Proposed Tax Bill in Congress Threatens Retirement Savers

A major change could be coming to Roth IRA conversion rules, and the deadline to capitalize will be the end of the year.

Buried inside the proposed tax legislation bill is a line item that would eliminate Section 408A(d)(6) of the Internal Revenue Code.

This is important to know, especially if you converted traditional IRA funds to a Roth IRA in 2017. The threatened section of the law is the one that gives you a chance to change your mind and reverse the conversion. If the proposal becomes law, Roth conversions will become irreversible, you won’t have a chance to reverse things, as is currently allowed.

As things currently stand: When you convert funds from a traditional IRA to a Roth IRA, you generally must pay tax on the full amount in the year of the conversion. The cost is high up front, but so is the reward. Once your money is in the Roth, withdrawals in retirement – including all future earnings – are tax-free. Money coming out of a traditional IRA is taxed in your top tax bracket.

The current law includes a special “do-over” opportunity. You have until October 15 of the following year to undo the conversion and reclaim the tax you paid on it in the first place. You may want to do this, for example, if the value of your account has declined or you have fallen into a lower tax bracket. If you’re in either situation, undoing the conversion and then reconverting later would save you money.

The line item in the tax legislation working its way through the House and Senate would eliminate the do-over opportunity, effective at the end of this year.

ALERT: If you made a Roth conversion earlier this year, watch this issue carefully. If the change becomes law, you would have only until December 31, 2017, to undo a 2017 Roth conversion…not next October 15, as permitted under current law.

If you choose to re-characterize (as the law calls it) a 2017 conversion, call your IRA sponsor for details. If you do transfer your money back into a traditional IRA, you won’t need to report the amount as income on your 2017 tax return filed next spring.

Things to Consider for Holiday Tipping

Show your gratitude to those who help you all year – but keep these “tips” in mind.

1. Create a cheat sheet.
Start with people who work most closely with you or your family. For many who you see on a regular basis—a weekend babysitter, cleaning person, hairstylist, massage therapist or personal trainer, for example—the cost of one session or visit is a good amount to consider. About a week’s pay and perhaps a small gift from your child is appropriate for a nanny. The newspaper deliverer and trash and recycling collectors (if they are allowed to accept tips) should get around $10 to $30 each. If you live in a building with a doorman, tip him at least $15. It’s a very good idea to deliver your tip with a handwritten note that specifies what you appreciate about the person and her services.

2. Use discretion.
If someone has worked withRead More

Reminder for Disaster Victims, Other Taxpayers: E-File Closes Nov. 18

The IRS reminds taxpayers who want to file a 2016 tax return electronically to do so by Saturday, Nov. 18, 2017. This includes taxpayers in disaster areas. Taxpayers will still be able to file paper tax returns after that date.

The IRS will shut down their e-file system after Nov. 18 to perform annual maintenance. The agency will also be reprogramming the system for the upcoming 2018 tax-filing season. So, any taxpayer needing to file after Nov. 18 will need to do so on paper.

Most people already filed their 2016 federal tax returns. However, certain taxpayers qualify for an extension until Jan. 31, 2018. This includes taxpayers who meet three criteria. They:

  • live in a federally-declared disaster area.
  • have a U.S. tax filing obligation.
  • previously filed a six-month extension of time to file their federal tax return.

This filing reminder affects these taxpayers:

  • Wildfire victims in parts of California
  • Hurricane and tropical storm victims in:
    • Georgia
    • Florida
    • Puerto Rico
    • U.S. VirginRead More

Hurricane Disaster? IRS Can Help!

The recent devastation following Hurricane Harvey and Hurricane Irma have left a lot of businesses struggling to pick up the pieces and move forward.  Distressed individuals and businesses are filing insurance claims that often, substantially fail to make them “whole” and provide less than adequate compensation allowing them to rebuild.

Among other government resources, the IRS provides tax benefits to help alleviate the economic burden many taxpayers face after a natural disaster.  With careful planning, a taxpayer can mitigate this burden by ensuring losses, recoveries, re-investments, and charitable contributions are correctly accounted for.

Generally, IRC 165 allows a casualty deduction for property that is deemed completely worthless and not compensated by insurance.

The Disaster Tax Relief Act, recently passed by Congress and signed by President Trump, provides additional benefits.

Big picture, this new act will allow:

  • Personal casualty losses less than 10% of AGI (Adjusted Gross Income) to qualify forRead More

Save Twice with Saver’s Credit on Your Tax Return

If you are a low-to-moderate income worker, you can save two ways for the same amount. With the saver’s credit, you can save for your retirement and save on your taxes with this special tax credit.

If you contribute to a 401(k), traditional or Roth IRA, 403(b), 457 or other retirement plan, you may be eligible for what’s formally known as the “Retirement Savings Contributions Credit”. The credit can be worth $200 to $1,000 per person, depending on your income (couples earning more than $62,000 and single filers earning more than $31,000 are ineligible). Knowing that you’re eligible for the credit might encourage you to save a little more.

The credit is worth 10% to 50% of the first $2,000 you contribute to the retirement plan for the year. You can claim the top 50% credit if your adjusted gross income in 2017 is less than $37,000 if married filing jointly, $27,750 ifRead More