Individual Retirement Account Update for 2014

February
02

Written by: Jon McGraw

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At Buttonwood we regularly recommend maximizing the tax advantaged savings within a Retirement Plan. Following is an update for 2014 as well as a couple of tips you can use to avoid the unexpected.

Many people don’t realize that each year the IRS allows contributions to both an IRA as well as an employer retirement plan. The window of opportunity for these saving strategies opens on January 1st each year, but once it closes investors will never be able to go back and make up for lost time.

There will always be competition for every dollar you earn.  At Buttonwood we develop strategy designed to simplify both retirement savings as well as the retirement income process.

If you have questions or are interested in developing strategy to boost your retirement savings – or income from current savings please contact us at info@ButtonwoodFG.com.

2014 IRA (or Roth) contributions:

In 2014, the IRA (or Roth IRA) maximum contribution stays at $5,500 a year. The IRS allows persons age 50 or older in 2014 to contribute an extra $1,000 “catch up contribution” on top of the regular $5,500 ceiling.

Good news: Adjusted Gross Income phase outs rise in 2014: IRA deduction phase outs for married filers with access to an employer retirement plan start at $96,000 of Adjusted Gross Income (AGI) and ends at $116,000.  If only one spouse has access to an employer plan, the phase out zone for deducting contributions starts at $181,000 of AGI and ends at $191,000.

For singles covered by an employer plan, looking for deductions, the range rises in 2014 to $60,000 and ends at $70,000. For singles, without an employer plan, there is no income restriction.

Required Minimum Distributions (RMDS):

Under the current Internal Revenue Service (IRS) regulations, any individual age 70 ½ or older must take a Required Minimum Distribution (RMD) from their retirement plan by December 31st or suffer a tax penalty.

There is an exception for the first distribution: An individual’s first distribution may be deferred until April 1st of the calendar year following attainment of age 70 1/2.  However, if the first distribution is deferred until April 1st, a second distribution must be withdrawn by December 31st of the same tax year.

Proper RMD calculations, strategy, planning and execution can be a daunting task and if not done correctly can end up causing a 50% tax penalty! At Buttonwood Financial Group, we assist annually with coordination and strategy for RMDs.

Retirement Plan Beneficiary Designations:

Would you like your IRA or 401(k) to pass to your heirs without being cashed out and taxed upon your death?  If so, it’s important to make sure you have recorded your beneficiaries correctly for each of your retirement accounts. Unlike other property, retirement plan assets do not pass by will, but rather pass according to the terms of the IRA Beneficiary Designation Form.

Details vary from state to state, but generally if there is no named beneficiary, the default beneficiary will become the owner’s estate.  This means, upon death, your retirement accounts will likely be ‘cashed out’ and taxes will be due as if you took a distribution all at once while you were still alive. Furthermore, without the proper beneficiaries listed, IRA or 401(k) assets may be subject to probate.

At Buttonwood we coordinate a regular review of beneficiary designations for all retirement accounts, including current and former employer provided plans. We also assist with strategy to determine the best way to structure your beneficiary designations.

Information in this document is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We recommend you discuss specific tax or legal issues with a qualified tax or legal advisor.