Recently a client of mine started a home business. She is having some success and wanted to know what options are available for retirement savings. Of course she could use a traditional deductible IRA account, but I also told her about a Solo 401k.
The Solo 401k was established by EGTRRA* in 2001. They work just like corporate 401k accounts but may only cover the self-employed business owner and their spouse. There cannot be any full time employees.
The response I received from my client was that their accountant had “never heard of a Solo 401k before but would look it up on the IRS website.” I was shocked by this response. My suggestion to my client was to rethink the person that was helping them with their taxes.

*Economic Growth & Retirement Reconciliation Act of 2001

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Recently, I received a panicked call from a client, the IRS left a message stating they owed a lot of tax and had to return the call immediately.
My client does not make enough reportable income in her retirement to require filing of a tax return. As she takes her small annual required minimum distributions, we withhold tax. She did not know what to do.
This scam is rampant in the months leading up to our annual tax filing in April. This year it seems to have gone on longer.
If you owe or are being audited, the IRS will send a certified letter. The IRS does not call you.

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Q: Please give me one good reason why I, at age 70, should not convert my whole retirement account to a Roth IRA?
A: Currently you do not have to take any withdrawals from your retirement accounts, so right now; you would not pay any addition income tax. At age 70.5 you will have to take your first required minimum distribution form your retirement accounts. Only the amount of withdrawal will be taxed.
If you convert your whole retirement account to a Roth, you will pay ordinary income tax on the full account value. The Federal Government will love you for this choice, to me; this is a good reason not to convert.

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“As mankind become more liberal, they will be more apt to allow that all those who conduct themselves as worthy members of the community, are equally entitled to the protection of civil government. I hope ever to see America amongst the foremost nations in examples of justice and liberality.” — George Washington
“Freedom lies in being bold.” — Robert Frost

Last week the Supreme Court made marriage equality legal for the whole country, a decision I applaud. If you are a regular reader of my blogs, you know that I am very tax adverse. This landmark decision has now made tax filing more complicated.
If you got married but do not live in a state that recognizes same sex couples, you can file a joint federal tax return. As for your State tax return, you must still continue to file two separate tax returns. Your accountant will be happy.
It is all about baby steps – tax reform does not come easily.

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We are all familiar with the required minimum distributions from our qualified accounts being taxed in retirement, but did you realize you will also have to pay tax on these income producers too:
Equity Investments:
Profits from the sale of investments or the capital gains earned will be taxed at capital gains rates, even in retirement. The good news is capital gains rates are generally lower than ordinary income rates.
Social Security Income:
Most retirees are shocked to learn that part of their Social Security benefits could be taxable. Depending on when you take your Social Security and what your provisional income is, will determine if part of your Social Security is taxable at ordinary income rates.

Pensions:
While pension income does not count against you when calculating your Social Security incomes, payments from private & government pensions are taxed at ordinary income rates.

Tax planning is an important part of our financial lives – our whole financial lives.

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I happen to think that “file & suspend” is a great benefit currently available through the Social Security system. It may not be around for long. There is a push to eliminate this option because it will:
Reduce some of the rules associated with Social Security
It would make the system “fairer”
It would “restore some of the redistributive” aspects of the benefit structure.

Many of my clients have used this strategy of one spouse filing for Social Security at full retirement age and immediately suspending their payments so their spouse can draw the Spousal benefit. Individuals who do not take their Social Security benefits at full retirement age but suspend payments until age 70 currently get an annual increase of 8%.

I feel that there are many other areas of Social Security abuse that can and should be attacked before doing away with this benefit.

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http://abcnews.go.com/Politics/wireStory/government-paves-multiemployer-pension-plan-cuts-31829134

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http://bit.ly/1Igr7d6

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