Almost Tax Time!
Dear Clients,

As 1099s and W-2s start hitting your mailbox, we want to minimize the stress around tax time. Please remember that we don’t implement strategies that result in large income tax ramifications. The following information will help prepare you for tax season and how to interact with your CPA or tax professional. Please contact us if you or your tax professional have questions on strategies implemented in 2018. 
TSP, 401(k), & IRA ROLLOVERS IN 2018

Many of you completed one or more of these rollovers during the course of 2018. 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  non-deductible  Traditional IRA, and then immediately converting it to a Roth IRA. The conversion of  after-tax  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 $19,000 for those under age 50, and $25,000 for those over age 50.  Many organizations match employee contributions on a per-paycheck basis. It’s imperative that the $19,000 contribution is spread out over the full calendar year in order to receive the maximum employer match. The Traditional and Roth IRA contribution limit has increased to $6,000 for those under age 50, and $7,000 for those over age 50. If you are contributing monthly to an IRA and would like to increase your contribution amount, please be sure to let us know.

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.

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.

Remember to advise your tax preparer if you made a qualified charitable distribution from your IRA in 2018. This means you withdrew funds from an IRA and donated them directly to a qualified charity, which is NOT subject to taxation. Several of you may have used a QCD to satisfy your required minimum distribution (RMD).
Stay tuned on WNIS AM 790 on the first and third Tuesday of every month, 6:00 to 7:00 PM.