Tag Archives: Tax consequences

Only One IRA Rollover Every 12 Months – Period!

Withdrawal, Transfer, Conversion, Retirement, IRA rollover, This subject of only one IRA rollover every twelve months has been brought up before. Yes, we are harping on the subject because of the profound tax consequences. This is a reminder that, beginning this year, we repeat, individuals are only allowed one IRA rollover in any 12-month period. This includes SEP and Simple accounts, traditional and Roth IRAs. That is, 12 months must have elapsed from the date a rollover is completed before another rollover can be made. Failure to abide by this rule can be expensive. And the rule applies no matter how many IRAs an individual owns.

Example

Joe makes an IRA rollover on March 1, 2015. He cannot roll over another IRA distribution, without penalties, until March 2, 2016.

If Joe, in the example, was to make another IRA rollover before March 2, 2016, that entire distribution would be treated as a taxable distribution. It would also be subject to the 10% early distribution penalty if Joe is under the age of 59-1/2 at the time of the distribution. Additionally, if Joe deposited the distributed amount into another IRA, or redeposited the funds into the same IRA, those funds are treated as an excess contribution. They are subject to a 6% penalty per year for as long as they remain in the IRA.

IRA Rollover versus IRA Transfer

That does not mean you cannot transfer funds between IRA trustees multiple times during the year. In a rollover, a taxpayer takes possession of the funds and then must redeposit them within 60 days to avoid being taxed on the distribution. In contrast, a transfer moves the funds directly from one trustee to another with the taxpayer never taking possession of the funds. Unlimited direct transfers are allowed, including moving traditional IRA funds to a Roth IRA. This is called a conversion.

What If the Trustee Makes a Mistake?

If, through no fault of yours, a trustee does not follow your instructions to make a transfer and instead distributes the funds to you, procedures are available to obtain relief. But it must be 100% an error on the part of the trustee.

Are you Planning an IRA Rollover?

If you are planning an IRA rollover, before taking the distribution, please check with your IRA trustee or call Alex Franch, BS EA  at this office a call at 781-849-7200 to ensure you are not violating the 12-month rule. A mistake could cost you a lot of money.

 

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2016 Insurance Subsidy: Did you file your 2014 Tax Return?

money in hand, obamacare, insurance subsidy, acaDo not lose your insurance subsidy in 2016 just because you have not filed your 2014 tax return! If you are one of the over 1 million individuals who received an Obamacare health insurance premium subsidy last year and you have yet to file your 2014 tax return, you are risking your opportunity to receive the insurance subsidy in 2016.

Insurance Subsidy and the Preliminary Tax Credit

The insurance subsidy is paid by the government to your insurer to reduce the premiums you owe. It is actually an advance payment of the premium tax credit (PTC) based upon your “estimated” income for the year. Your actual PTC is based on your “actual” income as determined on your tax return. If the advance PTC (subsidy) was less than the actual PTC as determined on your tax return, you are entitled to the difference. On the other hand, if your actual PTC is less than the advance amount, you may owe Uncle Sam some or all of the difference.

Whether you are entitled to additional PTC or owe some back cannot be determined without filing your return. The IRS estimates that 710,000 individuals who received an advance PTC have yet to file a 2014 return or did not file an extension. Add that to the approximately 360,000 taxpayers who received an advance PTC and have filed an extension, and there are over 1 million individuals who need to reconcile their 2014 PTC who have not yet filed.

The Marketplace will determine eligibility for advance PTC for the 2016 coverage year during the fall of 2015. If you have not filed your 2014 return yet, you can substantially increase your chances of avoiding a gap in receiving this help if you file your 2014 tax return as soon as possible. This is true even if you have an extension until October 15th.

Obamacare Forms are not Easy

Navigating the complicated Obamacare forms developed by the IRS is difficult for many taxpayers. Most taxpayers seek professional assistance, and they should because accuracy is key. The IRS is currently sending letters to individuals who received advance PTC subsidies and have yet to file. The letter encourages taxpayers to file within 30 days of the date of the letter. This is to avoid a gap in receiving advance payments of the PTC in 2016.

It is Never a Good Ideal Not to File

Always file your returns, even if you owe and cannot pay. The IRS just gets more aggressive as time goes on. So whether you:

  1. Do not feel you can do your own return
  2. Are afraid you may owe some of the PTC back, or
  3. Think you may be subject to penalties for failing to have health insurance coverage

We encourage you to give Alex Franch, BS EA a call at 781-849-7200. There are penalty exceptions for being uninsured. If you owe a Premium Tax Credit repayment there is a possibility it can be reduced, and it may all work out in the end. Procrastinating is not going to change the outcome, but it could put your 2016 advance Premium Tax Credit at risk. Who knows, you may even be entitled to more PTC and a refund.

You can read more about the Premium Tax Credit here.

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