TSP, 401(k), & IRA ROLLOVERS IN 2017
Many of you completed one or more of these rollovers during the course of 2017. Remember, you will receive an IRS Form 1099-R documenting this rollover. Box 7 should have code “G,” which denotes an institution-to-institution rollover, which means the distribution is non-taxable.
If you took possession of IRA/401(k)/TSP money before rolling it over (60 day rollover), you will need to acknowledge the distribution in box 11A. Put “0” in box 11B, and write “60-day rollover” in the margin. Please check with your tax preparer if you have questions. It is atypical that we help a client do a 60-day rollover. A 60-day rollover can occur when there is a small Roth 401(k)/TSP balance or when we’re moving money from a bank CD.
We have many clients who have used the “backdoor funding of Roth IRAs” strategy for several years. This particular strategy allows clients with adjusted gross income over $196,000, married filing jointly, to contribute to a Roth IRA. The strategy involves contributing to a
Traditional IRA, and then immediately converting it to a Roth IRA. The conversion of
dollars to a Roth IRA is a tax-free event, assuming there are no other Traditional IRAs. Please remind your tax preparer if you are using this advanced planning strategy. The 1099 issued will report the conversion as 100% taxable, and it is your responsibility to notify your tax preparer to avoid double taxation. Please do not use this strategy without our supervision, and keep us informed if you have previously used the strategy with another advisor.
The maximum contribution limit for 401(k)s, 403(b)s, most 457s, and the TSP has increased to $18,500 for those under age 50, and $24,500 for those over age 50. IRA and Roth IRA contribution limits remain unchanged. Many organizations match employee contributions on a per-paycheck basis. It’s imperative that the $18,500 contribution is spread out over the full calendar year.
We meet a few people each year who are not taking advantage of the full company match and effectively missing out on free money. At a minimum, everyone should be contributing enough to receive the full company match. Please encourage your co-workers, especially young professionals, to take advantage of these opportunities.
VOLUNTARY CONTRIBUTION PLAN (VCP)
CSRS and CSRS Offset clients who completed a VCP-to-Roth IRA rollover should not be alarmed if your tax preparer is unfamiliar with the process. The VCP is only available to CSRS and CSRS Offset employees; therefore, your preparer may not have experience with this transaction. Please have him or her call us with any questions.
We are closed on the following dates:
Friday, December 22, 2017
Monday, December 25, 2017
Tuesday, December 26, 2017
Monday, January 1, 2018