This newsletter from Cedar Point Financial Services discusses various financial topics. It begins with an article comparing debit cards and credit cards, noting key differences in fraud protection, dispute processes, rewards programs, credit reporting, and money management implications. Another article summarizes recent tax law changes and the ongoing tax benefits of homeownership, such as mortgage interest and property tax deductions. The final article provides tips for building confidence in one's retirement strategy, such as creating predictable income streams, understanding Social Security, estimating healthcare costs, and maintaining healthy habits.
The Fiscal Cliff and 10 Moves Every Investor Should Consider Making Now (...B...D.B. Geehan
Originally published Oct 2012 -- White Paper regarding moves every investor should consider making in the run-up to December 31, 2012 and the Fical Cliff.
2021 Year End Tax Planning for Law Firms and AttorneysWithum
2021 has ushered in a return to what we can consider our new normal for the foreseeable future. The impact of COVID-19 on law firms persists in the form of hybrid work environments as managing partners are tasked with creating return-to-work policies with flexible remote work options.
With remote work comes complicated nexus implications that law firms must navigate. Meanwhile, federal and state tax laws, particularly Pass-Through Entity Taxes (PTET), continue to impact law firms in a unique way.
Thanks to Ulster Savings Bank for hosting this event, guest speaker Jonathan Gudema of Planned Giving Advisors and to all of our participants for joining us to learn more about the impact of the new tax law on charitable giving.
2020 Year-End Tax Planning for Law Firms and AttorneysWithum
Tax planning can be a difficult strategic process; this tax planning season is further complicated by the COVID-19 pandemic as well as the uncertainties surrounding the Presidential Election. This session will shed light on a number of significant considerations regarding NJ BAIT, nexus issues related to remote working, and PPP loan forgiveness as it relates to general high net worth planning.
Presenters:
• Chuck Miller, CEO, NgenX Energy
• Martin Harski, Cost Segregation Principal, National Tax Service Group, Withum
• Cary Milstein, Early Entrepreneur, Medical Cannabis Sector
1. Time: A most Valuable Asset
2. Federal Budget 2016: A Recap
3. Perspective: A Story of Bulls and Bears
4. The Big Picture: Beneficiary Designations
5. How are my Dividends Taxed?
6. Understanding the Fees You Pay
Highlights of the Final Tax Cuts and Jobs ActSarah Cuddy
The combined tax reform bill includes plans to lower tax rates on individuals and businesses and change many deductions. Those hoping for tax simplification, however, may be disappointed.
PPP Loan Forgiveness and Tax Considerations For the Construction IndustryWithum
Withum’s Construction Services Team is partnered up with New Jersey Subcontractors Association and New Jersey Land Improvement Contractors of America to host a forum regarding Paycheck Protection Program (PPP) Loan Forgiveness and Tax Considerations for the Construction Industry.
Tax Benefits of Homeownership After Tax ReformJason Fuchs
Recent tax reform legislation may have reduced the tax benefits of homeownership for some by (1) substantially increasing the standard deduction, (2) lowering the amount of mortgage debt on which interest is deductible, and (3) limiting the amount of state and local taxes that can be deducted. On the other hand, the tax benefits of homeownership may have increased for some because the overall limit on itemized deductions based on adjusted gross income has been suspended. You generally can choose between claiming the standard deduction or itemizing certain deductions (including the deductions for mortgage interest and state and local taxes). These changes are generally effective for 2018 to 2025.
The Fiscal Cliff and 10 Moves Every Investor Should Consider Making Now (...B...D.B. Geehan
Originally published Oct 2012 -- White Paper regarding moves every investor should consider making in the run-up to December 31, 2012 and the Fical Cliff.
2021 Year End Tax Planning for Law Firms and AttorneysWithum
2021 has ushered in a return to what we can consider our new normal for the foreseeable future. The impact of COVID-19 on law firms persists in the form of hybrid work environments as managing partners are tasked with creating return-to-work policies with flexible remote work options.
With remote work comes complicated nexus implications that law firms must navigate. Meanwhile, federal and state tax laws, particularly Pass-Through Entity Taxes (PTET), continue to impact law firms in a unique way.
Thanks to Ulster Savings Bank for hosting this event, guest speaker Jonathan Gudema of Planned Giving Advisors and to all of our participants for joining us to learn more about the impact of the new tax law on charitable giving.
2020 Year-End Tax Planning for Law Firms and AttorneysWithum
Tax planning can be a difficult strategic process; this tax planning season is further complicated by the COVID-19 pandemic as well as the uncertainties surrounding the Presidential Election. This session will shed light on a number of significant considerations regarding NJ BAIT, nexus issues related to remote working, and PPP loan forgiveness as it relates to general high net worth planning.
Presenters:
• Chuck Miller, CEO, NgenX Energy
• Martin Harski, Cost Segregation Principal, National Tax Service Group, Withum
• Cary Milstein, Early Entrepreneur, Medical Cannabis Sector
1. Time: A most Valuable Asset
2. Federal Budget 2016: A Recap
3. Perspective: A Story of Bulls and Bears
4. The Big Picture: Beneficiary Designations
5. How are my Dividends Taxed?
6. Understanding the Fees You Pay
Highlights of the Final Tax Cuts and Jobs ActSarah Cuddy
The combined tax reform bill includes plans to lower tax rates on individuals and businesses and change many deductions. Those hoping for tax simplification, however, may be disappointed.
PPP Loan Forgiveness and Tax Considerations For the Construction IndustryWithum
Withum’s Construction Services Team is partnered up with New Jersey Subcontractors Association and New Jersey Land Improvement Contractors of America to host a forum regarding Paycheck Protection Program (PPP) Loan Forgiveness and Tax Considerations for the Construction Industry.
Tax Benefits of Homeownership After Tax ReformJason Fuchs
Recent tax reform legislation may have reduced the tax benefits of homeownership for some by (1) substantially increasing the standard deduction, (2) lowering the amount of mortgage debt on which interest is deductible, and (3) limiting the amount of state and local taxes that can be deducted. On the other hand, the tax benefits of homeownership may have increased for some because the overall limit on itemized deductions based on adjusted gross income has been suspended. You generally can choose between claiming the standard deduction or itemizing certain deductions (including the deductions for mortgage interest and state and local taxes). These changes are generally effective for 2018 to 2025.
The IRS defines a home as any house, condominium, cooperative,
mobile home, boat, or similar property that
has sleeping space, toilet facilities, and cooking facilities.
Homeowners may qualify for the following deductions.
Bunching Tax Deductions to Maximize Their BenefitSarah Cuddy
Bunching expenses, particularly charitable gifts, in one year rather than over multiple can provide added tax benefits, especially after the latest tax law changes. And combining that plan with a donor-advised fund can compound the tax savings.
Learn more about what the consumer advocate group has to offer their member. Call. Or Chat online today. We have real hands on experience where other companies dont.
Finance Minister Bill Morneau provided numerous updates to the proposed changes to the taxation of private corporations and their shareholders, which were first introduced back in July as part of a consultation paper and draft tax legislation. In this edition of Monthly Perspectives, we update you on these changes.
Although you can’t avoid taxes, you can take steps to minimize them. This requires proactive tax planning — estimating your tax liability, looking for ways to reduce it and taking timely action.
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
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Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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Resume
• Real GDP growth slowed down due to problems with access to electricity caused by the destruction of manoeuvrable electricity generation by Russian drones and missiles.
• Exports and imports continued growing due to better logistics through the Ukrainian sea corridor and road. Polish farmers and drivers stopped blocking borders at the end of April.
• In April, both the Tax and Customs Services over-executed the revenue plan. Moreover, the NBU transferred twice the planned profit to the budget.
• The European side approved the Ukraine Plan, which the government adopted to determine indicators for the Ukraine Facility. That approval will allow Ukraine to receive a EUR 1.9 bn loan from the EU in May. At the same time, the EU provided Ukraine with a EUR 1.5 bn loan in April, as the government fulfilled five indicators under the Ukraine Plan.
• The USA has finally approved an aid package for Ukraine, which includes USD 7.8 bn of budget support; however, the conditions and timing of the assistance are still unknown.
• As in March, annual consumer inflation amounted to 3.2% yoy in April.
• At the April monetary policy meeting, the NBU again reduced the key policy rate from 14.5% to 13.5% per annum.
• Over the past four weeks, the hryvnia exchange rate has stabilized in the UAH 39-40 per USD range.
Monthly Economic Monitoring of Ukraine No. 232, May 2024
August 2018 Newsletter
1. Cedar Point Financial
Services LLC®
Todd N. Robison, CLU
President
10 Wright Street
2nd Floor
Westport, CT 06880
203-222-4951
todd.robison@cedarpointfinancial.com
www.cedarpointfinancial.com
August 2018
Tax Benefits of Homeownership After Tax
Reform
Building Confidence in Your Strategy for
Retirement
Can I undo my Roth IRA conversion in 2018?
Can I convert my traditional IRA to a Roth IRA
in 2018?
Cedar Point Monthly Newsletter
Elegant solutions to complex financial issues
Pick Your Plastic: Debit or Credit?
See disclaimer on final page
Have questions? I can help.
Email Me:
todd.robison@cedarpointfinancial.com
Visit My Website:
www.cedarpointfinancial.com
linkedin.com/in/toddrobison
Services:
Estate Planning
Retirement Strategies
Executive Benefits
Group Benefits
CA License #0B77420
According to a Federal
Reserve study,
Americans use debit
cards more often than
credit cards, but the
total value and the
average value of credit
card transactions are
higher than those of
debit card transactions.
While consumers made 69.5 billion transactions
using debit cards, the total value of these
transactions was $2.56 trillion, with an average
transaction value of $37. Credit card usage
resulted in 33.8 billion transactions, with a total
value of $3.16 trillion, and a $93 average
transaction value.1
This reflects fundamental differences. A debit
card acts like a plastic check and draws directly
from your checking account, whereas a credit
card transaction is a loan that remains
interest-free only if you pay your monthly bill on
time. For this reason, people may use a debit
card for regular expenses and a credit card for
"extras." However, when deciding which card to
use, you should be aware of other differences.
Fraud protection
In general, you are liable for no more than $50
in fraudulent credit card charges. For debit
cards, a $50 limit applies only if a lost card or
PIN is reported within 48 hours. The limit is
$500 if reported within 60 days, with unlimited
liability after that. A credit card may be safer in
higher-risk situations, such as when shopping
online, when the card will leave your sight in a
restaurant, or when you are concerned about a
card reader. If you regularly use a debit card in
these situations, you may want to maintain a
lower checking balance and keep most of your
funds in savings.
Merchant disputes
You can dispute a credit card charge before
paying your bill and shouldn't have to pay it
while the charge is under dispute. Disputing a
debit card charge can be more difficult when
the charge has been deducted from your
account, and it may take some time before the
funds are returned.
Rewards and extra benefits
Debit cards offer little or no additional benefits,
while some credit cards offer cash-back
rewards, and major cards typically include extra
benefits such as travel insurance, extended
warranties, and secondary collision and theft
coverage for rental cars (up to policy limits). Of
course, if you do not pay your credit card bill in
full each month, the interest you pay can
outweigh any financial rewards.
Credit history
Using a credit card responsibly can help you
build a positive credit history because your
usage is reported to credit reporting agencies.
A debit card has no effect on your credit.
Money management
Using a debit card helps ensure that you don't
overspend. Because purchases are deducted
right away from your checking account, you
aren't in the dark about how much you're
spending. You can quickly check your balance
online or at an ATM, and see which purchases
are pending.
A credit card offers you the flexibility of tracking
your monthly expenses on one bill, which can
help you establish and stick to a realistic
budget. A credit card can also be used in
emergencies.
Considering the additional protections and
benefits, a credit card may be a better choice in
some situations — but only if you pay your
monthly bill on time. The good news is, you
don't have to choose just one option.
1 U.S. Federal Reserve, 2016 (2015 transactions,
most recent data available)
Page 1 of 4
2. Tax Benefits of Homeownership After Tax Reform
Buying a home can be a major expenditure.
Fortunately, federal tax benefits are still
available, even after recent tax reform
legislation, to help make homeownership more
affordable. There may also be tax benefits
under state law.
Mortgage interest deduction
One of the most important tax benefits of
owning a home is that you may be able to
deduct the mortgage interest you pay. If you
itemize deductions on your federal income tax
return, you can deduct the interest on a loan
secured by your home and used to buy, build,
or substantially improve your home. For loans
incurred before December 16, 2017, up to $1
million of such "home acquisition debt"
($500,000 if married filing separately) qualifies
for the interest deduction. For loans incurred
after December 15, 2017, the limit is $750,000
($375,000 if married filing separately).
This interest deduction is also still available for
home equity loans or lines of credit used to buy,
build, or substantially improve your home. [Prior
to 2018, a separate deduction was available for
interest on home equity loans or lines of credit
of up to $100,000 ($50,000 if married filing
separately) used for any other purpose.]
Deduction for real estate property taxes
If you itemize deductions on your federal
income tax return, you can generally deduct
real estate taxes you pay on property that you
own. However, for 2018 to 2025, you can
deduct a total of only $10,000 ($5,000 if
married filing separately) of your state and local
taxes each year (including income taxes and
real estate taxes). For alternative minimum tax
purposes, however, no deduction is allowed for
state and local taxes, including property taxes.
Points and closing costs
When you take out a loan to buy a home, or
when you refinance an existing loan on your
home, you'll probably be charged closing costs.
These may include points, as well as attorney's
fees, recording fees, title search fees, appraisal
fees, and loan or document preparation and
processing fees. Points are typically charged to
reduce the interest rate for the loan.
When you buy your main home, you may be
able to deduct points in full in the year you pay
them if you itemize deductions and meet certain
requirements. You may even be able to deduct
points that the seller pays for you.
Refinanced loans are treated differently.
Generally, points that you pay on a refinanced
loan are not deductible in full in the year you
pay them. Instead, they're deducted ratably
over the life of the loan. In other words, you can
deduct a certain portion of the points each year.
If the loan is used to make improvements to
your principal residence, however, you may be
able to deduct the points in full in the year paid.
Otherwise, closing costs are nondeductible. But
they can increase the tax basis of your home,
which in turn can lower your taxable gain when
you sell the property.
Home improvements
Home improvements (unless medically
required) are nondeductible. Improvements,
though, can increase the tax basis of your
home, which in turn can lower your taxable gain
when you sell the property.
Capital gain exclusion
If you sell your principal residence at a loss,
you can't deduct the loss on your tax return. If
you sell your principal residence at a gain, you
may be able to exclude some or all of the gain
from federal income tax.
Capital gain (or loss) on the sale of your
principal residence equals the sale price of your
home minus your adjusted basis in the
property. Your adjusted basis is typically the
cost of the property (i.e., what you paid for it
initially) plus amounts paid for capital
improvements.
If you meet all requirements, you can exclude
from federal income tax up to $250,000
($500,000 if you're married and file a joint
return) of any capital gain that results from the
sale of your principal residence. Anything over
those limits may be subject to tax (at favorable
long-term capital gains tax rates). In general,
this exclusion can be used only once every two
years. To qualify for the exclusion, you must
have owned and used the home as your
principal residence for a total of two out of the
five years before the sale.
What if you fail to meet the two-out-of-five-year
rule or you used the capital gain exclusion
within the past two years with respect to a
different principal residence? You may still be
able to exclude part of your gain if your home
sale was due to a change in place of
employment, health reasons, or certain other
unforeseen circumstances. In such a case,
exclusion of the gain may be prorated.
Other considerations
It's important to note that special rules apply in
a number of circumstances, including situations
in which you maintain a home office for tax
purposes or otherwise use your home for
business or rental purposes.
Recent tax reform legislation
may have reduced the tax
benefits of homeownership
for some by (1) substantially
increasing the standard
deduction, (2) lowering the
amount of mortgage debt on
which interest is deductible,
and (3) limiting the amount
of state and local taxes that
can be deducted. On the
other hand, the tax benefits
of homeownership may have
increased for some because
the overall limit on itemized
deductions based on
adjusted gross income has
been suspended. You
generally can choose
between claiming the
standard deduction or
itemizing certain deductions
(including the deductions
for mortgage interest and
state and local taxes). These
changes are generally
effective for 2018 to 2025.
Page 2 of 4, see disclaimer on final page
3. Building Confidence in Your Strategy for Retirement
Each year, the Employee Benefit Research
Institute (EBRI) conducts its Retirement
Confidence Survey to assess both worker and
retiree confidence in financial aspects of
retirement. In 2018, as in years past, retirees
expressed a higher level of confidence than
today's workers (perhaps because "retirement"
is less of an abstract concept to those actually
living it). However, worker confidence seems to
be on the rise, while retiree confidence is on the
decline. A deeper dive into the research reveals
lessons and tips that can help you build your
own retirement planning confidence.
Create a foundation of predictable
sources of income
Workers surveyed expect to rely less on
traditional sources of guaranteed income — a
defined benefit pension plan and Social
Security — than today's retirees. More than 40%
of retirees say that a traditional pension plan
provides them with a major source of income,
and 66% say that Social Security is a primary
source. Yet just one-third of today's workers
expect either a pension or Social Security to
play a big role.
Understand how Social Security works.
Although nearly half of today's workers say they
have considered how their Social Security
claiming age could affect their benefit amount,
the median age at which they plan to claim
benefits is 65. Moreover, less than a quarter of
respondents say they determined their future
claiming age with benefit maximization in mind.
Why does this matter? It's because the vast
majority of today's workers won't be able to
collect their full Social Security retirement
benefit until sometime between age 66 and 67,
depending on their year of birth. Claiming
earlier than that results in a permanently
reduced benefit amount. To help ensure you
make the most of your Social Security benefits,
take the time to understand the ramifications of
different claiming ages and strategies before
making any final decisions.
Consider creating your own "pension"
income. Eight in 10 workers in the EBRI survey
hope to use their defined contribution plan
assets [e.g., 401(k) or 403(b)] to purchase a
product that will provide a guaranteed stream of
income during retirement. Depending on
individual circumstances, this could be a wise
move. To help provide yourself with a steady
stream of income, you might consider
annuitizing a portion of your retirement plan
assets or purchasing an immediate annuity,
a contract that promises to pay you a steady
stream of income for a fixed period of time or
for life in exchange for a lump-sum payment.1
When combined with your Social Security
benefits, the payments received from an
immediate annuity can help ensure that your
everyday "fixed" expenses are covered. Any
additional assets can then be earmarked for
future growth potental and "extras," such as
travel and entertainment.
Pay attention to your health — and
health-care costs
Health. The EBRI survey revealed a correlation
between health and retirement planning
confidence. For example, 60% of today's
workers who are confident in their retirement
prospects also report being in good or excellent
health, while only a little more than a quarter of
those who are not confident report similar levels
of health. Moreover, 46% of retirees who say
they are confident also say they are in good
health, compared with just 14% of those who
are not confident.
The lesson here is pretty straightforward:
Healthy habits may pay off in healthy levels of
confidence. Eat plenty of fruits and vegetables,
exercise, get enough sleep, and take steps to
minimize stress. And don't skip important
preventive checkups and lab tests. Keep in
mind that even the most diligent savings
strategies can be thrown off track by
unexpected medical costs.
Health-care costs. The percentage of retirees
who are at least somewhat confident that they
will have enough money to cover medical
expenses in retirement has dropped from 77%
in 2017 to 70% in 2018. And four out of 10
retirees say that health-care expenses are at
least somewhat higher than they expected.
However, retirees who have estimated their
health-care costs (39% of respondents) are
more likely to say their expenses are about
what they expected them to be. On the other
hand, just 19% of workers have calculated how
much they will need to cover their health
expenses in retirement.
If you have not yet thought about how much of
your retirement income may be consumed by
health-care costs, now may be the time to start
doing so. Having at least a general idea of what
your medical expenses might be will help you
more accurately project your overall retirement
savings goal.
In 2018, 64% of workers
surveyed were either
somewhat or very confident
in their ability to afford
retirement, up from 60% in
2017. Among retirees
surveyed in 2018, 75% were
confident, down from 79% in
2017.
Source: 2018 Retirement
Confidence Survey, EBRI
1 Guarantees are contingent
on the claims-paying ability
and financial strength of the
annuity issuer. Generally,
annuity contracts have fees
and expenses, limitations,
exclusions, holding periods,
termination provisions, and
terms for keeping the
annuity in force. Most
annuities have surrender
charges that are assessed if
the contract owner
surrenders the annuity.
Withdrawals of annuity
earnings are taxed as
ordinary income.
Withdrawals prior to age
59½ may be subject to a
10% federal income tax
penalty.
Page 3 of 4, see disclaimer on final page
4. Cedar Point Financial
Services LLC®
Todd N. Robison, CLU
President
10 Wright Street
2nd Floor
Westport, CT 06880
203-222-4951
todd.robison@cedarpointfinancial.com
www.cedarpointfinancial.com
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018
Securities offered through Kestra
Investment Services, LLC (Kestra
IS), member FINRA/SIPC. Cedar
Point Financial Services LLC is a
member firm of PartnersFinancial.
Kestra IS is not affiliated with
Cedar Point Financial Services or
PartnersFinancial.
Can I convert my traditional IRA to a Roth IRA in 2018?
If you've been thinking about
converting your traditional IRA
to a Roth IRA, this year may
be an appropriate time to do
so. Because federal income
tax rates were reduced by the Tax Cuts and
Jobs Act passed in December 2017, converting
your IRA may now be "cheaper" than in past
years.
Anyone can convert a traditional IRA to a Roth
IRA in 2018. There are no income limits or
restrictions based on tax filing status. You
generally have to include the amount you
convert in your gross income for the year of
conversion, but any nondeductible contributions
you've made to your traditional IRA won't be
taxed when you convert. (You can also convert
SEP IRAs, and SIMPLE IRAs that are at least
two years old, to Roth IRAs.)
Converting is easy. You simply notify your
existing IRA provider that you want to convert
all or part of your traditional IRA to a Roth IRA,
and they'll provide you with the necessary
paperwork to complete. You can also transfer
or roll your traditional IRA assets over to a new
IRA provider and complete the conversion
there.
If you prefer, you can instead contact the
trustee/custodian of your traditional IRA, have
the funds in your traditional IRA distributed to
you, and then roll those funds over to your new
Roth IRA within 60 days of the distribution. The
income tax consequences are the same
regardless of the method you choose.1
The conversion rules can also be used to
contribute to a Roth IRA in 2018 if you wouldn't
otherwise be able to make a regular annual
contribution because of the income limits. (In
2018, you can't contribute to a Roth IRA if you
earn $199,000 or more and are married filing
jointly, or if you're single and earn $135,000 or
more.) You can simply make a nondeductible
contribution to a traditional IRA and then
convert that traditional IRA to a Roth IRA.
(Keep in mind, however, that you'll need to
aggregate the value of all your traditional IRAs
when you calculate the tax on the conversion.)
You can contribute up to $5,500 to all IRAs
combined in 2018, or $6,500 if you're 50 or
older.
1 If you choose to receive the funds first and don't
transfer the entire amount, a 10% early withdrawal
penalty may apply to amounts not converted.
Can I undo my Roth IRA conversion in 2018?
The answer is: It depends.
When you convert a traditional
IRA to a Roth IRA, you include
the value of your traditional
IRA, reduced by any
nondeductible contributions you've made, in
your income for federal tax purposes in the year
of the conversion. For conversions prior to
2018, if you subsequently decided to
"recharacterize" or undo the conversion for any
reason — e.g., the value of your IRA assets
declined after the conversion, resulting in a bad
tax deal — the IRS would permit you to do so,
provided the recharacterization took place in a
timely fashion.
For example, assume you converted a fully
taxable traditional IRA worth $50,000 to a Roth
IRA in 2016. You would have been required to
include $50,000 in income on your 2016 federal
income tax return. But shortly after the
conversion, the value of your Roth IRA declined
to $40,000. Suddenly you were faced with the
proposition of paying taxes on $50,000, while
your Roth IRA was worth only $40,000.
Fortunately, you had until your tax return due
date (including extensions) to undo all or part of
a conversion. So in this example, you would
have had until October 15, 2017, to
recharacterize the conversion.
Unfortunately, the Tax Cuts and Jobs Act
passed in 2017 eliminated the option to
recharacterize a Roth conversion, with one
exception: If you converted your Roth IRA in
2017 and have since changed your mind, you
have until your filing deadline, including
extensions (or until October 15, 2018), to
recharacterize.
When you recharacterize, you need to withdraw
the amount you originally converted, plus any
earnings, out of the Roth IRA and transfer it
back to a traditional IRA.
If you already paid your taxes for 2017, you'll
need to file an amended return to obtain a
refund for any taxes paid on the conversion. An
amended return can generally be filed as late
as three years after the original return was filed.
Undoing a Roth conversion can be
complicated, so it's probably a good idea to
consult your tax professional before taking
action.
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