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Tax Considerations for the Retiree – Qualified Plan Issues

January 3, 2020 Tags: , , , Joshua Rystedt

Now that you’ve worked through your family and filing issues, as well as your investment income and other issues, it’s time to take a look at the last category for tax time consideration: qualified plan issues.

Qualified plans often play a large part in the retirees income equation, so it’s essential to properly account for distributions taken throughout the year. Additionally, each account type carries slightly different rules, so you want to stay on top of when you can begin distributions from one account or what your distribution requirements are for another.

This article is third in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

Here are some questions to ask as you approach your qualified plan issues this season.

Are You Above Age 70 ½:

  • With an Inherited IRA?

    Ensure that your RMD has been met and reported (Form 1040, Lines 4a and 4b).
  • And Have Completed a Qualified Charitable Distribution?

    Double check that this amount if properly accounted for and that the amount is excluded on Form 1040, Line 4b.

 

Did you Fail to Take the Required Minimum Distribution?

Your Required Minimum Distribution is the minimum amount of money that you should withdraw from your retirement account(s). If you failed to take the RMD, you will need to pay a penalty, which can be calculated on Form 5329 and carried over to Schedule 4, Line 59.

Have You Made a Non-Deductible IRA Contribution?

Look at Form 8606 for more information about your non-deductible IRA contribution. Then, ensure that the cost basis for this contribution is properly tracked.

Have You Taken a Non-Qualified Distribution from a 529 Account?

If you took a non-qualified distribution from a 529 account, you’ll need to pay the penalty on the withdrawal amount. File form 5329 to account for the penalty and then carry it over to Schedule 4, Line 59. Your tax professional can provide personalized guidance if you want to understand more about whether your 529 distribution(s) is qualified.

Did You Withdraw from a Non-Deductible IRA?

You can use Form 8606 to ensure that the taxable and non-taxable portions of your distribution were calculated correctly.

Did You Convert Funds from a Traditional IRA to a Roth IRA?

Conversion of funds from a traditional IRA to Roth IRA can impact your bottom line at tax time. Use Form 8606 to report the converted amount and to ensure that non-deductible IRA contributions were converted and treated as non-taxable. If you made any conversions of this type, you’ll want to enlist your tax professional in assisting you to calculate this properly.

Have You Rolled Retirement Funds from One Account Type to Another?

Similarly, if you’ve converted retirement funds from one account type to another (ex. Moving funds from a 401(k) to an IRA), you want to ensure that this is reported and calculated properly. Ensure that funds are treated as a rollover and not as a distribution by double checking that Form 1040, Line 4a displays the rollover amount. Meanwhile, Form 1040, Line 4b should show $0.

Did You Rollover Retirement Funds and Utilize NUA?

If yes, you will need to review Form 1040, Lines 4a and 4b to see that your IRA distributions are recorded and to ensure that the basis was taxed.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, see our posts on family and filings issues, as well as what to do about investment income.

This article is third in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Tax Considerations for the Retiree – Family and Filing Issues

December 23, 2019 Tags: , , Jacob Sturgill

As tax season approaches, it’s time to take a look at your 2019 tax strategy. Thankfully, if you filed taxes in 2018, you can use your 2018 return as a sort of cheat sheet to help you get a better idea of what you may be responsible for this time around.

Whether you’re dealing with a fixed income, investment payouts, or any other unique financial situations, your status as a retiree means you have some different considerations to make than you did as a working individual. To start, you will want to take a look at your family and filing issues.

This article is first in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

Did You Take the Standard Deduction?

Did you claim the standard deduction of $12,000 ($24,000 married, filing jointly) in 2018? (Consult Form 1040, Line 9) If so, you may want to consider bunching charitable contributions into one year and look into ways to accelerate certain expenses, such as your property taxes.

Are You Married?

Your marriage can have some tax benefits — though in retirement, there can be some complicated factors to filing jointly. Do any of the following apply?

  • You have a large disparity between your and your spouse’s incomes
  • You can claim large, itemized deductions
  • You have an income-based student loan

 

If you answered “yes” to one or more of these scenarios, you may wish to prepare a return as married filing jointly alongside a return as married filing separately to see whether one of these statuses provides a greater tax advantage.

Have You Been Divorced or Lost Your Spouse?

If you’ve experienced a divorce or death of a spouse, you need to review your filing status. Look at the top of Form 1040 to see whether you’re filing correctly.

If you entered into a divorce agreement in 2019, after the first of the year, alimony is not taxable for the recipient. If your agreement began before 1/1/19, alimony is deductible by the payer (Schedule 1, Line 31a) and taxable to the recipient (Schedule 1, Line 11).

Did You Have Any AMT?

If you paid AMT in 2018, you may want to consider strategies to reduce it for this tax year. Strategies like minimizing large capital gains and lowering income by maxing out retirement contributions can help. If you paid a large amount of AMT in 2017, look at Form 8801 to determine whether you received a credit for this payment.

Do You Have Certain Age or Disability Factors?

If you and/or your spouse are over age 65 and/or if you or your spouse is legally blind, you may be eligible for a deduction of $1,300 for each married taxpayer ($1,600 for each unmarried taxpayer).

Did You Have Any Tax Surprises in 2018?

If your 2018 tax responsibility was much higher or lower than you thought it was going to be, it’s important to check into what caused the change and whether that factor will impact your tax responsibility this time around. For those who experienced a higher refund, look to see whether you had a unique situation by comparing your taxable income from the past two years’ returns. On the other hand, for those who didn’t withhold enough for tax time, look at Form 2210 to review the penalty and determine your current tax liability for that amount.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, stay tuned for information about reporting your investment income and other issues.

This article is first in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.