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Retirement Plan Contribution Limits for 2014

The IRS recently published the new contribution limits for various retirement plans for 2014.  These limits are indexed to inflation, and as such sometimes they do not increase much year over year, and sometimes they don’t increase at all. This year we saw virtually no increases for most all contribution amounts, but as usual the income limits increased for most types of account. IRAs The annual contribution limit for IRAs (both traditional and Roth) remains at $5,500 for 2014.  The “catch up” contribution amount, for folks age 50 or over, also remains at $1,000. The income limits for traditional (deductible) IRAs increased slightly from last year: for singles covered by a retirement plan, your Adjusted Gross Income (AGI) must be less than $60,000 for a full deduction; phased deduction is allowed up to an AGI of $70,000.  This is an increase of $1,000 over the limits for last year.  For […]

Why Diversify?

Remember Enron? I think we all do. Enron was once a powerhouse company that saw its empire crumble and took the wealth of many of its employees with it. Why was that the case? Many of Enron’s employees had their 401(k) retirement savings in Enron stock. This was the classic example of having all of your eggs in one basket and zero diversification. Let’s say that the employees had half of their retirement in Enron stock and half in a mutual fund. Enron tanks but their mutual fund stays afloat. This means that they lost, but only lost half of their retirement, all else being equal. Imagine if they had only a quarter of their retirement in Enron and the remaining 75% in three separate mutual funds. Enron’s demise is only responsible for a fourth of their retirement evaporating. This could go on and on. The point is that when […]

Taking Distributions from Your IRA In Kind

When you take a distribution from your IRA, whether to put the funds in a taxable account or to convert it to a Roth IRA, you have the option of taking the distribution “in kind” or in cash. In cash means that you sell the holding in the account or simply take distribution of cash that already exists in the account. This is the most common method of taking distributions, and it is definitely the simplest way to go about receiving and dealing with a distribution.  Cash is cash, it has only one value – therefore the tax owed on the distribution, whether a complete distribution or a conversion to a Roth account. On the other hand, if you choose to use the “in kind” option, you might just save some tax on the overall transaction.  The reason this is true is due to the fact that the amount reported […]

Staging Your Roth IRA Conversion

So you have a substantial IRA (or several IRAs), and you’ve retired.  For the first time since you started your career, you’re in a low tax bracket.  You’re not age 70½ just yet, so you don’t need to concern yourself with Required Minimum Distributions (RMDs). But then again, maybe you should concern yourself with those Required Minimum distributions…? Think about it – you’re in a good place, tax-wise, and your IRA money is bound to continue to grow over time.  You are getting along just fine with your pension, Social Security, and other investment income.  This is the perfect time to strategically reduce your future tax bite. Staging the Roth IRA Conversion Let’s say for example that your taxable income puts you in one of the lowest tax brackets… say 15% or 25%. You have some “headroom” left in the bracket to spare, meaning that you could realize some additional […]

IRA Cross Loans – Don’t Even Think About It

Once again in the category of terrible things you can attempt to do with your IRA, there is the concept of a “cross loan” from your IRA to another, unrelated party. You know from previous articles that it’s not allowable to transact business with disqualified persons.  Therefore, you can not take a loan from your IRA to finance your business.  But what if you came to an agreement with someone else not related to you in any way, who is not a disqualified person, to loan money from your IRA to finance her business, while she loans money from her IRA to finance yours?  Whatever could go wrong with this? While the technical provision of transacting business with a disqualified person has been avoided, there’s a small problem with the plan.  There is another test that prohibits the IRA owner from receiving an indirect benefit from a transaction.  In the […]

2011 IRA MAGI Limits – Married Filing Separately

Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility. For a Traditional IRA (Filing Status Married Filing Separately): If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at your job and your MAGI is less than $10,000, you are entitled to a partial deduction, reduced by 50% for every dollar (or 60% if over age 50), and rounded up to the nearest $10.  If the amount works out to less than $200, you are allowed to contribute at least $200. If you are covered by a retirement […]

2011 MAGI Limits for IRAs – Married Filing Jointly or Qualifying Widow(er)

Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility. For a Traditional IRA (Filing Status Married Filing Jointly or Qualifying Widow(er)): If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at work, and your MAGI is $90,000 or less, there is also no limitation on your deductible contributions to a traditional IRA. If you are covered by a retirement plan at your job and your MAGI is more than $90,000 but less than $110,000, you are entitled to a partial deduction, reduced by 25% for every dollar […]

2011 MAGI Limits – Single or Head of Household

Note: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on this page to determine eligibility. For a Traditional IRA (Filing Status Single or Head of Household): If you are not covered by a retirement plan at your job, there is no MAGI limitation on your deductible contributions. If you are covered by a retirement plan at work, if your MAGI is $56,000 or less, there is also no limitation on your deductible contributions to a traditional IRA. If you are covered by a retirement plan at your job and your MAGI is more than $56,000 but less than $66,000, you are entitled to a partial deduction, reduced by 50% for every dollar over the lower limit (or 60% if over age 50), and […]

Just Starting With Retirement Savings? Get All the Credit You’re Due!

It’s a known fact that setting up a systematic savings plan is critical to providing yourself with financial security in the future.  There are tax benefits to simply making contributions to an IRA or a 401(k) – you’ll be able to deduct (or simply not include) those funds in your taxable income come tax time.  In addition, the tax-deferred growth of these funds will provide you with a source of income for the future. But did you realize that there are other tax credits available for certain taxpayers making contributions to retirement plans?  It’s called the Saver’s Credit (formally known as the Retirement Savings Contributions Credit), and it’s available for folks who meet certain eligibility requirements who have made contributions to retirement savings plans during the tax year. Eligibility Depending upon your filing status, there is a limit to the amount of income that you can have earned in order […]

Linksharing 7/12/2009

Once again, I’ve found several interesting blog posts among my colleagues that I feel compelled to share with you. To start things off, Jeff “don’t call me Jan” Rose over at the “Good Financial Cents” blog wrote about the changes coming for Roth IRAs next year in the post Gone Daddy Gone – AGI Restriction For Roth IRA Conversion.  This is a good run-down of the specifics of this important change in the landscape – plus you’ve gotta appreciate a guy who can relate the Violent Femmes to the Roth IRA… The next article for this week is from Jean Keener at Keener Financial Planning.  Jean wrote a very good article about your 401(k) options when you change jobs – a timely article, given the upheaval many folks are facing nowadays in the job market. Aron Levin, on the “Gen Y – Retire Rich!” blog, brings us another timely article called […]