It's Tax Time... and also retirement investing time

 In 2021, 85% of all American households made zero contributions to Individual Retirement Accounts (IRAs), whether traditional IRA or Roth IRA. anyone with earned income and non-earning spouses with a working spouse, can contribute up to $6,000 for the 2022 tax year. Persons 50 and older can invest an additional $1,000 in an IRA. 

Traditional IRAs offer a tax deduction at tax time but withdrawals in retirement are taxed. Roth IRAs provide no immediate income tax deduction but withdrawals in retirement are tax-free. Income limits for Roth contributions are $129,000 for single filers and $204,000 for married joint filers. Filers who earn too much to qualify for a Roth can do a "back door" Roth. First contribute to a non-deductible traditional IRA and then move the money to a Roth IRA, paying taxes on the earnings and then leave the money to grow tax free.

With most taxpayers over paying their taxes through withholding and getting a refund, consider starting or boosting your IRA contribution with your refund. Your future self will thank you. 

Emergency 401(k) and IRA Withdrawals Now Allowed Without Penalty starting in 2024

Unforeseeable or immediate financial needs relating to personal or family emergency expenses of up to $1,000 may now be withdrawn from a retirement plan without paying the 10% penalty (but still paying tax on tax-deferred money) up to once a year. You may also repay the $1,000 back into the plan (and presumably get a tax deduction for doing so) for three years. If you do repay it, you can do it again next year. If you do not repay it, you have to wait three years before taking another one. This one isn't going to do much for readers of this blog, but it should encourage low earners to save more for retirement without worrying about needing that money to replace the washing machine. Starts in 2024.

 

IRA Contribution Calculator

Individual Retirement Accounts (IRAs) are a great way to supplement employer-sponsored retirement accounts or for self-employed persons who are responsible for their retirement planning.

"Choosing the right retirement account can be complicated—but it doesn't necessarily have to be. Our IRA Contribution Calculator will take you through what you need to know to make an informed decision. Input your information below and see how much you can contribute to a Traditional, Roth, and SEP IRA account this year."

Learn about the various IRA accounts for the employed or self-employed and find out how much you can contribute this year at: https://www.sofi.com/roth-ira-calculator/

 

Roth IRA conversion calculator

Bankrate provides a calculator to help you make decisions on converting traditional IRA funds to a Roth IRA (individual retirement account). 

"A conversion has advantages and disadvantages that should be carefully considered before a decision is made. This convert IRA to Roth calculator estimates the change in total net worth, at retirement, if you convert a traditional IRA into a Roth IRA."

https://www.bankrate.com/retirement/calculators/convert-ira-roth-calculator/

Now may be ideal time to convert a trditional IRA to a Roth

Investment losses in this unprecedented market decline have been brutal. But keep in mind that if you've been invested during the almost 11 year long bull market you may still be ahead.
To survive this coronavirus bear market consider converting part or all of a traditional IRA to a Roth IRA. Any amount that you convert will increase your taxable income for 2020 but the market decline and possible job loss or income decline may have reduced what you expected to earn this year. The benefit is that you will pay taxes now on a much reduced value of your traditional IRA and the Roth IRA will NOT be taxable when you withdraw funds in retirement.

Due to the 2017 income tax cuts many people will pay lower taxes this year than in the future after they retire.
Asset values are greatly reduced from the peak in mid-February 2020.
Income tax rates are scheduled to increase in 2026 when the 2017 tax cuts expire. Remember? A sunset provision was written into the 2017 tax law.
So now is a good time to consider a Roth conversion.
A few reminders: once you hit age 59 1/2 and have held the Roth for at least 5 years, future withdrawals are tax-free and penalty-free. Plus you won't have to take required minimum distributions (RMDs) from a Roth IRA account in retirement.
Roth withdrawals in retirement can be used to reduce the portion of Social Security payments that are subject to income taxes and avoid Medicare premium surcharges (on individual incomes above $87,000 and joint incomes above $174,000).

Ideally you should have money from outside the IRA to pay the additional tax on the conversion. Ideally you should convert only enough from a traditional IRA to make full use of your current income tax bracket. You don't want to convert so much that you are pushed into the next highest tax bracket at the margin.

For retirees, the best time to convert to a Roth is before claiming Social Security and taking RMDs (which start at age 72 for taxpayers born July 1, 1949 and later).
You may want to do the conversions over a period of years to avoid a higher tax break.
By reducing RMDs from traditional IRAs, retirees with after-tax incomes of $40-$90k may also eliminate or reduce taxes on their Social Security benefits. Up to 85% of Social Security may be subject to income tax.

Consult your tax adviser to help minimize taxes while converting a traditional to a Roth IRA.

Retirement plan limits for 2019-2020

 401(k) contributions
The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the Thrift Savings Plan used by federal government employees increased in 2019 to $19,000 (and those limits will be going up another $500 in 2020). If you’re 50 or older, you also can take advantage of a catch-up provision of $6,000 (a figure that is also rising by $500 in 2020). That means all together you could put away $25,000 in your employer-sponsored plan in 2019 — and that total rises to $26,000 in 2020. And in case you were wondering, your employer’s matching contribution, if there is one, doesn’t count toward your limit

IRAs
The contribution limits for traditional and Roth IRAs went up in 2019 — to $6,000, or $7,000 for those who are 50 and older. So if you’re a 50-plus individual focused on growing your savings account, you could put away as much as $32,000 between your 401(k) and your Roth in 2019.

Contribution limits for Roth IRAs and traditional IRAs will remain the same in 2020.

Thanks to:  Dina Siracusa, Investment Adviser Representative | Provident Wealth Advisors
Source: https://www.kiplinger.com/article/retirement/T047-C032-S014-401-k-and-ira-advice-especially-for-women.html

Small IRA, 401(k) differences can lead to big tax consequences

Writing for The Wall Street Journal, tax expert Laura Saunders explains the necessity of carefully reading the tax rules that affect the use of IRA and 401(k) funds. Failure to adhere to IRS regulations can result in a large unexpected tax bill. Especially if you are taking an early withdrawal, double check advice from a tax professional to ensure you won't owe a tax penalty.
"Because tax-favored retirement accounts are supposed to be for retirement, the rules often impose tax and a 10% penalty on withdrawals before age 59½. Younger IRA owners who take out up to $10,000 to purchase a first home don’t owe the penalty, while younger 401(k) participants do."
“The IRA and 401(k) rules are full of these booby-traps, and they hurt a lot of smart people who aren’t retirement experts,” says Natalie Choate, an attorney and retirement-plan specialist.

Education-expense withdrawals. Payouts before age 59½ from an IRA that are used for higher-education tuition, books and other costs are exempt from the 10% penalty. Similar withdrawals from 401(k) plans incur it.
 
Age 55—59½ payouts. Savers don’t owe the 10% penalty on withdrawals from a 401(k) before age 59½ if they were at least 55 in the year they left their job. But a 10% penalty applies to IRA withdrawals before the owner is 59½, except for certain exemptions.

Borrowing. Many 401(k) plans allow participants to borrow from them. Borrowing against an IRA is prohibited.

Creditor protection. Employer-provided plans such as 401(k)s are better shielded from creditors than are IRAs. 

Do 401k and IRA Contributions Reduce My Social Security Benefits?

Mike Piper, author of The Oblivious Investor Blog, explains:
"pre-tax contributions that you make to an employer-sponsored retirement plan such as a 401(k) reduce your income tax, but they do not reduce your Social Security tax. The same goes for traditional IRA contributions, as well as contributions to a SEP or SIMPLE IRA.
And because they have no effect on the amount of your income that’s subject to Social Security taxes, pre-tax contributions to an IRA, 401(k), 403(b), etc. do not reduce the Social Security benefits that you will eventually receive."
https://obliviousinvestor.com/do-401k-and-ira-contributions-reduce-my-social-security-benefits/

Individual Retirement Account Update

The amount you can invest in an IRA is increased for 2019. You can still contribute for 2018 before you file your income tax return. 
Quoted from the IRS website: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

For 2019, your total contributions to all of your traditional and Roth IRAs cannot be more than:

• $6,000 ($7,000 if you’re age 50 or older), or
• your taxable compensation for the year, if your compensation was less than this dollar limit.

For 2015, 2016, 2017 and 2018, your total contributions to all of your traditional and Roth IRAs cannot be more than:

• $5,500 ($6,500 if you’re age 50 or older), or
• your taxable compensation for the year, if your compensation was less than this dollar limit.

The IRA contribution limit does not apply to:

• Rollover contributions
• Qualified reservist repayments

IRS raises caps on contributions to 401(k)s, IRAs

On November 1, 2018 the IRS announced cost-of-living adjustments to contribution limits for several types of retirement plans for 2019. The cap on contributions to 401(k), 403(b), many 457 plans and the Thrift Savings Plan rose to $19,000 from $18,500, while the limit for IRA contributions is $6,000, up from $5,500. This is the first increase since 2013. 

Other inflation adjustments were announced for retirement accounts. 

Start planning now to increase you retirement account contributions for next year. 

Reported by Richard Rubin for The Wall Street Journal, 11/2/18.

Mother's Day Gift Ideas for May 13, 2018

What mom needs is not an expensive restaurant meal, flowers that will wilt in less than a week, or another household gadget. What most mothers need, especially those who are NOT in the paid workforce is... an IRA! Yes, an individual retirement account! Women who are working full time (unpaid) in the home need to build retirement security and, unfortunately, most will depend on their husbands, who are subject to the 4 Ds: Divorce, Disability, premature Death, and Desertion.
Husbands are building Social Security credits, and often have access to retirement accounts (in their name only) at work. What retirement security does mom have?
It's time to enter the 21st century and fund a Roth IRA for mom. Check out the ultra low cost, very diversified options from mutual fund companies Charles Schwab and Vanguard.
You only need $100 to open a Schwab target retirement index fund IRA. http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds
If Mom is worth $1,000, then check out Vanguard Target Date Retirement Funds:
https://investor.vanguard.com/mutual-funds/target-retirement/#/

Both mutual fund company websites explain mutual funds, target date funds and IRAs.
Search this blog for "Mother's Day" to read more about IRAs for mom.

IRA or Tattoo? Tattoo or IRA?

"What's an IRA?" the young person planning to get a tattoo might ask.
A tattoo is forever, following you into retirement. How many future retirees will look at their sagging tattoos and wish they had saved more for retirement?

How much are you spending on tattoos that provide no economic return while claiming you can't afford to contribute to an Individual Retirement Account? When I see people with extensive tattoos my first reaction is: "bet they aren't saving for retirement!" You can start an IRA with as little as $100 to open an account. Check out Schwab mutual fund company's target retirement index funds. http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds

What mom REALLY needs for Mother's Day

My New York City sister sent me an email about a Mother's Day Brunch for "only" $105 per adult and $45 per child! Obviously that's what the 1% (or 10%) does to celebrate Mother's Day.
What mom really needs is not an expensive restaurant meal, flowers, or another kitchen gadget. What most mothers need, especially those who are NOT in the paid workforce is... an IRA! Yes, an individual retirement account! Women who are working full time (unpaid) in the home need to build retirement security and, unfortunately, most will depend on their husbands, who are subject to the 4 Ds: Divorce, Disability, premature Death, and Desertion.
Time to enter the 21st century and fund a Roth IRA for mom. Check out the ultra low cost, low entry, very diversified options from mutual fund companies Charles Schwab and Vanguard.
You only need $100 to open a Schwab target retirement index fund IRA. http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds
If Mom is worth $1,000, then check out Vanguard Target Date Retirement Funds:
https://investor.vanguard.com/mutual-funds/target-retirement/#/

Both mutual fund company websites explain mutual funds, target date funds and IRAs.

The Huge Retirement Penalty for Being a Mom

To reinforce my earlier post about giving mom an Individual Retirement Account rather than flowers or brunch for Mother's Day read on...
"As Mother’s Day approaches, families are busy buying flowers or booking a brunch at a favorite restaurant. Sounds great, but you may want to check on Mom’s retirement plan."
1. Moms generally earn less… 
2. …so they save less for retirement…
3. …and receive lower Social Security benefits.
4. Yet they have longer retirements to finance…
5. …which adds up to higher odds of poverty in retirement.    
Read the details by Penelope Wang at: http://time.com/money/4318170/retirement-penalty-mother/
Then search for "IRAs" on this blog for how to arrange an individual retirement account for mom. Adult children might want to contemplate the impact on their lives when mom is old and living on only Social Security.

Mom deserves an IRA for Mother's Day

Forget the usual gifts of flowers, a restaurant meal, or another kitchen appliance. What stay-at home moms really need for Mother's Day is an Individual Retirement Account (IRA). Non-paid spouses can have their own IRA as long as their spouse earns an income. Homemakers do not earn Social Security retirement credit for their hard work and contributions to families. While that policy oversight may not be remedied in the near future, families should contribute to the retirement security of full-time homemakers, mostly women who are likely to outlive their spouses, by regular contributions to an IRA. For details simply search for retirement and IRA on this blog. For more thoughts on this topic read:Retirement Planning for Stay-at-Home Moms.  Here’s how parents who aren’t earning an income can prepare for retirement. http://money.usnews.com/money/blogs/on-retirement/articles/2016-04-27/retirement-planning-for-stay-at-home-moms
Come to the June 8 Financial Planning for Women program on selecting mutual funds for IRAs and other goals; details at http://www.usu.edu/fpw/
 

Now may be a good time to convert a traditional IRA to a Roth

One upside of the current stock market slump is that now may be a good time to convert part or all of a traditional IRA to  Roth IRA.
Check out Bankrate.com's "Convert IRA to Roth calculator"

"In 1997, the Roth IRA was introduced. Since then, many people have converted all or a portion of their existing traditional IRAs to a Roth IRAs, where interest earned may be completely tax-free. Is this a good option? A conversion has advantages and disadvantages that should be carefully considered before a decision is made. This convert IRA to Roth calculator estimates the change in total net worth, at retirement, if you convert a traditional IRA into a Roth IRA."

http://www.bankrate.com/calculators/retirement/convert-ira-roth-calculator.aspx

IRA webinar Thursday, August 14

Free, Live, On-Line Seminar

Thursday, August 14

12:00 to 1:00 p.m. EDT

Discover the differences between Traditional and Roth IRAs and how they may help you achieve long term financial goals   Information includes:

 $ Differences among investment plans

 $ Allowable retirement investments

 $ Tax implications

 $  Eligibility and limits

           

Registration:  http://bit.ly/2014IRA

 Presented by University of Florida Extension

Give mom an IRA for Mother's Day

Most moms don't need another kitchen gadget and most restaurants are overcrowded on Mother's Day. What hard-working, full-time, un-paid mothers need is an Individual Retirement Account (IRA). Although one generally needs earned income to fund an IRA, both spouses are eligible to fund IRAs as long as one spouse has sufficient earned income. Because unpaid homemakers don't pay Social Security taxes they do not earn Social Security credits. Although they are eligible to collect benefits based on their spouse's (or ex-spouses if married at least 10 years) earnings record, women need more financial security for later life. Roth IRAs can be started with as little as $100 Schwab. Check out the other IRA posts for more info and give your wife or mother a present of lasting value this year.

Restaurant selection takes more time than IRA planning

American adults spend more time choosing a restaurant for a special occasion than planning their IRA investments.  Only 15% of the more than 1,000 adults surveyed allotted two or more hours to planning an IRA investment while 25% said they'd spend 2+ hours selecting a restaurant, 21% to buy a flat screen TV, and 16% report buying a tablet took up this time. The survey found a lack of understanding of IRAs is still prevalent. More than 1/3 of respondents do not understand the difference between an IRA and an employer-sponsored plan. For Gen Y, the lack of comprehension reached 45% of the sample, according to TIAA-CREF's survey https://www.tiaa-cref.org/public/about/press/about_us/releases/articles/pressrelease451.html