New Procedure Helps People Making IRA and Retirement Plan Rollovers

The Internal Revenue Service today provided a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan or individual retirement arrangement (IRA).

In Revenue Procedure 2016-47, posted today on IRS.gov, the IRS explained how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. In addition, the revenue procedure includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver.

Normally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. In most cases, taxpayers who fail to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS.

A taxpayer who missed the time limit will now ordinarily qualify for a waiver if one or more of 11 circumstances, listed in the revenue procedure, apply to them. They include a distribution check that was misplaced and never cashed, the taxpayer’s home was severely damaged, a family member died, the taxpayer or a family member was seriously ill, the taxpayer was incarcerated or restrictions were imposed by a foreign country.

Ordinarily, the IRS and plan administrators and trustees will honor a taxpayer’s truthful self-certification that they qualify for a waiver under these circumstances. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination. Other requirements, along with a copy of a sample self-certification letter, can be found in the revenue procedure.

The IRS encourages eligible taxpayers wishing to transfer retirement plan or IRA distributions to another retirement plan or IRA to consider requesting that the administrator or trustee make a direct trustee-to-trustee transfer, rather than doing a rollover. Doing so can avoid some of the delays and restrictions that often arise during the rollover process. For more information about rollovers and transfers, check out the Can You Move Retirement Plan Assets? section in Publication 590-A or the Rollovers of Retirement Plan and IRA Distributions  page on IRS.gov.

From IRS

Save on Your Taxes and for Retirement with the Retirement Savings Contribution Credit

If you contribute to a retirement plan, like a 401(k) or an IRA, you may be able to claim the Retirement Savings Contribution Credit, also known as the Saver's Credit. This credit can help you save for retirement and reduce the tax you owe. Here are some key facts that you should know about this important tax credit:

• Formal Name.  The formal name of the Saver’s Credit is the Retirement Savings Contribution Credit. The Saver’s Credit is in addition to other tax savings you get if you set aside money for retirement. For example, you may also be able to deduct your contributions to a traditional IRA.

• Maximum Credit.  The Saver’s Credit is worth up to $4,000 if you are married and file a joint return and up to $2,000 if you are single. The credit you receive is often much less than the maximum. This is partly because of the deductions and other credits you may claim.

• Income Limits.  You may be able to claim the credit depending on your filing status and the amount of your yearly income. You may be eligible for the credit on your 2015 tax return if you are:
• Married filing jointly with income up to $61,000
• Head of household with income up to $45,750
• Married filing separately or a single taxpayer with income up to $30,500

• Other Rules.  Other rules that apply to the credit include:
• You must be at least 18 years of age.
• You can’t have been a full-time student in 2015.
• No other person can claim you as a dependent on their tax return.

• Contribution Date.  You must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, you can contribute to an IRA by the due date of your tax return and still have it count for 2015. The due date for most people is April 18, 2016.

• Use the Interactive Tax Assistant interview tool to help you determine if you qualify to claim the Retirement Savings Contributions Credit. https://www.irs.gov/uac/Do-I-Qualify-for-the-Retirement-Savings-Contributions-Credit%3F

From IRS

Still Time to Make Your IRA Contribution for the 2015 Tax Year

Did you contribute to an Individual Retirement Arrangement last year? Did you know there is still time THIS YEAR to contribute to your 2015 IRA? To qualify, you must make a contribution by the due date of your tax return, NOT including extensions. Here are some other IRS tips about Individual Retirement Accounts:

• Age Rules. You must be under age 70½ at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.

• Compensation Rules. You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you are married and file a joint tax return, only one spouse needs to have compensation in most cases.

• When to Contribute. You can contribute to an IRA at any time during the year. To count for 2015, you must contribute by the due date of your tax return. This does not include extensions. This means most people must contribute by April 18, 2016. If you contribute between Jan. 1 and April 18, make sure your plan sponsor applies it to the year you choose (2015 or 2016).

• Contribution Limits. In general, the most you can contribute to your IRA for 2015 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2015, the maximum you can contribute increases to $6,500. If you contribute more than these limits, an additional tax will apply. The additional tax is six percent of the excess amount contributed that is in your account at the end of the year. 

• Taxability Rules. You normally don’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.

• Deductibility Rules. You may be able to deduct some or all of your contributions to your traditional IRA. See IRS Publication 590-A for more.

• Saver’s Credit. If you contribute to an IRA you may also qualify for the Saver’s Credit. It can reduce your taxes up to $2,000 if you file a joint return. U

• New myRA. If your employer does not offer a retirement plan, you may want to consider myRA. It is a new retirement savings plan offered by the U.S. Department of the Treasury. It's safe and affordable. You can also direct deposit your entire refund or a portion of it into an existing myRA – Retirement Account.

Additional IRS Resources available from www.IRS.gov :

• Do I Qualify for the Retirement Savings Contributions Credit?

From IRS

What's the story with....Early Retirement Distributions and Your Taxes

Many people find it necessary to take out money early from their IRA or retirement plan. Doing so, however, can trigger an additional tax (early withdrawal penalty) on top of the income tax you may have to pay. Here are a few key points to know about taking an early distribution:

1. Early Withdrawals.  An early withdrawal normally means taking the money out of your retirement plan before you reach age 59½.

2. Additional Tax.  If you took an early withdrawal from a plan last year, you must report it to the IRS. You may have to pay income tax on the amount you took out. If it was an early withdrawal, you may have to pay an additional 10 percent tax.

3. Nontaxable Withdrawals.  The additional 10 percent tax does not apply to nontaxable withdrawals. They include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

A rollover is a type of nontaxable withdrawal. A rollover occurs when you take cash or other assets from one plan and contribute the amount to another plan. You normally have 60 days to complete a rollover to make it tax-free.

4. Check Exceptions.  There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans (401K, 403B, etc) are different from the rules for IRAs.

More information on this topic is available on IRS.gov.

• IRA FAQs – Distributions (Withdrawals)
• Publication 590-B, Distributions from Individual Retirement Arrangements
• Publication 575, Pension and Annuity Income

From IRS

Still Time to Contribute to an IRA for 2014

The Internal Revenue Service today reminds taxpayers that they still have time to contribute to an IRA for 2014 and, in many cases, qualify for a deduction or even a tax credit.

Available in one form or another since the mid-1970s, individual retirement arrangements (IRAs) are designed to enable employees and self-employed people to save for retirement. Contributions to traditional IRAs are often deductible, but distributions, usually after age 59½, are generally taxable. Though contributions to Roth IRAs are not deductible, qualified distributions, usually after age 59½, are tax-free. Those with traditional IRAs must begin receiving distributions by April 1 of the year following the year they turn 70½, but there is no similar requirement for Roth IRAs.

Most taxpayers with qualifying income are either eligible to set up a traditional or Roth IRA or add money to an existing account. To count for 2014, contributions must be made by April 15, 2015. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the saver’s credit when they fill out their 2014 returns.

Eligible taxpayers can contribute up to $5,500 to an IRA. For someone who was at least age 50 at the end of 2014, the limit is increased to $6,500. There’s no age limit for those contributing to a Roth IRA, but anyone who was at least age 70½ at the end of 2014 is barred from making contributions to a traditional IRA for 2014 and subsequent years.

The deduction for contributions to a traditional IRA is generally phased out for taxpayers covered by a workplace retirement plan whose incomes are above certain levels. For someone covered by a workplace plan during any part of 2014, the deduction is phased out if the taxpayer’s modified adjusted gross income (MAGI) for that year is between $60,000 and $70,000 for singles and heads of household and between $0 and $10,000 for married persons filing separately. For married couples filing a joint return where the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range for the deduction is $96,000 to $116,000. Where the IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered, the MAGI phase-out range is $181,000 to $191,000.

Even though contributions to Roth IRAs are not deductible, the maximum permitted amount of these contributions is phased out for taxpayers whose incomes are above certain levels. The MAGI phase-out range is $181,000 to $191,000 for married couples filing a joint return, $114,000 to $129,000 for singles and heads of household and $0 to $10,000 for married persons filing separately. For detailed information on contributing to either Roth or traditional IRAs, including worksheets for determining contribution and deduction amounts, see Publication 590-A, available on IRS.gov.

Also known as the retirement savings contributions credit, the saver’s credit is often available to IRA contributors whose adjusted gross income falls below certain levels. For 2014, the income limit is $30,000 for singles and married persons filing separate returns, $45,000 for heads of household and $60,000 for married couples filing jointly.

Eligible taxpayers get the credit even if they qualify for other retirement-related tax benefits. Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. The amount of the credit is based on a number of factors, including the amount contributed to either a Roth or traditional IRA and other qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.