year-end tax savings strategies: deadlines and ......deductible contributions to hsa plan + tax-free...
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YEAR-END TAX SAVINGS STRATEGIES: DEADLINES AND CONTRIBUTION LIMITS FOR YOUR IRA
www.AdvantaIRA.com
YOUR PRESENTER
Scott Maurer, JD, CISPDirector of Business Development
Worked for Advanta since 2006
Licensed attorney (State of Florida)
Contact Scott at:
Tel 800-425-0653 x1123Email: [email protected]
www.AdvantaIRA.com
Advanta IRA, and its employees, do not provide legal, tax, or investment advice, does not endorse any products and is not affiliated with any other company (including any companies or individuals that are guest presenters).
All information and materials are for educational purposes only. All parties are encouraged to consult with their attorneys, accountants, and financial advisors before entering into any type of
investment.
Disclaimer
With over 15 years in our industry, Advanta IRA is the nation’s premier self-directed IRA administrator.
EXPERIENCED
We use multiple banks that are insured by the FDIC to protect the undirected cash held within your IRA.
SECURE
With clients across the nation, Advanta IRA holds over $1 billion in assets and partners with a network of trusted CPAs and attorneys.
TRUSTED
Our account manager system guarantees clients concierge-style personal service. Advanta IRA also offers cutting-edge educational tools for all types of investors.
PERSONAL
ABOUT ADVANTA IRAWhat Is a Self-Directed IRA?
IRS regulations allow a much broader range if investments!
HAVEN’T HEARD OF A SELF-DIRECTED IRA?
Maybe it is because the most common IRAs are administered by banks and investment brokers who offer limited investment products.
However, the IRS regulations allow a much broader range of investments.
What Is a Self-Directed IRA?
WHY DO PEOPLE CHOOSE TO SELF-DIRECT?In general, people looking to self-direct fall into one or more of the following buckets:
Stock Market Fatigue:Tired/unsure of investments into
conventional assets (like stocks, bonds, mutual
funds, etc.)
Tax Benefits:Benefits of investment
(rents, dividends, profits) are tax-deferred or tax-free
back to IRA account
New Source of Capital:Cash in IRA/retirement plan provides them with
needed capital for an investment
These people include everyday real estate investors through white-collar professionals investing in the next start-up company or private hedge fund.
TYPES OF ASSETSTypes of Assets and Accounts
Real Estate Assets
• Rentals• Residential• Commercial
• Rehabs/flips• Condos• Duplexes• Multi-family• Syndications• Private REITs
TYPES OF ASSETSTypes of Assets and Accounts
Paper Assets
• Mortgage loans• Tax liens• Unsecured notes• Debenture notes• Option contracts• Assignments• Joint venturing• Accounts receivable
TYPES OF ASSETSTypes of Assets and Accounts
Other Alternative Assets
• LLCs• Farm animals• Partnerships• Movie projects• Precious metals• Equipment leasing• Forex accounts• Private stock• Commodities• Oil/gas
The History of IRAs and 401(k)s1974: Traditional IRAs are created under Title II of Employee Retirement Income Security Act (ERISA) and are designed for individuals not covered by pension plans
1978: Revenue Act of 1978 adds section 401(k) that allows employees to avoid taxation on deferred compensation; SEP-IRA also created
1986: Deductibility for Traditional IRA is based on whether or not an individual is covered by an employer plan (still in place today)
1996: Savings Incentive Match Plan for Employees (SIMPLE IRA) is created by Small Business Job Protection Act
1997: Roth IRAs are created to allow individuals who are covered under employer plan to still contribute (and benefit from) to IRAs
2001: Economic Growth and Tax Relief Reconciliation Act (EGTRRA) increases contributions limits and adds “catch-up” provisions
SELF-DIRECTED PLANSWhich accounts can I use to buy alternative assets?
TraditionalIRA
SEP IRA
Roth IRA
FormerEmployer
Plans
SIMPLE IRAIndividual(k)
Plan
HealthSavingsAccount
PLANS
PLANS AT-A-GLANCETypes of Assets and Accounts
TRADITIONAL IRA
CRITERIAAnyone with earned income is eligible to contribute to a traditional
IRA; deductibility may be limited based on annual income
BENEFITSTax deduction, lowering your current tax bill* + Tax-deferred growth +
Former 401(k) can be rolled directly in with no tax consequence +Retirement savings
CONTRIBUTION DEADLINEApril 15th of year following tax year (i.e. for 2019, April 15th, 2020)
CONTRIBUTION LIMITS$6,000/$7,000 if over 50
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2019 Traditional IRA Deductibility MAGI Limit (If covered by Employer’s plan)
Single - Active Participant $64,000 - $74,000
Married active participant filing jointly$103,000 - $1213000
Married active participant filing separate $0 - $10,000
Spouse of an active participant in 401k plan $193,000 - $203,000
You do not automatically get a deduction for Traditional IRA contributions!
PLANS AT-A-GLANCETypes of Assets and Accounts
ROTH IRA
CRITERIAAnyone with earned income which does not exceed the income limits
is eligible to contribute to a Roth IRA
BENEFITSTax-free earnings and no taxation on withdrawals + No mandatory
withdrawals + Low tax situation this year and expect higher taxes in the future + Contributions may be made after age 70½
CONTRIBUTION DEADLINEApril15th of year following tax year (i.e. for 2019, April 15th, 2020)
CONTRIBUTION LIMITS$6,000/$7,000 if over 50
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Roth ConversionsRegular IRA to Roth Conversions
Maximize Nondeductible Traditional IRA Contributions
Everyone is Eligible to Convert (No Income Limitations!)− Part of 2001 EGTRRA legislation
Use Traditional IRA-Conversion to Contribute to a Roth
Pay Tax Now Rather Then Later
Can be partial or full
IRS Reporting:
− Conversion (Trad) reported on 1099-R, Code 2 or 7
− Conversion (Roth) on 5498, Box 3
Pretax accounts to after tax accounts
Conversion Technique, continued…Conversion Deadline
- Conversions must be done by December 31st of tax year, not April 15th!
- Per the Tax Cuts and Jobs Act of 2017, you can no longer undo a conversion
- Exception: Can recharacterize contributions
Why Convert?
Low Tax Situation This Year, Losses to offset income
Expect Higher Taxes in the Future, Long time before retirement
Benefits of the Roth IRA Begin This Year
Assets have depressed values
Ability to pay tax due on conversions
Pretax accounts to after tax accounts
EMPLOYER PLANS AT-A-GLANCETypes of Assets and Accounts
SEP IRAWHO THEY ARE FOR
Sole proprietors, independent contractor, self-employed, partner, corporation, or S corporation
BENEFITSSEPs offer tax-deferred growth like traditional IRAs, but have larger
contributions limits; they also offer lower administrative costs than a 401(k) plan + You must include certain employees in SEP
CONTRIBUTION DEADLINETax filing deadline plus extensions for business (as late as Oct. 15th of year
following tax year)
CONTRIBUTION LIMITSPercentage of overall compensation (no more than 25%) up to a maximum of
$56,000/yr
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Other SEP IRA Considerations
Combining with other IRAs
SEP IRAs can be combined with other SEPs, traditional IRAs, and former 401k plans. Can also be converted into Roth IRAs.
Employee Eligibility
For a business owner who establishes a SEP IRA for himself/herself, they must also include certain employees at the same contribution percentage:
- Those who are over 21 years of age
- Those who have worked at least 3 of the preceding 5 years for the business.
EMPLOYER PLANS AT-A-GLANCETypes of Assets and Accounts
SIMPLE IRAWHO THEY ARE FOR
Sole proprietors, independent contractor, self-employed, partner, corporation, or S corporation; Companies with less than 100 employees
BENEFITSSIMPLE IRAs offer tax-deferred growth like traditional IRAs, but offer both employee and employer contributions but lower administrative costs than a
401(k) plan + You must include certain employees in a SIMPLE
CONTRIBUTION DEADLINEFor employee salary deferrals: January 30th of following tax yearFor employer contribution: Tax filing deadline plus extensions for business (as late as Oct. 15th of year following tax year)
CONTRIBUTION LIMITSEmployee salary deferral: $13,000/$16,000 if over 50Employer Contribution: 1-3% of employee’s compensation
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Other SIMPLE IRA ConsiderationsEstablishing a SIMPLE IRA:A SIMPLE IRA must be established prior to October 1st of the tax year for which the
contributions are made. So for 2019, the deadline was October 1, 2019 to start a new SIMPLE IRA.
Employer Matching ContributionsThe employer can choose between one of two options for the matching contribution:
- Nonelective contributions: 2% of employee’s compensation
- Elective contributions: Usually 3% of employee’s compensation
Combining with other IRAs
SIMPLE IRAs can NOT be combined with other IRAs until the SIMPLE has been established for more than 2 years. After this point, a SIMPLE IRA can be transferred to a Traditional or SEP IRA, but not vice versa.
Employee EligibilityFor a business owner who establishes a SIMPLE IRA for himself/herself, they must also include certain employees at the same contribution percentage:
- Those who are over 21 years of age
- Those who have worked more than 2 years for employer.
EMPLOYER PLANS AT-A-GLANCESOLO 401(K)
WHO THEY ARE FORSole proprietors, independent contractor, self-employed; Companies with no
W-2 employees
BENEFITSSolo 401(k)s offer both tax-deferred and after-tax contributions+ You cannot have any employees other than the business owners or spouses + Access to
tax-free loans + No UDFI tax on leveraged-related income
CONTRIBUTION DEADLINEFor employee salary deferrals: Should be made by January 15th or soFor employer contribution: Tax filing deadline plus extensions for business (as late as Oct. 15th of year following tax year)
CONTRIBUTION LIMITSEmployee salary deferral: $19,000/$25,000 if over 50 (can be Roth)Employer Contribution: up to 25% of employee’s compensation to a max of $37,000 (always pre-tax)
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Other Solo 401(k) ConsiderationsEstablishing a Solo 401(k):A Solo 401(k) must be established by December 31st of the tax year.
Combining with other IRAs or 401ks
Traditional and SEP IRAs (and old 401(k)s) can be combined into a solo 401(k) plan so long as the plan documents allow for it. Roth IRAs cannot be c rolled over into a 401(k), even if the 401(k) has the Roth salary deferral feature.
Employee EligibilityA business owner can have a solo 401(k) so long as they do not have any employees who meet the following two requirements:
- Over 21 years of age
- Work more than 1,000/hrs in a year
Reporting RequirementsFor a solo 401(k), the business owner is also the Trustee and Administrator of the plan. Thus, the business owner does need to separately report contributions to the IRS as well as file the annual return for the 401(k). This form is a 5500EZ and does not have to be filed until the plan assets exceed $250,000 or the plan is terminated.
The Tools: SEP/SIMPLE/Individual 401(k)Annual Contribution Comparison
Maximum contribution 2019: Individual with $100K Income (under age 50)
o SIMPLE IRA: $16,000 ($13,000 of salary deferral + $3k match)
o SEP IRA: $25,000 (25% of $100K)
o Solo 401k: $44,000 ($19,000 of salary deferral + $25K match)
Catch-up contributionso SIMPLE IRA is $3,000 for salary deferralo SEP IRA no catch-upo Solo 401k is $6,000 for salary deferral
ALTERNATIVE SAVINGS PLAN
HSA (HEALTH SAVINGS ACCOUNT)WHO THEY ARE FOR
Individuals or families with high-deductible health care plans looking for tax-advantaged way to pay for health expenses
BENEFITSDeductible contributions to HSA plan+ Tax-free distributions for qualified health
expenses+ Portable, even if you switch employers
CONTRIBUTION DEADLINEApril15th of year following tax year (i.e. for 2019, April 15th, 2020)
CONTRIBUTION LIMITSIndividual HSA: $3,500
Family HSA: $7,000Catch-up contribution: $1,000 if anyone over age of 50
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Other HSA ConsiderationsEstablishing an HSA:An HSA needs to be established by December 1st for the year the contribution is
being made. So for 2019, the HAS would need to be opened by December 1. 2019.
Distributions from HSAs:
Tax- free distributions can be made so long as for a “qualified medical expense” (IRS publication 502) and the expenses are incurred after the HSA is established. Additionally, distributions can be made any point after the expenses was incurred (even years later).
HSA Eligibility4 Requirements:
1) Have a High Deductible Health care plan (no co-pays for office visits or prescriptions until deductible is met). Best to check with insurance company for eligible plans.
2) Cannot have other health coverage (except vision, dental, or long-term care)
3) Cannot be enrolled in Medicare
4) Cannot be claimed as another's dependent
PLAN CONTRIBUTION LIMITSTypes of Assets and Accounts
FOR YEAR 2019
Traditional / Roth IRA $6,000 ($7,000 if over 50)
SEP IRA Up to $56,000 (25% of compensation)
SIMPLE IRA $13,000 (additional $3,000 if over 50) +up to 3% of employer match)
401(k) $19,000 (+ $6,000 if over 50) of salary deferral+ 25% employer match up to $56,000 ($62,000)
ESA (education) $2,000 per year, per child
HSA (health) $3,500 individual / $7,000 family ($1K catch-up for both)
Deadlines RecapJanuary 1st: Current year contributions can be made to any account.
January 15th: Employee contributions to 401(k)s “should” be made
January 30th: Employee contributions to SIMPLE IRAs should be made
April 15th: Deadline for prior year contributions: Traditional IRAs, Roth IRAs, HSA contributions
October 1st: Deadline for establishing a SIMPLE IRA for the current tax year
October 15th: Last date for:
- Establishing and contributing to a SEP IRA for prior tax year
- Prior year employer contributions for SEP, SIMPLE and 401(k)
December 1st: Last date to establish an HSA account for current tax year
December 31st: Deadline for:
- Roth conversions
- Establishment of Solo 401(k)
- Required Minimum Distributions
“DOUBLE-UP” THE CONTRIBUTIONS
Between January 1st and April 15th every year, an individual can “double-up” the contributions to their IRA.
During that time, an individual can make both a prior year contribution and a current year contribution to their account.
This gives an individual more $$ to have towards investing, especially if you can double up a SEP!
You don’t have to have all of the earned income when you make the contribution but do have to have it by the end of the year!!
Annual Tax ReportingForm 1099- Filed by IRA administrator (or 401(k) plan trustee) to report all distributions from any IRA, 401(k), or HSA
account- Sent to IRS and taxpayer by January 31st for previous tax year
Form 5498- Filed by IRA/HSA administrator to report:
- Annual contributions to any IRA or HSA- Rollover contributions to any IRA or HSA- Annual fair market value of any IRA or HSA (Advanta requests updated value from client by March 15th)
- Sent to IRS and taxpayer by May 31st for previous tax year
Form 5500/5500EZ- Filed by 401(k) trustee to report the annual valuation of the plan, contributions, number of participants, etc. - Not required to be field for solo 401(K) until assets are over $250,000 or plan is terminated- Deadline to file 5500 is July 31st for previous tax year
MOVING MONEY TO A SELF-DIRECTED ACCOUNT
TransferMoving funds directly from one IRA account to another without the client handling the funds. This is a non-taxable, non-reportable event.
Types of Assets and Accounts
Transfers with an IRA are unlimited.
How and WhenComplete a transfer form with the firm you will be moving funds to. They submit it on behalf of your IRA. Transfers are non-recordable and you can do them as often and whenever you like.
- NO TAX REPORTING GENERATED!
MOVING MONEY TO A SELF-DIRECTED ACCOUNT
Direct RolloverMoving funds directly from an employer-sponsored plan (401k, 403b, 457, TSP, pension, etc.) to an IRA, without the client handling the funds. This is also non-taxable.
Types of Assets and Accounts
Direct rollovers with an IRA are unlimited.
How and WhenContact your plan administrator and let them know that are rolling funds to an IRA. Direct rollovers are a reportable event, but there are no consequences and you can do them as often as you like.
- 1099 R from resigning administrator, Code G
- 5498, Box 2 from receiving custodian
MOVING MONEY TO A SELF-DIRECTED ACCOUNT
Indirect RolloverIf you personally take possession (distribution) of funds from an IRA, 401(k), 403(b), etc., you can avoid tax consequences if you re-deposit those funds to a qualified account with in 60 days from constructive receipt.
Types of Assets and Accounts
Indirect rollovers can only be done once per 12 months.
How and WhenIndirect rollovers are a taxable event, and trigger reporting from both custodians. Indirect rollovers can only be done once per 12 months.
- 1099 R from resigning administrator, Code 1,2, 3 or 7
- 5498, Box 2 from receiving custodian
- 1099-R filed by 1/31; 5498 not until 5/31
YOUR PRESENTER
Scott Maurer, JD, CISPDirector of Business Development
Worked for Advanta since 2006
Licensed attorney (State of Florida)
Contact Scott at:
Tel 800-425-0653 x1123Email: [email protected]
www.AdvantaIRA.com