include Form 8606.

 Contact us for USA tax planning tax preparation and tax compliance.

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How can you use HSA for your retirement?

Overview  

Despite the fact that millions of Americans have HSAs or could qualify for one in the future, few actually use their accounts to their full potential. In order to maximize their HSA, account holders should have a firm grasp on the following concepts. 

Key Points 

Maximize HSA Contributions 

Pay your healthcare bills 

Invest the fund 

Save your medical Receipts 

Withdraw money after retirement 

Leave an inheritance to your spouse 

Maximize HSA Contribution 

As you get closer to retirement age, you can make catch-up contributions to your HSA, just like you can with other tax-advantaged retirement accounts. Those who are 55 or older can put an additional $1,000 annually into their HSA, bringing the total contribution limit to $4,650 for an individual and $8,300 for a family (Tax Year 2022). 

Pay your healthcare bills 

Now that you have a source of income, you can take care of your healthcare costs without touching your Health Savings Account (HSA) money, which can instead be invested to earn interest and grow.   

Investment in the fund 

You may be able to choose from a variety of funds and securities made available by your HSA provider. If you're unhappy with your current options, you may want to look into switching to a different service. Assuming you are covered by a high-deductible health plan (HDHP), you are free to establish your own HSA in addition to any offered by your employer. 

Consider your time horizon thoroughly before making any retirement investments. Selecting a fund's level of riskiness should reflect how far away you are from retirement. Consider a target-date fund if you want your investments to be managed automatically. 

Save Your Medical Receipts 

Consider investing the money in your HSA for your future rather than using it for immediate medical costs. If you want to take advantage of tax-free HSA withdrawals in the future, you should start keeping track of your medical expenses now. 

If you have an HSA and a receipt for a medical expense, you can reimburse yourself for it at any time, even if it was years ago. 

Withdraw money after your retirement.  

You can use your HSA to pay for future medical costs or you can cash in on your accumulated medical bills for a lump sum payment after retirement. 

Withdrawals from a health savings account (HSA) can go one of three ways, depending on the account holder's age and the intended use of the funds. 

Your age	Qualified Medical Expenses		Other Expenses
Less than 65 years old	No taxes, no penalty		Taxes are applicable, 20% penalty
65 years old or older			Taxes are applicable, no penalty

Leave an inheritance to your spouse. 

If you pass away before depleting your HSA, your surviving spouse can open one in your name and continue to enjoy the tax benefits you've accrued. In this way, you'll be able to contribute to their post-retirement healthcare costs as well. An HSA can be passed on to a non-spousal heir, but that person will immediately be required to pay tax on the entire balance. 

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NJ ANCHOR Program Property Tax Refund

Dear Reader,

Did you receive an ⚓ANCHOR informational mailer for a tenant when you were a homeowner on Oct. 1, 2019? Or did you receive a homeowner mailer when you were a tenant? Find out what to do, and more valuable information.

If you are

• NJ Taxpayer for the tax year 2019
• Income is below $250,000 (See line 29 of NJ State Return)
• You own a house or rented a house as on 10/01/2019
• You are eligible to get certain amount as a direct deposit or paper check

 Refer below for more information.

 NJ Division of Taxation - ANCHOR Program - Frequently Asked Questions (FAQs)

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