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Paragon Wealth Management » 2011 » December


Dec 27 2011

2011 To Do List For Your IRA

Tag: 401k, IRA, taxesParagon Wealth Management- Elizabeth @ 6:27 pm

Here is a list of what you might need to do before 2012 to ensure that everything is in order with your IRA.

10 IRA Tasks To Do Before The Year End

by Robert Powell
visit MarketWatch to view the complete article

1. Take your required minimum distribution

Make sure all RMDs are taken for the year.

“Look at all owned IRA accounts and employer plans for individuals age 70 ½ or older this year, as well as at inherited IRAs, employer plans and Roth IRAs,” said Beverly DeVeny, an IRA technical consultant with Ed Slott and Company.

“Beneficiaries, no matter what their age, must take distributions from all inherited accounts beginning in the year after the death of the account owner,” she said, adding that inherited accounts must be split before year end so beneficiaries can use their own life expectancies to calculate their RMDs.

2. Check for excess contributions

It might seem unlikely, given that the average IRA contribution is $3,798, but it’s possible that you contributed too much to your IRA during the year. If so, remove any excess contributions before year end. You will be charged a 6% penalty for excess contributions, said Lustberg.

The maximum amount of an annual IRA contribution for a specified tax year, and whether or not your contribution is tax deductible, varies depending on a number of factors related to eligibility rules, according to Fidelity Investments. In 2009, the maximum allowable contribution to an IRA is the lesser of 100% of eligible compensation or $5,000 in 2009, and $6,000 for those age 50 or older.

3. Is everything in place?

Take nothing for granted when it comes to your IRA. “Before year end, double check on all IRA funds that moved during the year,” DeVeny said. “Make sure that IRA funds went into IRA accounts, not non-IRA accounts or Roth IRAs and be sure that Roth IRA funds went into Roth IRA accounts. Look for any unexplained distributions during the year.”

4. Can you do a stretch IRA?

Check whether your IRA custodian or 401(k) plan administrator will allow for the so-called “stretch” for beneficiaries, said Ben E. Connor, an attorney with Connor Law Firm.

The stretch means that beneficiaries can use their own life expectancy for distributions. In addition, check whether the custodian or plan administrator will accept a durable power of attorney, and disclaimers.

“The answer to these questions will have substantial impact on the success of their estate plan,” Connor said. (If the custodian or 401(k) plan administrator doesn’t accept a durable power of attorney or disclaimer, you might consider another custodian or plan administrator.)

5. Who’s your beneficiary?

Here’s some well-worn but can’t-be-repeated-often-enough advice: Review your beneficiary designations. Make sure there is both a primary and a contingent beneficiary named on the beneficiary designation form.

“If there is no beneficiary named, the IRA proceeds will go to the estate and lose the tax advantage of the stretch,” said Connor. “If there is no contingent beneficiary, and the primary beneficiary has died and no new primary beneficiary has been named, then the assets also go to the estate with the same negative result.”

It’s especially worth checking your beneficiary designations if you’re divorced, recently or ever. “Make sure your ex-spouse has been deleted as a beneficiary, unless you want them to remain as a beneficiary,” said Connor. “The U.S. Supreme Court has recently ruled that the beneficiary named on the beneficiary designation form trumps divorce.”

Connor also advised against naming a “living trust” as the beneficiary. “A living trust should not be the beneficiary because the living trust must qualify as a ‘designated beneficiary’ to receive favorable stretch and tax treatment,” he said. “I find that most living trusts do not qualify, or lose their designated beneficiary status through later changes to the trust.”

Make sure your custodian has a written copy of your beneficiary designations.

6. One last chance for Roth conversions

If you plan to do a Roth conversion , “the funds must leave the IRA by Dec. 31 to be reported and taxable as a 2011 distribution and conversion,” DeVeny said. “The funds can then be rolled over to the Roth IRA up to 60 days after they are received by the account owner - up to March 1 if the distribution was received on Dec. 31.”

Contrary to what some might believe, you do not have until April 15, 2011 to do a 2010 conversion, DeVeny said.

Here’s another reason why you might want to convert some or all of your IRA to a Roth IRA: according to Connor, the Roth IRA could fund a credit shelter or by-pass trust.

“A Roth IRA is usually not subject to the trust tax rate,” he said. Also, review your power of attorney to make sure the agent has authority to recharacterize the Roth, if needed, Connor said.

Remember, too, that anyone can convert their traditional IRAs to a Roth IRA in 2010 regardless of income. What’s more, you can pay the taxes over two years, instead of one.

7. Turn wealth into income

Right about now, the Social Security Administration is sending you a report that tells you how much income you’ll receive in today’s dollars when you retire. Write down that number on a piece of paper.

Now, total up the value of all IRAs and 401(k)s in your household and multiple that number by 0.04. That number is the amount some experts say you could withdraw from your retirement in today’s dollars.

Now, add that number to your Social Security benefit figure, and then subtract that amount from your income. The results are roughly the amount of money you’ll need from other sources - such as work, pensions, reverse mortgages, life insurance or inheritances - to enjoy a lifestyle similar to what you have today.

For some, the best way to close the gap will be to contribute more to their IRAs and 401(k)s, work longer, and lower their standard of living.

8. Review your investment plan

Consider updating your investment policy statement or plan. “Make sure your asset allocation remains appropriate given your financial goals,” said Michael L. Gay, a certified financial planner with Portfolio Solutions.

Also, rebalance your IRA if you haven’t done so within the past year. It’s best to rebalance your IRA in a holistic manner. That is, look at all your assets in all your accounts, taxable and tax-deferred.

In many cases, consider putting your fixed-income investments in your tax-deferred accounts and those investments that produce capital gains and dividend income in your taxable accounts. And while you’re at it, check whether you’ve bought or sold any inappropriate investments in your IRA accounts.

“Since IRAs are tax-deferred vehicles, it makes no sense for them to hold ‘tax-preferenced’ investments such as municipal bonds and annuities,” said Gay.

Gay also suggested using your RMDs to rebalance. It could save on transaction costs.

9. Roll old 401(k)s to an IRA

If you have one or more 401(k)s sitting with former employers, consider rolling that money over to an IRA. “You’ll generally get better investment choices, lower costs and more control of your investment assets,” said Gay.

10. Recharacterize your Roth IRA

If you converted a traditional IRA into a Roth IRA and now realize that your income taxes were higher than expected due to the conversion, or you’re short money to pay the income tax or you’re unwilling to pay the income tax, consider a recharacterization, DeVeny said. That is, consider putting the money in the Roth IRA back into your traditional IRA.

“This is the last year that some individuals must recharacterize,” DeVeny said. “Those who have no choice are individuals who converted in 2009 and whose modified adjusted gross income exceeded $100,000 or who were married filing separate.”

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Dec 14 2011

Common IRA Rollover Mistakes

Tag: 401k, IRAParagon Wealth Management- Elizabeth @ 6:27 pm


If you are thinking about rolling over your IRA here are some common mistakes to avoid.

Common IRA Rollover Mistakes

visit Investopedia.com to view the complete article

The 60-Day Rule

After you receive the funds from your IRA, you have 60 days to complete the rollover to another IRA. If you do not complete the rollover within the time allowed, or receive a waiver, or extension, of the 60-day period from the Internal Revenue Service (IRS), the amount will be treated as ordinary income in the IRS’s eyes. That means you must include the amount as income on your tax return, where any taxable amounts will be taxed at your current, ordinary income tax rate. Plus, if you did not reach age 59.5 when the distribution occurred, you’ll face a 10% penalty on the withdrawal.

One-Year Waiting Rule
Within one year, after you distribute assets from your IRA and rollover any part of that amount, you cannot make another rollover from the same IRA to another (or the same) IRA.

For example, imagine that you have two IRAs - IRA-1 and IRA-2 - and you make a tax-free rollover from IRA-1 into a new IRA (IRA-3).

Within one year of the distribution from IRA-1, you cannot make another tax-free rollover from IRA-1 or from IRA-3 into another IRA. However, you could roll funds out of IRA-2 into any other IRA, because you did not roll money into or out of that account within the previous year.

The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. Therefore, you can roll over more than one distribution from the same qualified plan, 403(b) or 457(b) account within a year. (Note: This one year limit does not apply to rollovers from Traditional IRAs to Roth IRAs, i.e. Roth conversions.)

RMDs Not Eligible for Rollover
You are allowed to make tax-free rollovers from your IRAs at any age, but if you are 70.5 or older, you cannot rollover your annual required minimum distribution (RMD), as a rollover of a RMD would be considered an excess contribution.

If you are required to make a RMD each year, be sure to remove the current year’s RMD amount from your IRA before implementing the rollover.

Same Property Rule
Your rollover, from one IRA or to another IRA, must consist of the same property. This means that you cannot take cash distributions from your IRA, purchase other assets with the cash and then roll those assets over into a new (or the same) IRA. Should this occur, the IRS would consider the cash distribution from the IRA as ordinary income.

Caution: When Not to Use a Rollover
If you are simply moving your IRA from one financial institution to another and you do not need to use the funds, then you should consider using the transfer method, instead of a rollover. A transfer is non-reportable, and can be done for an unlimited number of times during any period. A rollover leaves room for errors, including missing the 60-day deadline, losing the check and you are limited to the once per 12-month rule, discussed earlier.

Additional points
You can roll over funds from any of your own Traditional IRAs, but you can also roll over funds to your Traditional IRA from the following retirement plans:

  • A Traditional IRA you inherit from your deceased spouse
  • Aqualified plan
  • Atax-sheltered annuityplan (section 403(b) plan)
  • A Government deferred-compensation plan (section 457 plan)

Note that if rollover eligible amounts, from qualified plans, 403(b) plans or governmental 457 plans, are paid to you instead of processed as a direct rollover to an eligible retirement plan, the payor must withhold 20% of the amount distributed to you. Of course, you will receive credit for the taxes that were withheld. However, if you decide to rollover the total distribution, you will need to make up the 20%, out of pocket. If you want to avoid the withholding and the associated reporting requirements, a direct rollover is the method that should be used to effectuate your rollover from your qualified plan, 403(b) plan or governmental 457 plan account. A direct rollover is reportable, but not taxable. Plus, there is no 60-day window to worry about. Be sure to check with your plan administrator and IRA custodian regarding their documentation and operational requirements for processing a direct rollover on your behalf.

You might be able to move funds the other direction, too. That is, you may be able to take a distribution from your IRA, and then roll it into a qualified plan. Note, however, that your employer is not required to accept such rollovers, so check with your plan’s administrator before you distribute the assets from your IRA. Further, certain amounts, such as nontaxable amounts and RMDs, cannot be rolled from an IRA to a qualified plan

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.


Dec 07 2011

What You Need To Know About Rolling Over Your IRA

Tag: IRAParagon Wealth Management- Elizabeth @ 3:45 pm

You can avoid taxes and penalties on an IRA distribution if you roll it over into a qualified retirement plan within 60 days.  There are however some exceptions that are outlined in the article below. It is important to understand these to ensure continued tax-deferred growth on your retirement assets.

Exceptions To The 60-Day Retirement Account Rollover Rule

by Denise Appleby
visit Investopedia to view the complete article

120-Day Exception for First-Time Homebuyers

Taxable distributions of up to $10,000 from your IRAs are not subject to the 10% additional tax (early-distribution penalty) if the IRA owner or a qualified family member is a first-time homebuyer and, within 120 days of receipt, the IRA owner uses the amount to pay for qualifying acquisition or rebuilding costs for his or her own or qualifying family member’s principal residence. If the amount is not used because of a cancellation or delay in the purchase or construction of the residence, the amount may be rolled over to the IRA within 120 days instead of the usual 60 days.

Automatic Waiver for Hardship
An individual may deliver distributed assets to a financial institution and intend the amount be deposited to his or her retirement account as a rollover contribution; but sometimes, because of an error, the amount is not credited to the retirement account within the 60-day period. If this happens to you, you receive an automatic extension of the 60-day period, providing all of the following requirements are met:

  • The assets were delivered to your financial institution within 60 days after you had received the distribution.
  • You followed the procedural requirements for rollover contributions that were established by your financial institution.
  • The amount was not deposited to your retirement account because of an error made by the financial institution.
  • The assets are deposited to your retirement account within one year after you received the distribution.
  • The transaction clearly would have been a valid rollover contribution had the financial institution followed your instructions at the time of receipt.

Such errors can occur if you maintain multiple accounts with your financial institution, and a representative inadvertently deposits the amount to the wrong account, such as your regular checking account. To be sure your instructions are followed, check your account statement for accuracy, and contact your financial institution immediately if you detect any errors.

Non-Automatic Waiver Application
If you are unable to complete your rollover contribution because of certain circumstances beyond your reasonable control, you can submit an application to the IRS for a waiver or extension of the 60-day rule. When reviewing your application, the IRS determines whether you meet certain requirements by considering the following:

  • Whether any mistakes were made by your financial institution, other than those described under this article’ssection “Automatic Waiver for Hardship”above.
  • Whether the inability to complete the rollover was the result of death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or a postal error.
  • How the distributed amount was used. For instance, if you received a check for the distributed amount, the IRS will want to know whether the check was cashed.
  • How long it has been since the distribution occurred.

Additionally the IRS will look at whether you had any intention of rolling over the distributed amount at the time the withdrawal occurred. If the IRS determines that you didn’t have this intention, your request for waiver may not be approved. Also, before applying for a waiver of the 60-day rule, check to make sure the amount in question is rollover eligible. For instance, if the distribution occurred from an IRA from which another distribution was rolled over during the 12 months preceding the distribution in question, this second distribution is not rollover eligible.

In order to be considered for the waiver, you must submit an application for a private letter ruling (PLR) to the IRS and pay the applicable fee.

After reviewing your application, the IRS will issue a PLR to you indicating whether your application is approved. If it is, it will include the time limit within which the rollover contribution must be completed. If your application is not approved and you already deposited the amount to your retirement account, you may need to remove the amount as a return of excess contribution (which you can read more about inCorrecting Ineligible (Excess) IRA Contributions - Part 3).

Ensuring Correct Reporting
If you qualify for any of the exceptions explained here - that is, a cancellation or delay in the purchase or construction of a first home is the reason you didn’t use the distributed amount within 120 days for first-home costs; you were eligible for the automatic waiver within one year of the distribution; or your application for extension to the IRS was approved - you must report the amount on your tax return as nontaxable to exclude the amount from your income and avoid the penalty. This is done by including the amount on the applicable line of your tax return.

If you have failed to roll over the amount within the 60-day period and don’t qualify for these exceptions, you must include any taxable amount of the distribution as income, and pay the applicable taxes.

Consult with your tax professional for assistance with determining the taxable portion of your distribution and including the amount on your tax return. Your tax or legal professional should also be able to help you with determining your waiver eligibility and the application process.

You can avoid taxes and penalties on an IRA distribution if you roll it over into a qualified retirement plan within 60 days.  There are however some exceptions that are outlined in the article below. It is important to understand these to ensure continued tax-deferred growth on your retirement assets.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.