Category Archives: Retirement

What if Tax Reform Passes? Convert Your IRA to Soon?

Did you convert your Traditional IRA to a Roth IRA? Do you worry you may have done it too soon if Tax Reform Passes?

A lot of people are asking the question, “What if tax reform passes? What will happen since I When you convert a traditional IRA to a Roth IRA, you have to pay the tax on the conversion. However, individuals frequently do that so they can take advantage of future tax-free accumulations. Distributions from Roth IRAs are generally tax free, including any earnings (accumulations) while the account is a Roth account. Continue reading


What You Should Know About IRA Basis

What is IRA Basis?

IRA basis is the sum of after tax contributions made to your Individual Retirement Account. This can include traditional IRAs, rollover IRAs, inherited IRAs, and Roth IRAs. Many taxpayers fail to keep track of after tax contributions to these retirement accounts. This is not a good idea because you end up paying tax twice on the money you contribute to your IRA; once on the way in and once on the way out. Continue reading


Ignoring Retirement Needs? Part 2

Retirement, Retirement needsRetirement needs are often ignored. Some people ignore the issue until late in life. They scramble at the last minute to fund their retirement. In our last blog we talked about government poverty level and predicting your retirement needs. In this blog we will tell you about the different retirement plans available to you.

As we mentioned in our last blog, since the government wants you to save and prepare for your own retirement, tax laws offer a variety of tax incentives for retirement savings plans. This is true for wage earners and self-employed individuals and their employees. These plans include: Continue reading


Ignoring Retirement Needs? Part 1

retirement needsAre you ignoring retirement needs for your future? That tends to happen when you are younger, retirement needs are far from your mind. You believe you have plenty of time to save for it. Some people ignore the issue until late in life. Then they have to scramble at the last minute to fund their retirement. Others ignore the issue altogether. They think their Social Security income Continue reading


Wrong Tax Forms Issued – Massachusetts Retirees

Wrong Tax Forms were issued on January 21, 2016 to over 50,000 Commonwealth of Massachusetts Retirees.

What happens if I file with the wrong tax forms?

About 50,000 Commonwealth of Masachusetts retirees received the wrong tax forms. An uncorrected 1099-R form would mean possible over payment of federal income taxes for retirees. Fortunately some State retirees called the office after they noticed the wrong tax forms, as tax bills were much higher than 2014. Normally, retirees who would receive refunds might have had to owe money.

The misprinted forms, because of a programming error, had bad codes assigned. The correct code should have been 7, for normal distribution of benefits. Instead, Code 1 was printed. Code 1 means a premature distribution of benefits. What would this cost the retiree? A 10 % penalty. In addition, State Retirees who should have been assigned Code 2, for early distribution of benefits with exceptions, received forms erroneously marked as Code 7. You can read more about it here on the Massachusetts government website.

Fortunately, this was caught fairly early. The issue can be resolved with the IRS should retirees file the wrong tax forms. However, it can take two years.

When Can I file my paper tax returns?

The State Treasurer’s office recommends that you wait for the revised 1099-R form to come in the mail if you file with a paper tax return. First, make sure the box at the top of the 1099-R marked “Corrected” is checked off.

2015_1099-R, corrected tax form, wrong tax forms

A corrected 1099-R form will be mailed out in early February. The board is sending postcards to make sure the 50,000 Commonwealth retirees are notified of this error. You should receive a revised 1099-R statement by Tuesday, February 16th, 2016. If not, please call the Massachusetts State Retirement Board (the number is at the end of this blog).

How Do I File Electronically?

State retirees who file electronically, can go ahead and file, just use the correct codes. If you are a retired employee of the Commonwealth of Massachusetts, up to the age of 59-1/2 in 2015, you can enter Distribution Code 2 on the electronic form. Use Distribution Code 7 if you turned older than 59-1/2 in 2015. If you have any questions, you can contact the State Treasurer’s office by email at or by telephone at (800) 392-6014 or (617) 367-7770. By the way, be easy on them. Make sure that you notify the Massachusetts State Retirement Board of any change of address. The change of address form can be found here.

You can access information on how to read your 1099-R form here. Make sure the new one you receive has “Corrected” checked off on the top.

Alex Franch, BS EA  at  781.849.7200. He can answer any questions you may have regarding tax preparation and the filing of your returns. We have ultra-convenient service at any three of our locations where you can conveniently drop off your tax documentation to be prepared, Dedham, Quincy and South Weymouth. Worthtax uses a triple check accuracy system.

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Turning 70 1/2 this year? You may face a number of special tax issues.

If you are turning 70 1/2 this year, you may face a number of special tax issues. Not addressing these issues properly could result in significant penalties and filing hassles.

Traditional IRA Contributions

2015_03_25 are you turning 70 1-2, required minimum distributionYou cannot make a traditional IRA contribution in the year you reach the age of 70 1/2. Contributions made in the year you are turning 70 1/2 (and from then on) are treated as an excess contribution. These are subject to a nondeductible 6% excise tax penalty for every year in which the excess contribution remains in the account. The penalty, which cannot exceed the value of the IRA account, is calculated on the excess contributed and on any interest it may have earned.

You can avoid the penalty. How? By removing the excess and the interest earned on the excess from the IRA prior to April 15 of the subsequent year. Also, including the interest earned on the excess in your taxable income.

Even though you can no longer make contributions to a traditional IRA in the year you are turning 70 1/2, you can continue to make contributions to a Roth IRA. The contribution is not to exceed the annual IRA contribution limits. This is provided you still have earned income, such as wages or self-employment income, at least equal to the amount of the contribution.

If you are married to a non-working or low-earning spouse who has not yet reached age 70 1/2 and you have earned income, your earnings can still be used to qualify your spouse for a contribution to a spousal IRA. Even if you are turning 70 1/2 or older and can’t contribute to your traditional IRA, the spousal IRA would still qualify.

Required Minimum Distributions (RMDs)

Let’s face it, you have to start taking your deductions sometime. You must begin taking required minimum distributions from your qualified retirement plans and IRA accounts in the year you turn 70 1/2. The distribution for the year in which you turned 70 1/2 can be delayed to the subsequent year without penalty if the distribution is made by April 1 of the subsequent year. That means two distributions must be made in the subsequent year: the delayed distribution and the distribution for that year. In the following years, your annual RMD must be taken by December 31 of each year.

Still Working Exception

If you participate in a qualified employer plan, generally you need to start taking required minimum distributions (RMDs) by April 1 of the year following the year you turn 70 1/2. This is your required beginning date (RBD) for retirement distributions. However, if your plan includes the still working exception, your RBD is postponed to April 1 of the year following the year you retire.

Example: You are turning 70 1/2 in 2015, but you chose to continue working; you did not retire until June of 2017. Provided your employer’s plan includes the option, you can make the “still working election” and delay your RBD until no later than April 1, 2018.

Caution: This exception does not apply to an employee who owns more than 5% of the company. There is no “still working exception” for IRAs, Simple IRAs, or SEP IRAs.

Excess Accumulation Penalty

When you fail to take an required minimum deduction, you are subject to a draconian penalty called the excess accumulation penalty. This penalty is a 50% excise tax of the amount (RMD) that should have been distributed for the year.

Example: Your required minimum deduction for the year is $35,000. You only take $10,000. Your excess accumulation penalty for failing to take the full amount of the distribution for the year would be $12,500 (50% of $25,000).

The IRS will generally waive the penalty for non-willful failures to take your required minimum deduction, provided you have a valid excuse and the under-distribution is corrected.

Turning 70 1/2 Can Be Complicated

As you can see, turning 70 1/2 can complicate your tax situation. If you need assistance with any of the issues discussed here, or need assistance computing your required minimum distribution for the year, please give our office a call at 781-849-7200.

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Self-Directed IRA: 9 Things You Should Know – Buyer Beware

By – Cindy Toran

Nest Egg3Have you ever thought about how you could benefit from a self-directed IRA? Any ideas on how you might use one to your financial advantage? It would seems simple enough. Invest in any creative alternative idea you can dream up and reap the benefits tax free!  Some examples of investments that have been made are:  golf courses, freight truck fleets, tractors, race horses, mineral rights, sugar, and hardwood trees.

What are the rules and risks of a self-directed IRA?

Before you jump into your own self-directed IRA, here are some considerations:

  1. No self-dealing:  IRS rules prohibit transactions that benefit you or those deemed “disqualified” persons, including:
    •         IRA owner
    •         Spouse
    •         Descendants and their spouses
    •         Service providers, such as custodians or brokers.
    •         Must be real investments:
    •         No collectibles, such as art, coins, antiques, vintage cars, wine collections, etc.
    •         No tangible personal property or life insurance.
    •         No investment in an active business owned or managed by a disqualified person, including S-Corp, LLC or partnership.
  2. Real Estate can be financed with a mortgage but it must be non-recourse (i.e., neither the IRA nor its account owner or family may be liable on the loan).
  3. Gains on real estate held in a traditional IRA will be taxed at ordinary tax rates as distributions are taken, thus losing the favorable capital gains rate. However, gains in a Roth IRA would be tax free.
  4. Rental real estate must generate positive cash flow to cover all expenses. Loaning money even by writing personal checks for repairs, etc. are prohibited and will make the IRA fully taxable.
  5. No disqualified person may occupy real estate, including land, owned by a self-directed IRA.
  6. Assets in an IRA must be valued annually, which may require expenses for appraisals.
  7. Holding illiquid assets, such as real estate or equipment, in an IRA when the owner reaches 70-½ years and must begin taking distributions, could be a problem.
  8. There is a general lack of scrutiny in self-directed IRAs. Accounts administered by custodians lack regulation and seem to attract unscrupulous promoters of dubious investment schemes.  Administrators do not vet investments, that is the job of the IRA owner (i.e., “buyer beware”).

Self-directed IRA’s offer a wider variety of investment options. Those may seem more financially attractive than traditional accounts. However, be sure you know the rules and risks before taking this leap with your retirement funds.

What do you think?

Maybe you have some questions regarding a self-directed IRA, please feel free to leave your question below or post to our Facebook or Google+ page. You are also welcome to contact us.


Massachusetts Retirees

Believe it or not, some retirees come to Massachusetts for their golden years. When this happens many retirees bring with them an out of state pension (and yes, pensions still exist) and every pension is treated differently. Some out of state municipal pensions such as Hawaii can be fully excluded from your Massachusetts income, others such as Idaho are fully taxable. Two of our neighbors, Maine and New York, are partially excluded. Some out of state pensions still require that you file a tax return for the source state. Retired public safety officers can receive preferential tax treatment on their Federal return. I have one thing to say about this: “Truly you have a dizzying intellect” – Wesley

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