3/18/2015

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2015 IRA Season

(for 2014 contributions)

Tax Planning Tips and Solutions

for IRA and Small Business Owners

By Denise Appleby, CISP, CRC, CRPS, CRSP, APA www.DeniseAppleby.Com

General Disclaimer

 This information is for general information purposes only and is not intended to be used as tax or legal advice. You may need additional material to answer some questions related to the course topic.  ©Appleby Retirement Consulting Inc. All rights reserved. Not to be reproduced in whole or in part in any form without permission from Appleby Retirement Consulting Inc. ©2015: Appleby Retirement Consulting Inc.

About Us…



Appleby Retirement Consulting Inc. provides

IRA/Retirement Plans products and services

to Financial, Tax and Legal professionals.

These include:

o Technical consulting o Training o Reference materials o Marketing materials o Newsletters

o Content for newsletters, websites etc.

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Your Presenter

Denise Appleby, CISP, CRC, CRPS,

CRSP, APA Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA tools and resources for financial professionals. She has more than 15 years in the IRA and d fi d ib i l fi ld d defined contribution plans fields, and has co‐authored several books and written over 400 articles on IRA rules and regulations.

Visit www.DeniseAppleby.com for more information about Denise Appleby

Agenda

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Legislative/Regulatory Update

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SEP IRAs for Small Businesses

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Avoiding Common IRA Mistakes

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Overlooked Tax Benefits for IRAs



Tracking Nontaxable Amounts

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Overlooked Tax Benefits for Inherited IRAs

Update| IRA‐To‐IRA Rollovers

 Bobrow v. Commissioner, T.C. Memo 2014‐21‐ One IRA to IRA rollover per year  Announcement 2014‐15 ‐ The IRS will apply the Bobrow interpretation oApplies on a per‐IRA basis up to 12/31/2014 A li i di id l b i f 01/01/2015 oApplies on a per‐individual basis as of 01/01/2015  Announcement 2014‐32‐ oAll traditional, SEP, SIMPLE and Roth IRAs are aggregated oTransitional Rule applies  12‐months not calendar year. Starts when distribution is received  Applies only to IRA‐to‐IRA rollovers

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Update| After‐Tax from QP & 403(b)

 Generally, if qualified plan/403(b) account balance includes after‐tax amounts, distribution includes pro‐rated amount of pre‐tax after‐tax

oException for pre‐1987 balance oException for pre 1987 balance  Under Notice 2009‐68 require pro‐rata rule for split distributions  Notice 2014‐54 eliminates pro‐rata requirement ©2015: Appleby Retirement Consulting Inc.

SEP IRAs for Small Businesses

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Definition: IRA‐Based Retirement Plan for

Small businesses

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Eligible Employer: Any business entity

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Deadline to establish: Tax filing due date,

plus extension for business

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Deadline to fund: Tax filing due date, plus

extension for business

SEP IRAs : Employee Eligibility

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Employees age 21 and over

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Employees who worked 3 of the 5 years

preceding years

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Employees who earn at least $550 during the

year ($600 for 2015)

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Employer can make requirements less

restrictive

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SEP IRAs : Excludable Employee

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Employees covered by a union agreement

/collective bargaining agreement

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Nonresident alien employees who have

received no U S source wages salaries or

received no U.S. source wages, salaries, or

other personal services compensation from

the employer

SEP IRAs : Contributions



Maximum Contribution: Lesser of 25% of

employee’s compensation or $52,000 for

2014/$53,000 for 2015

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Maximum Deduction: 25% of eligible

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Maximum Deduction: 25% of eligible

compensation paid to employees

oCompensation is capped at $260,000 ( $265,000 for 2015)

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Discretionary : Allows flexibility

SEP IRAs : Documentation

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Employer: SEP IRA Agreement

oIRS Model 5305 oPrototype oIndividually designed oIndividually designed See handout for when each can be used

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Employee: Traditional IRA Agreement

oCustodian may require a copy of employers SEP IRA Agreement

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SEP IRAs : Benefits

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Deductions for contributions

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Start up credit ‐ 50% up to $500 of the

qualified startup costs per year for 3 years

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Provide retirement nest egg for business

owner and employees

SEP IRAs : Features

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Contributions are immediately 100% vested

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No nondiscrimination testing

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No 5500 filing

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Low complexity

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Low administrative cost

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Contribution flexibility ( discretionary)

SEP IRAs Checklist

Ensure that SEP Adoption agreement is

current

Ensure that all eligible employees receive

contributions

Check for ownership in other businesses by

business owner

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IRA Mistake: No Eligible Income

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Contribution cannot exceed eligible income

Compensation (eligible income) for Purposes of an IRA Includes ... Does not include ... o wages, salaries, etc. o earnings and profits from property. ©2015: Appleby Retirement Consulting Inc. o commissions. o self‐employment income. o alimony and separate maintenance. o nontaxable combat pay. o interest and dividend income. o pension or annuity income. o deferred compensation. o income from certain partnerships. o any amounts excluded from income.

Mistake: No Eligible Income

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Contribution cannot exceed income

oSpouse's income can be used oMust file joint tax return

oMust have sufficient compensation to cover

Mistake: Exceed Roth Income Limit

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Contributions not allowed for some MAGI

Tax Filing Status 2014 MAGI 2015 MAGI Allowed contribution

Single $114,000 or less $116,000 or less 100% $114 000 - $129 000 $116 000 - $131 000 Partial $114,000 - $129,000 $116,000 - $131,000 Partial $129,000 or more $131,000 or more None Married filing jointly $181,000 or less $183,000 or less 100% $181,000 - $191,000 $183,000 -$193,000 Partial $191,000 or more $193,000 or more None Married filing separately Less than $10,000 Less than $10,000 Partial $10,000 or more $10,000 or more None

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IRA Mistake: Exceeding Age Limit

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Exceeding age limit for Traditional IRAs

Claiming Deduction When Ineligible

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Claiming a deduction when not eligible

oEmployer should indicate on Form W‐2 if covered by an employer plan

oIf covered or married to someone who is

©2015: Appleby Retirement Consulting Inc. oIf covered or married to someone who is, eligibility for deducting Traditional IRA contribution depends on modified adjusted gross income (MAGI) and tax filing status

Deductibility for Active Participants

Deductibility limit when covered under an employer plan

Tax Filing Status 2014 MAGI 2015 MAGI Allowed deduction

Single $60,000 or less $61,000 or less 100% $60,000 ‐ $70,000 $61,000 ‐ $71,000 Partial $70 000 or more $71 000 or more None

$70,000 or more $71,000 or more None

Married filing jointly or a qualifying widower, and active

$96,000 or less $98,000 or less 100% $96,000 ‐ $116,000 $98,000‐ $118,000 Partial $116,000 or more $118,000 or more None

Married filing jointly. Not active, but spouse is active

$181,000 or less $183,000 or less 100% $181,000 ‐ $191,000 $183,000 ‐ $193,000 Partial $191,000 or more $193,000 or more None

Married filing separately

Less than $10,000 Less than $10,000 Partial $10,000 or more $10,000 or more None

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Confusing Eligibility with Deductibility

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Misunderstanding effects of coverage under

employer sponsored retirement plans

oCoverage under employer plan does not affect eligibility to contribute to Roth IRA

©2015: Appleby Retirement Consulting Inc. eligibility to contribute to Roth IRA oCoverage under employer plan does not affect eligibility to contribute to Traditional IRA oCoverage under employer plan only affects eligibility to deduct contribution to Traditional IRA

Other Common IRA Mistakes

 Missing contribution deadline o Tax filing deadline ( April 15). No extensions o Must indicate year on contribution o Use IRS Approved delivery service List at: www.retirementdictionary.com/definitions/designatedprivatedeliveryservice ©2015: Appleby Retirement Consulting Inc. y / / g p y  Missing RMD Deadline oGenerally December 31 oApril 1 of following year for year of age 70 ½  Exceeding limit o Lesser of 100% of compensation or $5,500 + catch‐up

Fixing IRA Contribution Mistakes

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Exceed Contribution limit

oReturn of excess contribution oApplying excess to future year

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Exceed Roth IRA MAGI

oRecharacterize to Traditional IRA oReturn of excess oApplying excess to future year

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Fixing IRA Contribution Mistakes

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Exceed Age Limit for Traditional IRA

oRecharacterize to Roth IRA oReturn of excess

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Miss RMD Deadline

oRequest waiver of penalty if eligible

Overlooked Tax Benefits : Deduction

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Deduction helps to offset cost of funding IRA

o100% deduction: Not covered (nor married to someone who is) under an employer plan oCovered: Deductibility determined by MAGI and tax filing status filing status oEmployer plans: Coverage rules determined by type of plan –SEP IRA & profit Sharing Plan –Money Purchase Pension, Plan Target Benefit Plan –Defined Benefit Plan –401(k), 403(b), SIMPLE IRA ©2015: Appleby Retirement Consulting Inc.

Overlooked Tax Benefits : Deduction

Deductibility limit when covered under an employer plan

Tax Filing Status 2014 MAGI 2015 MAGI Allowed deduction

Single $60,000 or less $61,000 or less 100% $60,000 ‐ $70,000 $61,000 ‐ $71,000 Partial $70 000 or more $71 000 or more None

$70,000 or more $71,000 or more None

Married filing jointly or a qualifying widower, and active

$96,000 or less $98,000 or less 100% $96,000 ‐ $116,000 $98,000‐ $118,000 Partial $116,000 or more $118,000 or more None

Married filing jointly. Not active, but spouse is active

$181,000 or less $183,000 or less 100% $181,000 ‐ $191,000 $183,000 ‐ $193,000 Partial $191,000 or more $193,000 or more None

Married filing separately

Less than $10,000 Less than $10,000 Partial $10,000 or more $10,000 or more None

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Overlooked Tax Benefits :Svrs Credit

Savers Credit

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Savers Credit: Nonrefundable tax credit for

eligible individuals

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Can help to offset cost of funding IRAs

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Capped at $1,000 for the year

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Must meet several requirements, including

adjusted gross income (AGI)

Overlooked Tax Benefits : Svrs Credit

Savers Credit

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Must be at least 18 years of age

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Should not be a full‐time student, and

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Must not be claimed as a dependent on

someone else’s return.

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Income must be below certain amounts (next

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Tax Benefits for IRAs: Savers Credit

2014 Thresholds Credit Rate Married and files a joint return Files as head of household Other category of filers Over Not Over Over Not Over Over Not Over

50% $0 00 $36 000 $0 00 $27 000 $0 00 $18 000 50% $0.00 $36,000 $0.00 $27,000 $0.00 $18,000 20% $36,00 0 $39,000 $27,000 $29,250 $18,000 $19,500 10% $39,00 0 $60,000 $29,250 $45,000 $19,500 $30,000 0% $60,00 0 $45,000 $30,000

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Tax Benefits for IRAs: Savers Credit

2015 Thresholds Credit Rate Married and files a joint return Files as head of household Other category of filers Over Not Over Over Not Over Over Not Over

$ $ $ $ $ $ ©2015: Appleby Retirement Consulting Inc. 50% $0.00 $36,500 $0.00 $27,375 $0.00 $18,250 20% $36,500 $39,500 $27,375 $29,625 $18,250 $19,750 10% $39,500 $61,000 $29,625 $45,750 $19,750 $30,500 0% $61,000 $45,750 $30,500

IRAs: Tracking Nontaxable Amounts

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IRS Form 8606:

oFiled to report nondeductible contributions to Traditional IRAs

oKeeps track of nontaxable balance

Tax Forms to File

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Form 8606 to track basis

oNondeductible IRA contributions oDistributions and conversions of basis

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Form 5329 to report penalties and excise tax

oEarly distribution penalty oRMD penalty or penalty waiver request oExcise tax on excess IRA contributions