Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

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Kinds of IRAs and Prohibited Transactions

You can open different kinds of IRAs with a variety of organizations. You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also open an IRA through your stockbroker. Any IRA must meet Internal Revenue Code requirements, which are listed below for various arrangements.

Traditional IRAs

Your traditional IRA can be an individual retirement account or annuity. It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account.

Read 2016 Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

SIMPLE IRAs

A savings incentive match plan for employees (SIMPLE) plan is a tax-favored written agreement (salary reduction) between you and your employer that allows you to
choose to reduce your compensation (salary) by a certain percentage each pay period, and have your employer contribute the salary reductions to a SIMPLE IRA on your behalf.

All contributions under a SIMPLE IRA plan must be made to a SIMPLE IRA, not to any other type of IRA. The SIMPLE IRA can be an individual retirement account or an individual retirement annuity, described above.

If your employer maintains a SIMPLE IRA plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution.

Roth IRAs

A Roth IRA can be either an individual retirement account or individual retirement annuity, described above. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. A SEP IRA or SIMPLE IRA cannot be designated as a Roth IRA.

Designated Roth accounts. Designated Roth accounts are separate accounts under 401(k), 403(b), or 457(b) plans that accept elective deferrals that are referred to as Roth contributions. These elective deferrals are included in your income, but qualified distributions from these accounts are not included in your income. Designated
Roth accounts are not IRAs and should not be confused with Roth IRAs. Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. A contribution to one does not impact your eligibility to contribute to the other.

Read 2016 Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

Prohibited Transactions

Generally, a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary, or any disqualified person.

Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). The following are some examples of prohibited transactions with an IRA.
• Borrowing money from it.
• Selling property to it.
• Using it as security for a loan.
• Buying property for personal use (present or future) with IRA funds.

Read 2016 Individual Retirement Accounts Kinds of IRAs and Prohibited Transactions

Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

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Individual Retirement Accounts-Roth IRAs

IRA Senior

Roth IRAs

Roth IRA Contribution Limits—2016
Lesser of: Taxable compensation for the year, or:
Under age 50………………………………………………………………………. $ 5,500
Age 50 or older……………………………………………………………………. $ 6,500

What is a Roth IRA?
A Roth IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An account must be designated as a Roth IRA when opened. Roth IRA tax advantages and rules compared to a traditional IRA:

Contributions are not deductible. Active participation in an employer plan is irrelevant.
If certain requirements are satisfied for qualified distributions, distributions are tax free.
Can withdraw contributions any time for any reason without owing taxes or penalties.
Contributions can be made after the participant reaches age 70½.
The required minimum distribution (RMD) rules do not apply. Distributions are not required until death of the participant.
Contributions are not allowed when modified adjusted gross income (MAGI) is above certain limits
Neither a SEP IRA nor a SIMPLE IRA can be set up as a Roth IRA

Click and Read 2016 Individual Retirement Accounts Roth IRAs Here

Who Can Contribute to a Roth IRA?
Generally, you can contribute to a Roth IRA if you have taxable compensation and income less than the top of the phase-out range for your filing status, see Roth IRA
Phase-outs chart, in link below..

Click and Read 2016 Individual Retirement Accounts Roth IRAs Here

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Individual Retirement Accounts-Traditional IRAs

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Traditional IRAs

IRA Contribution Limits—2016
Lesser of: Taxable compensation for the year, or:
Under age 50………………………………………………………………………. $ 5,500
Age 50 or older……………………………………………………………………. $ 6,500

What is an IRA?
An IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An IRA is referred to as a traditional IRA if it is not a Roth IRA or a SIMPLE IRA. Traditional IRAs include SEP IRAs.
Traditional IRA tax advantages and rules:

Contributions to an IRA may be fully or partially deductible.
Amounts in your IRA (including earnings and gains) are not taxed until distributed.
There is no limit on how much you can earn and still contribute (however, contributions are not deductible above certain amounts).
Contributions are not allowed past age 70½ and required minimum distributions begin after age 70½.
Early distributions (before you are age 59½) are subject to a 10% additional tax. Exceptions apply.
Distributions are taxed as ordinary income.

Who Can Contribute to an IRA?
Any individual can set up a traditional IRA if he or she receives taxable compensation during the year and is not age 70½ by the end of the year. An individual can have a traditional IRA even if covered by an employer-sponsored retirement plan. However, the deductible amount of contributions to a traditional IRA may be phased out. See Reduced IRA Deduction, later.

Contribution limit. Contributions to IRAs are limited to the lesser of the individual’s compensation (or spouse’s compensation under a spousal IRA), or $5,500 ($6,500 for age 50 or older).

Click and Read 2016 Individual Retirement Accounts Traditional IRAs Here

Total contributions are combined with Roth IRA contributions to determine limits. For example, a $1,000 contribution to a Roth IRA will reduce total contributions allowable to a traditional IRA by $1,000.

Spousal IRA. If both spouses have compensation, each can set up a separate IRA. Spouses cannot participate in the same IRA. If filing status is Married Filing Jointly and one spouse’s compensation is less than the contribution limit, the lower-income spouse can use the compensation of the other spouse to qualify. However, the spousal IRA is limited to total compensation reduced by any IRA contributions.

This means that the total combined contributions that can be made for the year to your IRA and your spouse’s IRA can be as much as $11,000 ($12,000 if only one of you is age
50 or older or $13,000 if both of you are age 50 or older).70½ rule. Contributions cannot be made in a year the participant has reached age 70½ or for any later year.

Click and Read 2016 Individual Retirement Accounts Traditional IRAs Here

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Your Rights as a Taxpayer-The Taxpayer Bill of Rights

As stated by the Internal Revenue Service (IRS), their Mission is to

Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all

It was toward this end that the Taxpayer Bill of Rights were created by the IRS and incorporated into IRS Publication 1. The Taxpayer Bill of Rights contain 10 provisions compiled by the Internal Revenue Service that “take the multiple existing rights embedded in the tax code and groups them into 10 broad categories making them more visible and easier for taxpayers to find.”.

Read Taxpayer Bill of Rights Here

The 10 Taxpayer Rights are:

The Right to Be Informed
The Right to Quality Service
The Right to Pay No More than the Correct Amount of Tax
The Right to Challenge the IRS’s Position and Be Heard
The Right to Appeal an IRS Decision in an Independent Forum
The Right to Finality
The Right to Privacy
The Right to Confidentiality
The Right to Retain Representation
The Right to a Fair and Just Tax System

As stated in Right 9, tax payers have “The Right to Retain Representation”. Patrick White, the president of Pat Tax Inc. is Enrolled to Practice to Practice Before the Internal Revenue Service and as such is authorized to represent taxpayers.

Pat can be contacted at 917 533-8475 or email: PatTaxHelp@gmail.com with any questions or concerns on tax preparation, consultation or representation.

Read Taxpayer Bill of Rights Here

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Families With Children

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Baldwin NY Tax Preparation service Pat Tax Inc. and Patrick White, Enrolled Agent . Please feel free to contact us with any questions or concerns.

Family Picture

Child Tax Credit

Maximum credit: $1,000 per qualifying child.
Adjusted Gross Income (AGI) Phaseout
The credit is reduced by $50 for each $1,000 of modified AGI above:

$110,000 Married Filing Jointly.
$75,000 Single, Head of Household, or Qualifying Widow(er).
$55,000 Married Filing Separately.

The regular child tax credit is nonrefundable, but if any part of the credit is disallowed because tax is reduced to zero, the taxpayer may qualify for the additional child tax credit, which is refundable.

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Additional Child Tax Credit

Taxpayers may be able to claim the additional credit if any portion of the regular child tax credit was disallowed because tax was reduced to zero before the entire credit was used. The portion of the child tax credit phased out because of AGI cannot be used to claim the
additional credit. The additional credit is refundable.

Child and Dependent Care Credit

Credit
The credit is 20% – 35% of the smallest of:

$3,000 ($6,000 for two or more qualifying persons).
Qualified expenses incurred and paid during the year.
Include expenses for care in 2015 that were paid before
2015. Reduce expenses by dependent care benefits excluded
from income.
Taxpayer’s earned income.
Spouse’s earned income.

Click Families With Children 2016 Here

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Estate Planning, Wills, Probate, and Transfer of Assets

Pictures for Estate, Trusts

Wills and Intestacy

A will allows the testator (the person creating the will) to specify:
• Who receives property at the testator’s death.
• Whether beneficiaries receive gifts outright or in trust.
• Who will act as personal representative.
• Who will be the guardian of minor children.

In the absence of a will, these matters are settled by state law.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Who Needs a Will?

Include persons who are not heirs. Wills are needed to provide for a person who is not an heir under state law—unmarried partners, stepchildren, friends, charities, in-laws, etc.
Exclude an heir. Heirs are the persons who inherit an estate under state law in the absence of a will. A will is needed to prevent an heir from inheriting probate assets.
Minors and disabled adults. Trust provisions can be included in a will to delay receipt of an inheritance or to allow assets to be used on behalf of an adult who is disabled.
Estate tax planning. Married couples can include trust provisions to reduce estate tax.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Dying Intestate—Without a Will

State law determines who receives probate property if a decedent dies without a will.

Most states provide first for the surviving spouse and children. Children of the decedent always inherit a share in some states while in others they inherit only if they are not also children of the surviving spouse. Children also receive a share in some states if the surviving spouse has any children who are not also children of the decedent.
Intestacy laws generally provide for distribution by representation, also known as per stirpes distribution. The share of any heir who dies before the decedent passes in equal shares to that heir’s children.
When there are no descendants, the surviving spouse receives the entire estate in some states but more commonly shares the estate with the decedent’s parents.
When there is no spouse and no descendants, parents and siblings share the estate in some states. In others, parents inherit the entire estate, and siblings inherit only if there is no surviving parent.
If there are no parents or descendants of parents, grandparents generally inherit next, followed by their descendants.
The final beneficiary under intestacy law is the state. Only relations up to a certain degree inherit under each state’s laws. After that point, the decedent’s property “escheats” to the state. State laws vary—a third cousin thrice removed may inherit in one state but a second cousin may be too remotely related to inherit in another.

Example: Nola died at age 103 without a will. Under state law, her property passes to her descendants per stirpes. Nola’s three children, Brian, Kyle, and Lloyd, all died before Nola.
Nola’s six grandchildren inherit her $900,000 estate. Brian’s only child receives $300,000. Kyle’s two children each receive $150,000. Lloyd’s three children each receive $100,000.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

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Pension Income Planning

Pension Income Planning

An employee nearing retirement may face a dilemma when it comes to choosing his or her pension. Pension options from a defined benefit retirement plan generally include a lifetime payment with no survivor benefit, a joint and 50% survivor payment, or a joint and 100% survivor payment. The joint and survivor benefits are reduced amounts from the lifetime payment option.

Read 2016 Pension Income Planning Here

Predicament
If the employee selects the lifetime payment and then dies before the surviving spouse, no monthly pension will be left for the spouse. If the employee selects one of the survivor options, and the spouse dies before the employee dies, the employee will be locked into the lower payout for the rest of his or her life. The amount of potential loss of income can be devastating to the retired employee or spouse. Emotionally, an employee may be inclined to choose one of the pension options that give an ongoing benefit to his or her surviving spouse. However, this may not be the best financial decision.

Example:

Henry, age 65, will be retiring soon. He and his wife, Louise, also age 65, are reviewing his pension options.

Option	Monthly Pension	Survivor’s Monthly Pension
Life	$2,000	$0
50% Survivor Benefit	$1,600	$800
100% Survivor Benefit	$1,200	$1,200

If Henry chooses the life option and subsequently dies, Louise will be left without any portion of his pension. With the 50% survivor benefit, Henry would have $400 less per month than the life option, and Louise would receive a pension of half of Henry’s if Henry were to die. With the 100% survivor benefit, Henry would receive $1,200 per month and if he were to die, Louise would receive $1,200 per month.

Read 2016 Pension Income Planning Here

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Social Security and Medicare

Social Security

Full Retirement Age
If you were born in 1942 or earlier, you are already eligible for full Social Security benefits. The following chart will guide you in determining your full retirement age.

Year of Birth	Full Retirement Age
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 or later	67

Note: Although the full retirement age is rising, you should still apply for Medicare benefits three months before your 65th birthday. If you wait longer, your Medicare
insurance (Part B) and prescription drug coverage (Part D) may cost you more money.

Read Social Security and Medicare Here

Delayed Retirement
If you choose to delay receiving benefits beyond your full retirement age, your benefits will be increased by a certain percentage, depending on the year you were born. The increase will be added in automatically from the time you reach full retirement age until you start
taking benefits or reach age 70, whichever comes first.
Early Retirement
You may start receiving benefits as early as age 62. However, if you start your benefits early, your benefits are reduced approximately one-half of 1% for each month you
start your Social Security before your full retirement age.

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Early Retirement Distributions

Early Retirement

Early Retirement Distributions

A taxpayer may choose, or be forced into choosing, early retirement. A retirement before age 59½ creates income challenges for the retiree. The retiree is not yet eligible to receive retirement benefits from Social Security. The retiree may or may not have a monthly pension to generate income.

In many situations, the retiree will need to generate income from his or her assets. Often, the retiree has most of his or her assets in a retirement plan through a 401(k) plan at his or her employer or in an individual retirement arrangement (IRA). Withdrawals of earnings and pre-tax contributions are subject to ordinary income tax. In addition, taxpayers may be subject to the 10% early withdrawal penalty tax on distributions taken before the taxpayer reaches age 59½.

Read Early Retirement Distributions 2016 Here

Tax Summary

Withdrawals of earnings and pre-tax contributions from an IRA are subject to ordinary income tax.
Unless an exception applies, taxable withdrawals from an IRA prior to age 59½ are subject to a 10% early withdrawal penalty.
Taxpayers who take a series of substantially equal periodic payments from an IRA are not subject to the 10% additional tax.

Tax Planning Strategy

One strategy to generate income from retirement accounts for taxpayers under age 59½ is to take periodic distributions from those accounts. If structured properly, the 10% additional tax will not be assessed on the distributions. Taxpayers can take distributions from various retirement accounts such as 401(k) plans, 403(b) plans, and IRAs.

Read Early Retirement Distributions 2016 Here

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Saving For Retirement

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Traditional IRA

A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Any individual can set up a traditional IRA if he or she receives taxable compensation during the year and is not age 70½ by the end of the year. An individual can have a traditional IRA even if covered by
an employer-sponsored retirement plan. However, the deductible amount of contributions to a traditional IRA may be phased out.

Contribution limit. Contributions to IRAs are limited to the lesser of the individual’s compensation (or spouse’s compensation under a spousal IRA), or $5,500 ($6,500 age 50 or older).
spousal IRA. If both spouses have compensation, each can set up a separate IRA. Spouses cannot participate in the same IRA. If Married Filing Jointly, and
one spouse’s compensation is less than the contribution limit, the lower-income spouse can use the compensation of the other spouse to qualify.
SEP IRA. A SEP is a traditional IRA with different per year contribution limits. An employer (or self employed individual) makes deductible contributions to a traditional IRA on behalf of the employee (or self-employed individual). Distributions are generally subject to the same rules that apply to traditional
IRAs.

Read 2016 Saving for Retirement Here

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Prohibited Transactions Involving IRAs

Penalties apply when IRA funds are used in prohibited transactions. A prohibited transaction is any improper use of traditional IRA funds by the participant, the beneficiary, or a disqualified person. The following are examples of prohibited transactions.

Borrowing money from an IRA.
Selling property to an IRA.
Receiving unreasonable compensation for managing an IRA.
Using an IRA as security for a loan.
Buying property for personal use (present or future) with IRA funds.

Read 2016 Saving for Retirement Here

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Roth IRAs

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Traditional IRAs

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Your Rights as a Taxpayer-The Taxpayer Bill of Rights

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Click Families With Children 2016 Here

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Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

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Read 2016 Pension Income Planning Here

Read 2016 Pension Income Planning Here

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Read Social Security and Medicare Here

Read Social Security and Medicare Here

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Early Retirement Distributions

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Tax Summary

Read Early Retirement Distributions 2016 Here

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Read 2016 Saving for Retirement Here

Read 2016 Saving for Retirement Here

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