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You May Have the Option to Increase Your Tax Refund!

There's still time to contribute to an IRA for 2014!

Have you made your IRA contribution for the 2014 tax year yet? If not, now's the time as the April 15th deadline approaches. Now is also the time to get an early jump on 2015. Remember: You can still contribute to an IRA, even if you participate in an employer sponsored retirement plan, like a 401(k) or 403(b).

Roth IRAs offer withdrawals free from federal tax if you meet the specified withdrawal conditions. Traditional IRAs offer tax-deferred growth, and if you qualify, tax-deductible contributions. The annual limit for both Roth and Traditional IRA contributions is $5,500 for the 2014 tax year. If you're age 50 or older and you meet the eligibility requirements, you can also contribute an extra $1,000 to your IRA.

Under Age 50 IRA limits 2014 and 2015 = $5,500
Over Age 50 IRA limits 2014 and 2015 = $6,500

For information about IRA eligibility rules, help determining which IRA is best for you or if you should convert your Traditional IRA to a Roth IRA, please contact TCU Investment Services at (800) 756-6210 to schedule a meeting.
 

Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 800-369-2862. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.

FR-1118540.1-0215-031

 

IRS Announces New IRA Rollover Limitation

A tax court ruling raises eyebrows & leads to a decision that may affect you. 
Provided by TCU Investment Services


What was once allowed is now prohibited. In 2008, an affluent New York City couple made a series of withdrawals and transfers among contributory IRAs, rollover IRAs and non-IRA investment accounts, all with the long-established 60-day deadline for tax-free IRA rollovers in mind. As esteemed tax attorney Alvan Bobrow and his wife withdrew and rolled over a series of five-figure sums within a six-month period, they assumed their actions were permissible under the Internal Revenue Code. In January 2014, a U.S. Tax Court judge ruled otherwise.1

This Tax Court opinion has prompted the IRS to tighten the IRA rollover rules. In the past, some clever taxpayers have effectively treated themselves to interest-free loans from their IRA funds by using multiple IRA accounts to sequence multiple 60-day rollover periods. In the court’s view, the Bobrows were exploiting this loophole, and the IRS is closing it.1,2

Starting in 2015, you are allowed one IRA-to-IRA rollover per 365 days - period. A subtle but important change has been made. Publication 590 has long stated that a taxpayer can generally only make one tax-free rollover of any part of a distribution from a single IRA to another IRA during a 12-month period. That didn’t preclude a taxpayer from making multiple IRA-to-IRA rollovers using multiple IRAs during such a timeframe.1,4

In response to Bobrow v. Commissioner, T.C. Memo 2014-21, the IRS issued Announcement 2014-15. Effective January 1, 2015, the once-a-year rollover restriction applies to all IRAs maintained by a taxpayer. So the tactic of making multiple IRA-to-IRA tax-free rollovers during a 12-month period is kaput.3,4
 
So beginning next year, you can only make a tax-free IRA-to-IRA rollover if you haven’t made one within the past 365 days.3

Don’t grumble just yet. If you want to move money between IRAs more than once next year, there is still a way you can do it. The new IRS rule change doesn’t apply to every type of IRA “rollover.”

The financial media uses the phrase “IRA rollover” pretty loosely. When you read a story about “IRA rollovers,” the term may refer to IRA-to-IRA rollovers, distributions from a workplace retirement plan going into an IRA, or a trustee-to-trustee transfer of IRA assets between financial firms in which the taxpayer never handles the money.

Here’s the good news. IRS Announcement 2014-15 states: “These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year limitation of § 408(d)(3)(B).”3

In other words ... the new restriction does not apply to trustee-to-trustee transfers. The IRS has clearly defined in the above language that it does not regard these transfers as rollovers. Some transition relief is also available: the IRS won’t apply the new limitation to any rollover involving an IRA distribution that happens prior to January 1, 2015.4

Some important questions beg for answers. As Bloomberg BNA notes, the new limitation actually muddies the waters a bit. Some taxpayers own both traditional and Roth IRAs; will they be allowed to take one distribution from their traditional IRA with the intention of a tax-free rollover and another distribution from their Roth IRA pursuant to a tax-free rollover within the same 12-month period? Could an IRA owner and his/her tax planner argue that a succession of linked IRA distributions pursuant to a single outcome substantively amount to a single distribution, citing the step transaction doctrine in defense?4

It is possible that further guidance from the IRS may emerge. Regardless of whether it does or not, IRA-to-IRA rollovers are about to be scrutinized more closely.
 
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members.

Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
    
Citations.
1 - wealthmanagement.com/retirement-planning/seeing-double [2/4/14]
2 - marketwatch.com/story/new-ira-rollover-rule-coming-in-2015-2014-04-04 [4/4/14]
3 - irs.gov/pub/irs-drop/a-14-15.pdf [4/16/14]
4 - tinyurl.com/lnd86vs [4/24/14]

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The ABCs of IRAs

This popular retirement savings vehicle comes in several varieties.

What don’t you know? Many Americans know about Roth and traditional IRAs … but there are other types of IRAs. Here’s a quick look:
 
Traditional IRA (or deductible IRA) is an individual savings plan for anyone who receives taxable compensation. IRA assets may be invested in any number of vehicles, and contributions may be tax-deductible. Earnings in a traditional IRA grow tax-deferred until withdrawal, but will be taxed when withdrawal begins - and withdrawals must begin by the time the IRA owner reaches age 70½.

Roth IRA offers you tax-free compounding, tax-free withdrawals if you are older than age 59½ and have owned your account for at least five years, and the potential to make contributions to your IRA after age 70½ without having to take RMDs.

SIMPLE IRAs are qualified retirement plans for businesses with 100 or fewer employees.

SEP stands for Simplified Employee Pension. These traditional IRAs are set up by an employer for employees and funded by employer contributions only.

Spousal IRA is actually a rule that lets a working spouse make traditional or Roth IRA contributions on behalf of a non-working or retired spouse.

Inherited IRA is a Roth or traditional IRA inherited by a non-spousal beneficiary.

Group IRA is simply a traditional IRA offered by employers, unions, and other employee associations to their employees, administered through a retirement trust.

Rollover IRA. Assets distributed from a qualified retirement plan may be rolled over into a traditional IRA, which may be converted later to a Roth IRA.

Education IRA (Coverdell ESA) provides a vehicle to help middle-class investors save for a child’s education.

Consult a qualified financial advisor regarding your IRA options. There are many choices available, and it is vital that you understand how your choice could affect your financial situation. No one IRA is the “right” IRA for everyone, so do your homework and seek advice before you proceed.

Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 800-369-2862. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. 
 

A Roth IRA’s Many Benefits

Why do so many people choose them over traditional IRAs?
 

The IRA that changed the whole retirement savings perspective. Since the Roth IRA was introduced in 1998, its popularity has soared. It has become a fixture in many retirement planning strategies, because it offers savers so many potential advantages. 
 
The key argument for going Roth can be summed up in a sentence: Paying taxes on your retirement contributions today is better than paying taxes on your retirement savings tomorrow.

Think about it. All other variables aside, would you like to pay more taxes in retirement or less?

What if federal tax rates are higher in the future than they are today? Would you like to see a) your retirement savings taxed at those higher rates tomorrow, when you may have medical bills or other emergency expenses to contend with, or b) have the dollars you are saving for retirement today taxed at possibly lower rates?

Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.

You contribute after-tax dollars. You have already paid federal income tax on the dollars going into the account. But in exchange for paying taxes on your retirement savings contributions today, you could potentially realize great benefits tomorrow.¹

You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.2

You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least 5 years. (That 5-year clock starts on January 1 of the tax year in which you make your initial Roth IRA contribution.)3

The IRS calls such tax-free withdrawals qualified distributions. They may be made to you, to your estate after you are deceased, and/or to a beneficiary. (If you die before the Roth IRA meets the 5-year rule, your IRA beneficiary will see the IRA earnings taxed until it is met.)4

If you withdraw money from a Roth IRA before you reach age 59½, it is called a nonqualified distribution. If you do this, you can still withdraw an amount equivalent to your total IRA contributions to that point tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS penalty as well. (If you are younger than 59½ and have owned a Roth IRA for at least 5 years, you are allowed to withdraw 100% of your contributions and up to $10,000 of IRA earnings tax- and penalty-free to buy a principal residence, assuming the buyer has not owned a home within the past 2 years.)1,3 
 
You never have to make a withdrawal. When you own a traditional IRA, you must start pulling money out of it in your in your seventies. These withdrawals are called Required Minimum Distributions (RMDs), and the amount is calculated for you using an IRS formula. These forced withdrawals saddle some traditional IRA owners with tax problems. In contrast, Roth IRA owners never have to take RMDs. They are never required to take a penny out of their IRAs.¹

Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. (These limits are not adjusted for inflation, incidentally.) An RMD from a traditional IRA represents taxable income, and may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income, and doesn’t count toward it.5
  
You can direct Roth IRA assets into many different kinds of investments. Invest them as aggressively or as conservatively as you wish – but remember to practice diversification. The range of investment choices is often broader than that offered in a typical workplace retirement plan.¹
 
You can shift dividend-producing investments into a Roth IRA from a taxable account. As dividends are being taxed at higher rates in 2013, keeping dividend-producing stocks out of a taxable account has definite virtues.
 
You can potentially “stretch” the assets. If an original Roth IRA owner passes away after owning the IRA for at least five years, then its earnings can be withdrawn tax-free by its beneficiaries. (Relevant estate taxes may need to be paid, of course.) If a Roth IRA beneficiary is not a spouse, then other factors come into play: that beneficiary cannot contribute to the inherited Roth IRA, or combine it with an IRA he or she owns. The non-spouse beneficiary can decide to a) receive a distribution of 100% of the inherited Roth IRA assets by December 31st of the fifth year following the year of the IRA owner’s death, or b) receive periodic payments from the IRA over the course of his or her life, an option which may potentially be “stretched” (given proper planning) and extended to subsequent beneficiaries.6
 
You have 16 months to make a Roth IRA contribution for a given tax year. For example, IRA contributions for the 2012 tax year may be made up until April 15, 2013. While April 15 is the annual deadline, many IRA owners who make lump sum contributions for a given tax year make them as soon as that year begins, not in the following year. Making your Roth IRA contributions earlier gives the funds in the account more time to grow and compound with tax deferral.¹
 
Who can open a Roth IRA? Anyone with earned income (and that includes a minor).¹

How much can you contribute to a Roth IRA annually? The 2013 contribution limit is $5,500, with an additional $1,000 “catch-up” contribution allowed for those 50 and older. (The annual contribution limit is adjusted periodically for inflation.)7

You can keep making annual Roth IRA contributions all your life. You can’t make annual contributions to a traditional IRA once you reach age 70½.7

Does a Roth IRA have any drawbacks? Actually, yes. One, you will generally be hit with a 10% penalty by the IRS if you withdraw Roth IRA funds before age 59½ or you haven’t owned the IRA for at least five years. (This is in addition to the regular income tax you will pay on the funds withdrawn, of course.) Two, you can’t deduct Roth IRA contributions on your 1040 form as you can do with contributions to a traditional IRA or the typical workplace retirement plan. Three, you might not be able to contribute to a Roth IRA as a consequence of your filing status and income; if you earn a great deal of money, you may be able to make only a partial contribution or none at all.3,7

Rollovers are permitted if you make too much to contribute. Even if your income prevents you from funding a Roth IRA, you can still roll traditional IRA assets into a Roth with the help of a financial professional. While this is a taxable event, you may realize significant long-term financial benefits as a result of it – tax-free retirement income withdrawals, and the potential for some of the Roth IRA assets to pass tax-free to your heirs with further growth and compounding. You also will gain the relief of never having to take an RMD each year.8
  
All this may have you thinking about opening up a Roth IRA or creating one from existing IRA assets. A chat with the financial professional you know and trust will help you evaluate whether a Roth IRA is right for you given your particular tax situation and retirement horizon.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members.
Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.
 
 
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 
Citations.
1 –
www.kiplinger.com/article/retirement/T046-C006-S001-8-reasons-you-need-a-roth-ira-now.html [4/5/12]
2 –
www.nj.com/business/index.ssf/2013/01/biz_brain_are_roth_iras_really.html [1/21/13]
3 –
www.smartmoney.com/taxes/income/when-roth-ira-withdrawals-arent-taxfree-1293571638217/ [12/29/10]
4 –
www.hrblock.com/free-tax-tips-calculators/tax-help-articles/Retirement-Plans/Early-Withdrawal-Penalties-Traditional-and-Roth-IRAs.html [1/2/13]
5 –
www.investmentnews.com/article/20121216/REG/312169988 [12/16/12]
6 –
www.investorguide.com/article/11816/understanding-the-tax-ramifications-of-an-inherited-roth-ira/ [1/8/13]
7 –
www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits [11/28/12]
8 –
www.boston.com/business/personalfinance/articles/2012/05/20/roth_ira_conversion_not_for_everybody/ [5/20/12]

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