kathyc2

Yep. I was assuming it was TX.

Why would there need to be an amendment? If IRS corrected for the 1099R they need to pay the tax but there is no need for a federal amendment.

In that case, I'd say it's up to her or her lawyer to receive reimbursement from him. I'm not seeing how this has anything to do with IRS. In the future she may want to adjust withholding/payments so there is not a refund.

It would not be injured spouse as the liability was joint when it occurred. Doubtful innocent would apply either: https://www.irs.gov/individuals/innocent-spouse-relief#:~:text=Innocent spouse relief can relieve,from employment or self-employment. Does the divorce settlement address how the tax debt is to paid?

That shouldn't matter as long as the SIMPLE has been in effect for 2 years.

At the risk of derailing a topic, WI Dept of Revenue rocks! Answered within a couple minutes and told me exactly what I needed to do to rectify a notice for a non-resident client. You are beyond lucky to have your home state agents!

From Pub 590-B: "Qualified charitable distributions (QCDs). A QCD is generally a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax-deductible contributions." Just have them roll some of the SIMPLE money to a Traditional and make the contribution from there.

That doesn't matter if the person is over 59 1/2. The reason the 10% penalty is in place is so those under 59 1/2 don't try to circumvent the 10% penalty on w/d from Traditional by running it through a Roth first. There are ordering rules how distributions are deemed. No tax or penalty if over 59 1/2. If under 59 1/2: 1. Contributions no tax or penalty 2. Conversions no tax, 10% penalty if less than 5 years 3. Earnings are taxed plus 10% penalty

You are correct that if the amount is low enough it may be removed free of FIT. Looks like I contradicted by own statement with the examples I gave. I like converting amounts over RMD rather than distributing for a few reasons: 1. The earnings from distributions will reduce the amount than can be removed in subsequent years. 2. Even if income is low enough to not pay FIT on NQ investments, state income tax can be very likely. 3. Once it becomes inherited, it gives the heirs more options. Curious about why you put in new Roth account rather than converting to an existing one?

Exactly! I get so irritated with people who just repeat the mantra delay, delay, delay without looking if it's the best strategy. I've been looking at how to best reduce long term tax for many years. Every year I'll see something or read something to expand my thinking on the subject. I have Excel templates set up so I don't have to keep reinventing the wheel and I'm constantly refining and adding criteria to make long term projections better. I know I can't accurately predict the future, but even partial planning is better than no planning.

Here's another one that doesn't deal with conversions, but an idea others may be able to use. Single gal turned 70 in 2023. W-2 income mid 40's. Around 100K in 401K. She still has a mortgage and with what she had put back and SS things would be very tight. We discussed some options and decided it would be best for her to work one more year. Started SS as there was no benefit to delay past 70. Rather than having her just add SS benefits to taxable income, I had her max her 401K for that year. If she wouldn't have done that 2024 tax would be over 6K. With the 401K and way SS is taxed, 2024 tax will likely be zero or close to it. Going forward she should have enough between withdrawals and SS to replace her W2 income while not paying FIT.

Example with higher IRA: Couple retired at 63. She was out of workforce several years when kids were young, so her SS benefits were on the lower side. 15K with starting early. They had available cash to live on and wanted to not start his SS until later for higher benefits. They had some in Roths, but majority was in Trad, around 1.2M at that point. For the next few years, we converted as the amount from Trad to Roth to take them to the top of 12% bracket. Over the course of 5 years, we converted close to 400K paying less that 35K in FIT. They had money in NQ accounts to pay the tax so the full amount was converted. They are currently 70 ½ and making QCD and converting the amount that can to keep FIT to zero. When RMD’s kick in they will likely be able to stay at zero FIT at least for the first few years. This couple want to leave around 20% of total net worth to charity after the last one passes, so I’m not concerned about tax to children as the amount going to charity will come from trad and no one will pay tax on the funds.

Some examples of planning with lower income/ lower IRA’s: 1. It’s rare that I’ll recommend Trad to someone in 12% bracket, but there are times it makes sense. Couple in early 60’s with no IRA’s but around 100K on NQ accounts. I advised them to use NQ money to funds Trad taking tax deduction advantage. After they retire and have only SS, they will be able to get it out free of federal tax if they spread it out intelligently. Best of both worlds in the case: up front tax savings and no tax on withdrawals. 2. Widower, mid 70’s 33K SS, 3K investment income. Currently has about 80K left in trad. No mortgage and lives how he wants from SS benefits. QCD takes care of RMD and each year I give him the amount he can convert to Roth free of FIT. For 2024 that amount is 11K. 3. Married couple retired at 65, started SS and both continue to work part-time. Each year I calculate the amount to put into Trad to be at zero FIT with combination of taxable income and RSC. After they are no longer working PT jobs, they will be able to convert or take money out of trad free of FIT. 4. Elderly widow insisted on only taking RMD of around 2K a year in spite of my recommendation she take out or convert the amount she could tax free. Her daughter had been bringing her to appointment last several years. When daughter inherited the balance 50K or so, she took out the entire amount in one year and paid considerable tax. I asked daughter if she needed the money, and she said not all but she didn’t want to stick her kids with tax if she passed. That one didn’t work out all that well.

Here are some things I’ve learned over to years to consider when planning for conversion/ tax in retired years: Unless it goes to charity, someone sometime will pay tax on IRA/401K money. Unless the 85% max is reached, adding more income has the effect of increasing marginal rates by 85%. 10% becomes 18.5%, 12% becomes 22.2%, LTCG 0% becomes 8.5%. More often than not, the point where max 85% is taxable and start of 22% rate are vey close. The first IRMAA starts close to top of 22% bracket. SS floors are not indexed and over time a higher percentage will be taxable. SS, std deduction and brackets are indexed, but not enough to keep things even with the floor that does not increase. If one spouse dies, the total RMD will stay same for surviving spouse, but std deductions and brackets will be cut in half. RMD is less than 6% of total for first 13 years. If investments earn at least 6% the value of account will continue to increase over those years. Money taken from IRA and not spent will earn taxable income. Money passed to heirs will be taxed differently: Money in Roth can stay for 10 years and possibly double before it needs to be taken out and tax paid on earnings past that point. NQ accounts will receive step up, but earnings past that will be taxable beginning in year one. IRA can stay in for 10 years, but will probably have some taken each year to avoid big taxable hit in year 10.

Another topic brought up Roth conversions. This is is an area I have done several projections on, and there are definitely times when it's good planning. I look forward to the discussions.

No need to have an angry face. I find it interesting how the same thing can be viewed differently by different people. Peace.

A lot has changed since those years. IRA's and 401K's started in the 70's. Mutual funds didn't really become popular until the 80's. Have you seen anything as to how much the increase is due to more people buying in (supply/demand) as opposed to actual company earnings? I'm guessing it's between 50-75% due to more people buying shares.

LOL! I've always viewed all caps as unprofessional and lazy. To each their own!

Exactly! You have very little flexibility without paying huge penalties if you change your mind about wanting money in them. Which leads to annoying commercials about companies that buy them out. If someone wants to pay ordinary tax rates on the earnings, they would be better off to buy 30 year Treasuries and pay tax on the interest when they cash them in.

Since 1974 there has never been a 20 year period in which the S&P lost money. Since 1974 the only 10 year period with loss was from 1999 to 2008 - 1%, and 2000-2009 -.61%

So, IRS has their money? Why not pay client that the account was dinged the amount plus an extra amount for the error? Then have client who should have paid IRS pay you.

Thanks Judy. I did answer one of my questions. There is a box on the 1099R that shows the NUA amount.

Client e-mailed about having some interest in doing this. I've never had one, and don't even remember really hearing about them. Client left employer in 2021. He is well under 59 1/2. His contributions always went to Roth 401K, so we would only be talking about the employer match that was held in company funds. I'm waiting on numbers from him, but for now let's say 25% of match was held in company stock and 75% was held in regular mutual funds. Publicly traded company, so stock prices are easy to find. What I'm finding from brief research: 1. The entire company match that is held in company funds needs to be removed from retirement classification. 2. The 25% that is in company funds is taxed at regular rates plus 10% penalty. The amount is calculated as # shares purchased times share price at time of purchase from match. 3. The 75% non company funds from match can be rolled to traditional IRA. 4. His Roth 401K portion can be rolled to his Roth IRA. 5. The appreciated amount of the 25% company funds is treated as capital gains if sold. This would be the total value at time of disbursement less taxed amounts from #2. Am I understanding the above correctly? Questions: 1. Can the appreciated amount be put into his regular brokerage account, or does it need to be kept separate for some reason? 2. Can the appreciated amount be put unto a DAF (donor advised fund) thereby bypassing tax on it, and getting a Sch A deduction to boot? 3. What will 1099R look like? Will it show the total and then the amount that is taxable, or is removing the non-taxable part something that happens on tax return?

To each their own. Vast majority of my clients pay with check at time of pick-up. A few pay cash, and like MCB I keep that in safe for items I pay cash for and to have emergency money in the case of wide spread internet outage. A few others pay with CC and while I don't show a separate line item, I do charge them a little more to cover the fees. If I had a storefront practice, I'd want CC payment, but since I know my clients very minute risk of being stiffed. I only remember one over 27 years that check bounced and wasn't made good.

Depends on how you look at the surcharge. Personally, I'd pay by check and take the 3.5% discount.