Posts Tagged "IRA"

IS YOUR HSA A RETIREMENT TOOL? THE GOOD, THE BAD, AND THE UGLY

Posted on Aug 2, 2017

Health Savings Accounts (HSAs) are a great way to pay for medical expenses, and since unused funds roll over from year to year, the account can also provide a source of retirement funds in addition to other plans like 401(k)s or IRAs. But be aware that HSAs have significant disadvantages when compared to other retirement investment tools. The Good HSAs work best when they are used to pay for qualified medical expenses. Neither your original contributions to an HSA nor your investment earnings are taxed when used this way. There is no required distribution after you reach age 70½, like there is with 401(k)s and IRAs. The Bad You can only contribute to an HSA if you have a high deductible health insurance plan. This means you will pay more out of pocket each year when you need to use health services. Annual contributions to HSAs are limited to $3,400 a year for individuals and $6,750 a year for families (add $1,000 for people aged 55 or older). HSAs typically have fewer investment options compared with other investment tools including 401(k)s and IRAs. They also often have high management and administrative fees. The Ugly Before you reach age 65, non-medical withdrawals from HSAs come with a whopping 20 percent penalty, plus they are taxed as income. Even after age 65, both contributions and earnings are taxed when they are withdrawn for non-medical expenses. In this way, HSAs compare unfavorably with 401(k)s and IRAs, which end their early withdrawal period earlier, at age 59½. They also have lower early withdrawal penalties of just 10 percent. HSAs are a powerful tool to help manage the ever-rising costs of health care. Knowing the rules and the costs associated with them can help you position an HSA with your other retirement options. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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New job? Four choices for your existing 401(k)

Posted on Jul 28, 2017

Changing jobs and companies can be an exciting opportunity, but you have a choice to make. What will you do with the retirement savings you have accrued in your 401(k)? Consider these four choices: Withdraw the money and don’t reinvest it. This is usually the worst choice you can make. Generally, you’ll owe taxes on the distribution at ordinary income rates. (Special rules may apply if you own company stock in the plan.) Unless you’re over age 59½, you’ll pay a 10 percent penalty tax, too. More importantly, you’ll lose the opportunity for future tax-deferred growth of your retirement savings. And once you have the funds readily available, it’s all too easy to spend the money instead of saving for your retirement. Roll the money into an IRA. You can avoid immediate taxes and preserve the tax-favored status of your savings by rolling the money into an IRA. This option also gives you full control over how you invest the balances in the future. You have a 60-day window to complete the rollover from the time you close out your 401(k). However, you should always ask for a “trustee-to-trustee” rollover to avoid potential problems. Roll the balance into your new employer’s plan. If your new employer allows it, you can roll the balance into your new plan and invest it according to your new investment choices. However, there may be a waiting period before you can join your new plan. Leave the money in your old employer’s plan. You may be able to leave the balance in your old plan, at least temporarily. Then you can do a rollover to an IRA or a new plan later. Check with your employer to see if this is an option. Call if you need help making the right choice for your particular circumstances. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Age matters in the world of taxes

Posted on Dec 23, 2014

Are you aware of the numerous age-related provisions in the IRS code? They are probably more plentiful and significant than you thought. Here are a few examples of the age-related tax rules that could affect you and your dependents. * At birth up to age 19 and even 24: dependency deduction. Parents can claim a dependency exemption for a child under 19 or for full-time students under the age of 24. * Under 13: child care credit. This provision gives parents a tax credit for dependent care expenses. * Under 17: child tax credit. If parental adjusted gross income is below a threshold level, parents can claim a child tax credit of $1,000. * At 50: retirement contributions. The government allows extra “catch up” contributions to retirement savings. This is a helpful provision to encourage savings. * Before age 59½: early withdrawal penalty. Withdrawals from IRAs and qualified retirement plans, with some exceptions, are assessed a 10% penalty tax. * At 65: increased standard deduction. Uncle Sam grants a higher standard deduction, but there’s no additional tax benefit if the taxpayer itemizes deductions. * At 70½: mandated IRA withdrawals. The IRS requires minimum distributions from a taxpayer’s IRA beginning at this age (doesn’t apply to Roth IRAs). This starts to limit tax-deferral benefits. Awareness of how the tax code affects you and your family at different ages is important. For tax planning assistance through the various phases of life, give our office a call. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter....

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Update your beneficiary designations

Posted on Nov 5, 2014

Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can’t remember, you’re not alone. But it’s worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they’ll receive. Here are some key facts about beneficiary designations. When you designate a beneficiary for an account, you are naming the person you want to inherit that account. Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named. You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living. Why are they important? It’s important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won’t change the beneficiaries. There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary. How do I update them? First, find copies of all your current designations. Contact your insurance company and plan trustees if you can’t locate the documents. Review them and decide what changes you’d like to make. Make an appointment to go over the changes with your tax or estate planning advisor. Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Use summer earnings for an IRA

Posted on Sep 4, 2014

If your children have earnings from summer or after-school jobs, encourage them to open IRA accounts. The additional years of tax-free compounding can produce huge additional savings by the time your children reach retirement age. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+ <https://plus.google.com/108764776146415485651/posts> , LinkedIn <http://www.linkedin.com/in/gillilandcpa> , Facebook <https://www.facebook.com/gillilandcpa> , and Twitter...

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