IRA Update

Posted on by in Tax Law.

With all the concern over the impending fiscal cliff, not much attention has been given to the new IRA contribution limits for 2013.  Due to the cost of living adjustment, the maximum total contribution for IRAs has increased from $5,000 to $5,500 for those younger than 50 years old in 2013.  The total catch-up contribution amount has also been increased from $6,000 to $6,500 for individuals older than age 50.

There is still no income limit on traditional IRA contributions. However, there are income limits for those who seek tax deductions for those contributions. If you are a married couple and you are both covered by employer plans, you can get a tax deduction for your traditional IRA contribution if your modified adjusted gross income is less than $95,000. The available tax deduction phases out at $115,000.  If your modified adjusted gross income is between $95,000 and $115,000, a partial tax deduction is available.

Roth IRA contributions, however, do face income limits. Single taxpayers with incomes less than $112,000 (and married taxpayers making below $178,000) can make a full contribution to their Roth IRAs.  However, if your earnings are above $127,000 (or $188,000 for married couples), a Roth IRA contribution is not available to you.  Individuals and couples whose modified adjusted income falls between these amounts could be eligible for partial Roth contributions.  As always there are no tax deductions available for Roth IRA contributions, as gains grow tax free.

2013 Increased Insurance Pricing Delayed for a Few Life Insurance Carriers

Posted on by in Tax Law.

Last fall I made a concerted effort to inform clients that if they were interested in permanent guaranteed life insurance, they needed to get their applications in and dated before December 31, 2012 as premiums were slated to rise between 8% and 20% on January 1, 2013.

Just as predicted, most of the companies have announced price increases, some quite significant.  However, it seems that there are a number of companies that have not yet announced price increases; they were strong enough to meet the reserves required by law for the time being. But, Tom of Pittsburgh Brokerage Services, thinks it is only a matter weeks or maybe months, until those price increases are announced.

As such, if you are interested in permanent guaranteed life insurance, there is still time to lock in the lower 2012 prices before the last companies announce their rate increases.

If you have insurance and are wondering if you are sufficiently insured, or if you think you may need insurance, and you want to lock in yesterday’s rates while they last, please call Alice to schedule your free insurance evaluation.  412.521.2732

The 2013 Outlook for Pittsburgh Finances

Posted on by in Tax Law.

2013 brings plenty of financial changes from tax rates to property assessments. What impact will these changes have on you? What impact will they have on Pittsburgh?

Join us this evening at 7:05 pm on
KQV 1410 AM.
Program also streams live at www.kqv.com

On tonight’s The Lange Money Hour, CPA Jim Lange welcomes Pittsburgh City Controller, Michael E. Lamb, to the KQV studios.

Managing Pittsburgh’s financial affairs for the last five years, Controller Lamb has put a focus on making City government more transparent. He created www.OpenBookPittsburgh.com, a website that lets citizens search and view all City contracts, as well as campaign contributions and expenses for all candidates running for office in Pittsburgh. Controller Lamb also released Pittsburgh’s first Popular Annual Financial Report (PAFR), a user-friendly document that provides a clear picture of the state of Pittsburgh’s finances, demographics and government.

It is sure to be an engaging and informative hour. Since the show will be live, you are welcome to join the conversation by calling the KQV studios at 412-333-9385. You can also e-mail questions to jim@paytaxeslater.com. Please put The Lange Money Hour in the subject line.

If you are not able to tune in tonight, KQV will rebroadcast the show on Sunday, January 6th and 13th at 9:05 a.m. The program will also be available soon at www.paytaxeslater.com, in the archive of The Lange Money Hour presentations

Emergency Fiscal Cliff Survival Guide

Posted on by in Tax Law.

This emergency guide is my best attempt to help you survive the fiscal cliff.  As yet there is no agreement to avoid “going over the cliff.”  There may be a partial solution passed before the deadline, but we can’t pin our hopes and our money on that possibility.  Accordingly, we have developed recommendations for what you should do between now and the end of the year. This emergency alert is not intended as an economic outlook or a political statement.  It is my best advice for what you should be doing between now and the end of the year to protect yourself and your family.

If no agreement is reached, tax rates on income, estates, gifts, capital gains and dividends will increase.  There are specific action points to protect your family from each potential increase.  Please understand that I am realistic enough to recognize that going over the cliff, (meaning there won’t be any meaningful changes to the tax laws before year-end) it is possible, even likely, that there will be some compromises after year-end.  Of course, advice will vary from taxpayer to taxpayer.  In addition, these recommended action points may be inappropriate for you depending on your situation and what tax changes will occur before year-end, and changes after year-end.  Obviously, if appropriate, we encourage you to seek individual attention with your trusted advisor, CPA, attorney, etc.  Our office will make every effort to accommodate your needs even if we have to work evenings and weekends.

For the Emergency Fiscal Cliff Survival Guide follow this link: https://paytaxeslater.com/eblast/2012_12_27/

Ed Slott on The Lange Money Hour

Posted on by in Tax Law.

If you missed the show last night, it’s not too late!  Tune in to KQV news radio 1410AM to listen to the encore presentation on Sunday Morning at 9:05!  Ed and Jim discuss lots of key retirement and planning issues that you wont want to miss!

 

Hurricane Sandy

Posted on by in Tax Law.

We hope all of you are safe and warm this morning.  It looks like the storm in Pittsburgh turned out to be less severe than we thought it was going to be and for that we are thankful.  With all the flooding, power outtages, injuries and even deaths that Hurricane Sandy caused, we feel very lucky not to have born the brunt of it.  Our thoughts are with those who have.

It’s days like today, looking at the deaths that this storm has caused, the injuries, the damage to homes and businesses, that we realize how important what we do, financial planning, estate planning, insurance, etc really is.

Spending Strategies for Retirees

Posted on by in Tax Law.

Which Assets Should I Spend First?

As a retiree, you may be fortunate enough to find that your Social Security, pension, minimum required distributions from your IRA, and dividends and interest on your after-tax investments provide enough funds for your living expenses. However for many that is not the case. You may be required to either tap into your after-tax funds or make taxable withdrawals from your IRA or retirement accounts to make ends meet.

In general it’s preferable to spend principal from your after-tax investments rather than taking taxable distributions from your IRA and/or retirement plan.  Leaving money in the tax-deferred environment for a long as possible confers advantages that almost always outweigh concerns over paying capital gains on your after-tax assets.

The optimal spending order is first your after-tax dollars, then your IRA dollars and then your Roth IRA dollars.

( Taken in large part from Section 4 of Retire Secure! by James Lange)

Are you self-employed?

Posted on by in Income Tax, Tax Law.

IRS lawyers confirm that self-employeds can deduct Medicare premiums. Premiums paid for all parts of Medicare are included in the deduction for health insurance on the front page of the 1040 form. This easing also applies to partners, provided the partnership paid the premiums or reimbursed the partner, and the amounts are reported as guaranteed payments that are taxed as income. The premiums must be included as taxable wages on the shareholders W-2 form.

Medicare premiums paid by a spouse qualifies well, the Service says filers who didn’t take the deduction in prior years can file for refund.

(Kiplinger’s Tax Letter, September 2012)

(Kiplinger’s (Kiplinger’s (Kiplinger’s Fantasy Kiplinger’s Parentheses Lingers

Last Minute Tax Strategies for IRAs & Other Retirement Accounts

Posted on by in Estate Tax, Income Tax, IRAs, Roth IRA, Roth IRA Conversions, Tax Law.

Make your 2010 IRA contribution as late as April 18, 2011: 

You can contribute up to $5,000 (or $6,000 if you are 50 or older) until the time you file your income tax return, but no later than April 18, 2011.  If you participate in a retirement plan at work, the IRA deduction phases out if you are married and your joint AGI is $89,000 or more, or if you are single and your adjusted gross income is $56,000 or more.  Filing an extension will not buy you additional time.  Non-deductible pay-ins to IRAs and Roth IRAs are also due by April 18, 2011.

Make a deductible contribution to a spousal IRA:

If you do not participate in a workplace-based retirement plan but your spouse does, you can deduct some or all of your IRA contributions on your 2010 income tax return as long as your adjusted gross income does not exceed $177,000.

Make a contribution to a Roth IRA: 

Contributions to Roth IRAs are not tax deductible, but the earnings on them may be withdrawn totally income tax-free in the future as long as the distributions are qualified.  A Roth IRA distribution is qualified if you’ve had the account for at least five years, the distribution is made after you’ve reached age 59½, you become totally and permanently disabled, in the event of your death, or for first-time homebuyer expenses.  Contribution limits are the same as traditional IRAs, except the maximum contribution for both Roth and traditional IRAs is still limited to $5,000 or $6,000 for persons age 50 or older.

To make a full Roth IRA contribution for 2010, your AGI cannot  exceed $177,000 if you are married or $120,000 if you are single.  You are subject to the same limitations for a non-working spouse.  Subject to some exceptions, I usually prefer Roth IRAs to traditional IRAs or even traditional 401(k)s.

Look into Roth IRA conversions:

The rules for contributions to Roth IRAs are different from the rules for Roth IRA conversions.  Prior to January 1, 2010, you could only convert a traditional IRA to a Roth IRA if your AGI was $100,000 or less (before the conversion).  However, this dollar cap is now removed starting January 1, 2010 and there is no limit to your earnings in order to qualify for a Roth IRA conversion.  Please remember that a conversion to a Roth IRA may place you in a higher tax bracket than you are in now and have other adverse consequences, such as subjecting more of your Social Security to be taxable due to the increase in your AGI.  Please also note that a Roth IRA conversion does not have to be all or nothing. You can elect to do a partial Roth IRA conversion and you can convert any dollar amount you decide is best for your situation.  Our most common set of recommendations after “running the numbers” is usually a series of Roth IRA conversions over a number of years.  Please remember that a Roth IRA conversion may not be appropriate for all investors.

5 Things Taxpayers Can Proactively Do To Best Take Advantage of the New Income and Estate Tax Law

Posted on by in 401(k), 403(b), Estate Tax, IRAs, Tax Law.

There are some BIG changes for taxpayers in the creation of the new 2010 Tax Relief/Job Creation Act.  How can you best respond to this law?  Take a look at these 5 things all taxpayers can proactively do to best take advantage of the changes:

1.  With the money you save on the reduction of your social security tax, you should contribute at least that much additional money to your retirement plan.

2.  Contribute to your retirement plan in the following order:

  • Contribute whatever an employer is willing to match or even partially match
  • Contribute to your Roth IRA and if married to your spouses Roth IRA, even if your spouse isn’t working
  • Maximize your contribution to your Roth 401(k) or Roth 403(b) if available
  • If not available, maximize your contribution to your traditional 401(k) or 403(b)
  • If your income is too high to qualify for a Roth IRA, contribute to a nondeductible 401(k).

3.  Since we have two more years of low tax rates, make Roth IRA conversions.  Consider multiple conversions since you can “recharacterize” or undo them.  If you do multiple conversions, you can keep the ones that do well and undo the ones that don’t.

4.  Review your wills and trusts.  Many, if not most of the wills done for taxpayers with estates of $1 million are now outdated.  Not only will you not get optimal results, but your existing wills and trusts might be a huge restriction on the surviving spouse.

5.  Now that you can either leave or gift $5,000,000 or $10,000,000 if you are married, you should rethink potential gifts to children and grandchildren without tax laws that would otherwise restrict gifts you would like to make.