IRA

  • Tag : IRA

Can You Move Retirement Plan Assets ?

by Kristin P. Sinclair   A Accu Tax   March 10, 2020  

Your retirement plans should be both tax-favored retirement assets which should be portable.  Normally you may easily move these assets to your Traditional IRA Rollover or other retirement plan.  You should be able to do a direct transfer from one trustee to another; a direct or indirect IRA Rollover; or transfers incident to a divorce.  You may also want to consider how you may even be able to move these retirement plan assets to your Roth IRA.

Trustee-to-Trustee Transfers move your funds directly from one like-type account to another.  An example is from a former 401(k) to your new 401(k).  You normally can also move Traditional IRA funds via a Trustee-to-Trustee Transfer from one IRA to another like-kind IRA.  This is one of the most convenient ways to move funds between IRAs and other retirement accounts.  Your current trustee may actually send you the check; however, in this case the check is normally payable to your new trustee for your benefit.  You then should forward that check to your new trustee.      

IRA Rollovers are tax-free distributions to you normally from non-like retirement accounts.  For example from your 401(k) or 403(b).  The check may be sent to you, or sent directly to your chosen retirement plan.  Chosen retirement plans include: IRA Rollovers, your current employer’s qualified retirement plan; a state or local government’s deferred compensation plan, or a tax-shelters 403(b) annuity plan.  

Some rollover limitations include that you normally may only make one tax free indirect IRA Rollover in any 1-year period.  This restriction will apply no matter how many IRAs you own.  Direct IRA Rollovers are frequently exempt from this limitation.  A direct IRA sends the funds directly from one custodian to your new custodian.  Also note that you must complete any indirect IRA Rollover within 60 days from when the funds left your former trustee.  That is, they should arrive at your new trustee within the 60 day rollover period.  

Example: Anna recently left her Charlotte NC job for a shorter commute with an employer in Fort Mill SC.  She is going to grad school at Winthrop University and wanted a shorter commute from her Rock Hill SC home.  Anna had worked at the Charlotte firm for five years and had saved over twenty thousand dollars in her former employer’s 401(k) program.  Anna has decided rather than leave her funds at the old 401(k), or move them to the 401(k) at her new employer, she will start an IRA Rollover.  Anna plans to do a direct rollover and have her funds sent directly from her old 401(k) to her new IRA Rollover.   This should be a non-taxable event, and there will be no taxes withheld from her old 401(k) distribution in the direct rollover to her new IRA Rollover.  The check will be payable to her new IRA rollover and mailed to Anna.  She will still need to forward the check to her new IRA Rollover.  The rollover check is made to her new IRA Rollover, and therefore this is still a direct rollover.  

 

Kristin P. Sinclair: A Accu Tax

Updated in Charlotte NC and Rock Hill SC

March 10, 2020   (803)329-0609

KPS: More information is available at IRS.gov

See Publication 590-A and Publication 590-B.  

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What is a Traditional IRA?

by Donn J. Sinclair MBA   March 5, 2020

A Traditional IRA is an Individual Retirement Account that permits you to set aside funds in a tax-favored retirement savings/investment program.  One of the two most important IRA advantages is that you may be able to fully or partially deduct your contributions from your current tax year federal and state taxable income.  If so, then your IRA contribution should reduce your current tax year federal and state taxes.  This should leave you more money in your Traditional IRA account to earn you more money in the years ahead !

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What is a Traditional IRA?

by Donn J. Sinclair MBA   March 5, 2020

A Traditional IRA is an Individual Retirement Account that permits you to set aside funds in a tax-favored retirement savings/investment program.  One of the two most important IRA advantages is that you may be able to fully or partially deduct your contributions from your current tax year federal and state taxable income.  If so, then your IRA contribution should reduce your current tax year federal and state taxes.  This should leave you more money in your Traditional IRA account to earn you more money in the years ahead !

The second important Traditional IRA advantage is that generally any IRA earnings, gains, and or interest inside your IRA are not taxable until you redeem funds from your IRA.  Once again, these potential IRA earnings represent more money in your IRA that might earn you more money in the years ahead.  

Remember that the Traditional IRA purpose is to allow you to save money for your retirement years.  In retirement many people have lower or no net taxable income.  So IRA money redeemed in retirement may be at lower tax rates, and potentially with no taxes due at all.

So far we have focused on the tax deductible Traditional IRA contribution.  Nondeductible IRA contributions can also be made into your Traditional IRA.  These nondeductible contributions are not deducted from your current tax year income for federal or state income tax purposes.  Thus these nondeductible IRA contributions should not directly reduce your current tax year income taxes.

The tax advantage to a nondeductible IRA contribution is that these nondeductible contributions can grow tax-deferred inside your Traditional IRA.  Tax-deferred of course meaning that no taxes are due on any interest, earnings or gains inside your nondeductible IRA.  If you make any nondeductible IRA contributions, then it may be best to open a separate Traditional IRA account for only your nondeductible IRA contributions.    

Now is a great time to discuss with your tax advisor whether you qualify for a fully or partially deductible Traditional IRA contribution.  Your household income, whether you or your spouse have access to an employer sponsored retirement account, help determine whether you qualify for a fully or partially Traditional IRA deductible contribution.  Employer sponsored retirement accounts include 401k plans, 457 plans, and 403b plans.  

Please note that your Traditional IRA is intended to be a long-term savings and or investment program for your retirement years.  Generally  prior to your age 59.5 there is a potential 10% penalty for funds redeemed from your IRA.  Please consult IRS.gov or your tax advisor for more information.

 

Donn J. Sinclair, MBA   (803)329-0609

Updated in Charlotte NC and Rock Hill SC  

March 5, 2020

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2018 Roth and Traditional IRA Considerations

by Kristin P. Sinclair, A Accu Tax

This article is to be updated by April 26, 2020. Please check back again later.

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What is a Roth IRA?

What is a Roth IRA?

by Donn J. Sinclair – MBA  April 17, 2020

Contributions to a Roth Individual Retirement Account (IRA) do not reduce your current income subject to federal income taxes.  This newer

Roth IRA does allow your contributions to grow federal income tax free.  You fund a Roth with after-tax or post-tax dollars so that later you may be eligible to make totally tax free Roth IRA withdrawals.  

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What is a Roth IRA?

What is a Roth IRA?

by Donn J. Sinclair, MBA   April 17, 2020

Contributions to a Roth Individual Retirement Account (IRA) do not reduce your current income subject to federal income taxes.  This newer

Roth IRA does allow your contributions to grow federal income tax free.  You fund a Roth with after-tax or post-tax dollars so that later you may be eligible to make totally tax free Roth IRA withdrawals.  So you forfeit the current income tax benefit for the option to make totally tax free withdrawals during retirement.  This may be especially important during any retirement years where you have large unexpected expenses.  Withdrawing additional funds from a tax-deferred Traditional IRA would increase your taxable income that year.  This may make more of your Social Security Income taxable, and may boost you into a higher tax bracket.  Your  Roth IRA may be able to provide you the extra tax-free income to cover those large unexpected expenses during retirement.  

That’s right, every penny you withdraw from your Roth IRA after 59.5 should go straight into your pocket.  This may be especially important in your early retirement years to cover additional travel as well as those unexpected expenses.

In summary there are two big differences between your Roth IRA and your Traditional IRA.  Your Roth IRA does not provide you a current tax income deduction; however, your Roth IRA should provide you a totally tax free investment to withdraw funds from after age 59.5.  Remember that your Traditional IRA might provide that current income tax deduction.   Do you Roth IRA or do you Traditional IRA ?  Well actually, in any given tax year you may be eligible to do both.  You could put 25% or 50% of your eligible deductible contribution into your Roth IRA, and then put the balance into your Traditional IRA.  You should discuss and compare with your tax advisor the benefits of contributing to both your Roth IRA and your Traditional IRA.  

Are You Eligible for a Roth IRA Contribution ?

Roth IRAs like Traditional IRAs have income eligibility limits.  So if you make too much money you may not be eligible to contribute to your Roth IRA.  Most Americans qualify for a Roth IRA contribution with an adjusted gross income of $203,000 for those Married Filing Jointly or a Qualifying Widow(er); and adjusted gross income of $137,000 for those filing Single, Head of Household, and those Married Filing Separately that did not live with their spouse anytime in 2020.  For tax year 2020 you might be able to contribute up to $6,000 into your Roth IRA.  Those age 50 plus may be able to contribute up to $7,000 into their Roth IRA.  Your Modified Adjusted Gross Income (MAGI) may reduce the above maximums, and you should consult your tax advisor for your specific situation.    

Updated by Donn J. Sinclair, MBA

in Rock Hill SC and Charlotte NC

April 17, 2020      (803)329-0615

DJS: More information is available at IRS.gov.  See Publication 590-A and Publication 590-B. This information is intended for educational purposes only, and should not be considered as a solicitation for the purchase or sale of any securities, nor be relied upon as financial advice.  Past performance is no guarantee of future results.  

 

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What If You Should Inherit an IRA

by Kristin P. Sinclair   A Accu Tax   April 12, 2020

If you or your spouse should die, then the survivor generally has several options for the Inherited IRA:

A.)  Spousal survivors can designate themselves as the IRA owner, and then the survivors may elect to treat the Inherited IRA as their own Traditional IRA.

B.)  Treat the Inherited IRA as their own by rolling it over into: their Qualified Employer Plan (such as a 401k plan); their Qualified Employee Annuity Plan (403a plan); their Tax-Sheltered Annuity Plan (403b plan); or their state or local government Deferred Compensation 457 plan.  

C.)  The surviving spouse may also elect to treat themselves as the IRA Beneficiary, rather than treating the Traditional IRA as their own IRA.  

Please note that surviving spouses designated as the sole beneficiary, and who have an unlimited right to withdraw funds, will also be considered to have treated an Inherited IRA as their own Traditional IRA if: they do not take the Traditional IRA required minimum distribution (RMD) for a year; or make contributions to the Inherited IRA.  Such contributions also include Traditional IRA Rollover Contributions into the Inherited IRA.    

Example:

Aaron inherited his wife Louise’s 401k plan.  Louise’s former Charlotte NC employer sent Aaron the forms to treat this as his own Traditional IRA.  Aaron intends to ask his Rock Hill SC tax advisor if he should do an IRA Rollover and treat the 401(k) as his own Traditional IRA.  If so, then Aaron may roll the 401k into his ETF  IRA.

 

Kristin P. Sinclair: A Accu Tax

Updated in Charlotte NC and Rock Hill SC

April 12, 2020   (803)329-0609

KPS: More information is available at IRS.gov

See Publication 590-A and Publication 590-B.  

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Index and Exchange Trade Funds (ETFs)

by Donn J. Sinclair, MBA      March 10, 2020

An Index Fund is made up of a basket of securities designed to track and match the performance of a benchmark or index.  The Index Fund is also frequently called a Passively Managed Fund.  The Index Fund may be designed to track or match a stock or bond index.  Some of the most popular stock Index Funds attempt to track the S&P500 and the NASDAQ100, and some of the most popular bond Index Funds are designed to match the Total Bond Index and the International Bond Index.

Index/Passively Managed Funds are essentially the opposite of Actively Managed Funds.  These Actively Managed Funds attempt to beat the market return by employing a management team that hand picks a basket of stocks and/or bonds to outperform their target index or benchmark.  This Actively Managed strategy requires the expense of a larger  management team plus significant research and analysis expenses.  

Index/Passively Managed Funds do not have the above listed Actively Managed Funds’ expenses.  This Index Fund cost advantage is very significant over the years, and may help explain the tendency for Index Funds to regularly outperform their Actively Managed Fund rivals. The corresponding disadvantage for the Index/Passively Managed is the lack of reactive ability for protection in a trending down market.  

 A second core Index Fund advantage over Actively Managed Funds is that Index Funds tend to be lower-risk options for investing in stocks and bonds, and are designed for steady long-term growth.  Index Funds by design are well diversified which helps protect against deep losses. The corresponding downside is that Index/Passively Managed Funds lack the opportunity for large gains that would outperform their target index.

Transparency is another Index/Passively Managed Fund advantage – you know exactly how your funds will be invested.  This makes it easier to track your investment performance with the target index.  You may have several investment accounts; such as, a 401(k), Roth IRA, or TOD investment account.  Since you know exactly what is in your index funds, then it is easier for you or your advisor to complement your various investments accounts.  

The Indexed Exchange Traded Fund (ETF)

Index/Passively Managed Exchange Traded Funds (ETFs) have become highly favored investment vehicles in recent years.  These Indexed ETFs built upon the advantages of their mutual index fund cousins, and offer several distinct enhancements.  On average Indexed ETFs may be even more tax efficient than similar mutual funds, plus the Indexed ETFs frequently offer lower fees and expenses.  Another distinct advantage is that Indexed ETFs typically have more flexible trading schedules than indexed mutual funds.    

ETFs normally boast two distinct tax advantages versus Actively Managed and Indexed Mutual Funds.  Both of these mutual funds normally generate more capital gains taxes than Indexed ETFs.  Of note also is that ETF capital gains are only incurred upon a sale; whereas, traditional mutual funds normally pass on capital gains throughout the investor’s ownership.  Frequently traditional mutual funds will report capital gains distributions even when the investor has not sold any shares that year.  

Indexed ETFs may have a tax downside to traditional mutual funds.  When Indexed ETF dividends are distributed within 60 days of the investor’s purchase, then those Indexed ETF dividends will be taxed at the investor’s current income tax rate.  Of course for Indexed ETF IRAs, these tax differences are of little concern.              

Indexed ETFs may be purchased through the market day as compared to traditional mutual funds that may only be bought or sold once per day.  The traditional mutual fund purchase or sale must be placed while the market is open, and then that purchase or sale occurs after the market close.  This transaction delay may result in a significant price difference between the order and transaction prices.  For long-term investors this Indexed ETF intra-day trading flexibility should not be nearly as important; as this flexibility may be for those investors that trade more frequently.  Another consideration is that the Indexed ETF trading flexibility may also incur higher trading costs than most traditional mutual funds.

Probably the most important advantage Indexed ETFs hold over traditional mutual funds are the lower Indexed ETF fees and expenses.  Over the years lower cost investments have tended to outperform those with higher expenses.  These costs exist at some level for all ETFs and traditional mutual funds, and these costs include management fees, custody costs, administrative expenses, marketing expenses, and distribution costs.  

Indexed ETF investment costs are typically much leaner than their traditional mutual fund counterparts.  Frequently Indexed ETFs do not staff a call center for individual investor inquiries, and tend to have lower direct investor communication, marketing, and distribution costs.  Plus, normally Indexed ETFs have no short-term redemption fees.

Important Indexed ETF Considerations

A few words about risks, fees and expenses related to your investments. Before you move forward with any investment, be it Indexed ETFs or otherwise – you should carefully consider that investment’s objectives, risks, fees, and expenses. Not all exchange trade funds (ETFs) and traditional mutual funds may be appropriate for your specific situation. We all have our own unique risk temperaments and investment objectives that may or may not match any particular ETF or traditional mutual fund.  Furthermore, before investing in any ETF or traditional mutual fund you should carefully read the prospectus or summary prospectus.  This prospectus will outline the specifics of that fund; including that fund’s objectives, fees, and expenses.  Said securities expressly to include ETFs and traditional mutual funds.  Remember that any investment’s past performance is no guarantee of future results. The information and opinions contained herein are for educational purposes only; and expressly do not constitute a solicitation for the purchase or sale of any securities.  This educational information should not be relied upon as financial advice.

Updated in Rock Hill SC   March 10, 2020

Donn J. Sinclair, Winthrop MBA

Office (803)329-0609

Fax Line (803)327-4352

@Sinclair Financial Solutions is independently owned and operated.  Donn J. Sinclair, MBA is insurance licensed in NC & SC (NIPR NPN#1722815).  Investment Advisory Services offered through Prosperity Wealth Management, Inc., 2333 San Ramon Valley Boulevard, Suite #200 – San Ramon, CA 94583.  Securities offered through Fortune Financial Services, Inc., 3582 Brodhead Road, Suite #202 – Monaca, PA 15061; branch office of record located at 948 Myrtle Drive Rock Hill, SC 29730, Member FINRA/SIPC.  Sinclair Financial Solutions, Prosperity Wealth Management, and Fortune Financial Services, Inc are separate entities.   SC Real Estate License #76530, and NRDS #554027312.

 

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IRA Risks and Expenses

Insurance Professional Donn Sinclair

by Donn J. Sinclair, MBA          April 16, 2020

A few words about risks, fees and expenses related to your investments. Before you move forward with any investment – you should carefully consider that investment’s objectives, risks, fees, and expenses. Not all exchange trade funds (ETFs) and mutual funds may be appropriate your specific situation. We all have our own unique risk temperaments and investment objectives that may or may not match any particular ETF or mutual fund.

Furthermore, before investing in any ETF or mutual fund, you should carefully read the prospectus or summary prospectus. This prospectus will outline the specifics of that fund; including that fund’s objectives, fees, and expenses. Said securities expressly to include ETFs and mutual funds. Remember that any investment’s past performance is no guarantee of future results. The information and opinions contained herein are for educational purposes only; and expressly do not constitute a solicitation for the purchase or sale of any securities. This educational information should not be relied upon as financial advice.

Updated in Rock Hill SC and Charlotte NC

by Donn J. Sinclair, MBA – (803) 329-0609 – January 15, 2020

 

@Sinclair Financial Solutions is independently owned and operated. Donn J. Sinclair, MBA is insurance licensed in NC and SC (NIPR NPN#1722815). Investment Advisory Services offered through Prosperity Wealth Management, Inc., 2333 San Ramon Valley Boulevard, Suite #200 – San Ramon, CA 94583. Securities offered through Fortune Financial Services, Inc., 3582 Brodhead Road, Suite #202 – Monaca, PA 15061 Member FINRA/SIPC; branch office of record located at 948 Myrtle Drive Rock Hill, SC 29730. Sinclair Financial Solutions, Prosperity Wealth Management, and Fortune Financial Services, Inc are separate entities. SC Real Estate License #76530, and NRDS #554027312.

 

 

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