Wednesday, February 26, 2014

The Best and Worst Tax Strategies

Natalie Choate Releases 201 Best and Worst Strategies

   Today's tax regime is unforgiving to the wealthy, but there are still plenty of strategies to help mitigate the impact — if you're creative.

Tax expert Natalie B. Choate, who is of counsel at Nutter McClennen & Fish LLP, unveiled her “201 Best and Worst Planning Ideas for Your Client's Retirement Benefits” at The Retirement Income Summit in Chicago.

Regarding distribution strategies, wealthier clients already are using withholding of their income taxes from their IRA distribution to reduce estimated taxes.

Your wealthy client who is over age 70½ doesn't want or need to take the distribution from his IRA, but he has to,” Ms. Choate said. “He also hates paying estimated income taxes.”

One way to soften the blow is to use the 2013 required minimum distribution from the IRA to pay down the year's estimated income taxes on Dec. 1. The RMD payment should go straight to the IRS from the company holding the IRA, Ms. Choate said. By doing so, the client avoids paying these taxes in four installments and the withheld income taxes are credited to the client as if he or she had paid them throughout the year, even though the IRS didn't get the money until December. This can amount to a few thousand dollars in savings, Ms. Choate said.

Other good ideas on distributions from a retirement plan is for individuals over 70½ to direct up to $100,000 from an IRA to a favorite charity. It has to be a charitable organization, not a donor-advised fund, a charitable remainder trust or the client's own private foundation.

By shipping the money off to a charity, the client is keeping that money out of his or her adjusted gross income, which can have lots of planning implications for the taxability of Social Security benefits, the amount the client has to pay in Medicare premiums and the application of the new surtax on investment income, Ms. Choate said. Single people with more than $200,000 or married couples filing jointly who have more than $250,000 in adjusted gross income are subject to the 3.8% surtax on investment income. Moving that money out of the IRA via a charitable distribution can keep some people below those AGI limits, she said.

“This isn't something that's just for billionaires and millionaires,” Ms. Choate said. “It helps lower income for people who are charitably inclined.”

In terms of rollover guidance, Ms. Choate unveiled a number of tips, including how to ensure that clients who are remarrying can pass their retirement plan benefits to their children.

The Employee Retirement Income Security Act of 1974 requires that a worker's spouse be named a beneficiary on an ERISA plan. But clients can sidestep that if they roll their money over to an IRA before they get married and allow the children from the earlier marriage to be beneficiaries. “IRAs are subject to state law spousal rights, which you can waive with a prenuptial agreement,” Ms. Choate said.
But what if the client has already remarried and only now finds out about the ERISA requirement?

“With a 401(k), you can roll over to an IRA without spousal consent, at least under federal law,” Ms. Choate said. “I've heard sad stories here at this conference where things could have gone better if only people had known the rules.” 

Friday, February 21, 2014

IRA Rollover News

This is critical must know information for all tax advisors. The change is very significant and will be covered more in a Tax Tip from Chief Counsel Tiffany Fowler but we wanted you to have it immediately. Any questions please call Tiffany at ext. 313 and she will gladly assist you.

The Tax Court is at it again.  Just when you thought you knew the ins and outs of the IRA rollover rules, a curve ball is thrown.  Page 25 in the latest version of IRS Publication 590 interprets the one per year IRA rollover rule limit to each IRA you own.  The Tax Court has successfully muddied the waters on this aspect of the 60-day rollover rule, at least for now.

Say hello to a recently published case, Bobrow v. C.I.R. (T.C., Jan. 28, 2014, 7022-11).  The background of this case is as follows:  Petitioners were on the hook to the IRS for a significant income tax deficiency PLUS early distribution penalties AND accuracy related penalties.  This was all related to “unreported distributions” from their IRAs, stemming from alleged violations of the once per year 60-day IRA rollover rule.   

The Tax Court in this case stated that the one rollover per year rule applies to all IRAs, not each IRA.  Its reasoning was: “Had Congress intended to allow individuals to take nontaxable distributions from multiple IRAs per year, we believe section 408(d)(3)(B) would have been worded differently.”  It concluded this particular discussion with: “Regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.”

This is a pretty shocking interpretation since the code has been routinely interpreted as the rule applying to each IRA.  For now, conservative IRA owners are following this interpretation to ensure they are in compliance.  Of course, this opinion could be overruled or perhaps the rule clarified in the near future.  

Thursday, February 20, 2014

Ex-Wife Entitled to 401(k) Account Balance

Be Careful Out There 

A recent case I thought I'd share.... 

Even though an ex-wife waived her right to her now-deceased ex-husband?s 401(k) plan savings, she is still entitled to the money, a federal judge in New Jersey has ruled.

U.S. District Judge Robert B. Kugler for the District of New Jersey, in following a 2009 U.S. Supreme Court decision, ruled that the husband?s old employer had to disburse the money according to the plan documents under which the ex-wife was the beneficiary.

In finding that Adele Kensinger was entitled to the money, Kugler pointed out that the Supreme court ruled that the Employee Retirement Income Security Act (ERISA) does not bar common law waivers but plan administrators are nevertheless bound by the plan documents if such waivers conflict.

Even if the property settlement agreement (PSA) constituted a valid waiver of Adele Kensinger?s right to the 401(k) proceeds, the justices still had required the employer to transfer the proceeds according to the plan documents, Kugler said.

According to the decision, William and Adele Kensinger were married at the time that William Kensinger enrolled in his 401(k) plan and named Adele Kensinger as his beneficiary. The two subsequently divorced and executed a PSA in which they gave up their rights to any interest in the others' retirement accounts, but William Kensinger did not remove his ex-wife as the named beneficiary. He died in 2009, with an account balance of approximately $57,000.

His estate argued that it was entitled to the funds.

The case is In the Matter of the Estate of Kensinger, D.N.J., No. 09-6510 (RBK/AMD).

Saturday, February 15, 2014

USS Midway A Journey Back in Time!

Fox News Rocks!

Baseball is coming SOON!

Is the Super Bowl a Predictor of Stock Market Returns

Truth be told given the fact that the Patriots did not make it to the Super Bowl this year in many ways I simply don't care. That said, people are constant looking for weird predictors of which direction the stock market may be headed.

The so-called Super Bowl  indicator says when the NFC team wins the market will be up  in the AFC team wins the market will be down that means that sense of Seattle  won the market will go up.

However, this indicator has more loopholes  when the Rams beat the Titans in 2000  the Dow lost 6% . even though the Giants won in 2008 ( beating my Patriots ) the Dow dropped 34%.

I suppose the best news is that pitchers and catchers report  next week .

Hitting Long and Straight

Friday, February 14, 2014

Cpa's love America's Tax Solutions

Can you believe everything you read?

If it's on the internet beware. Even print publications can be duped by people with grudges into writing things can leave the reader with inaccurate impressions of someone or something. The internet can be a great aid to research and information. But if the reader simply believes anything and everything lives can be harmed. Reputations destroyed! Ask yourself just because someone said it does that make it true? Understand most people have motives or angles on what they write, and maybe readers should think about what the writers motive might be for writing what they wrote. Any set of facts can be twisted to suit the writers goals. So when you read something consider what the writers goals might have been.

Wednesday, February 12, 2014

Table Bay Financial is expanding rapidly due to great new marketing platforms and products. Give them a call to learn about the Regional Sales Forum that might be coming to your town.
Insurance companies are expanding into the Fixed Indexed Annuity marketplace.