September 25, 2014

IRS Guidance on after tax 401k contributions and Roth conversions

The last quarter (or so), we tend to be very focused on tax planning. (Not to be confused with tax accounting in the first quarter or so). With that, it is very timely that last week the IRS issued guidance (Notice 2014-54) on rolling out after tax contributions from a 401k plan.


In its guidance, the IRS stated that a retirement plan participant has the ability to convert their "after tax" account into a Roth IRA tax free. 

Here is a link to the referenced notice: 

Background: 401k-Employee Contribution Types

To understand the significance of this, we must first understand the types of employee contributions that may go into a plan. 

For more information on contribution types, see the IRS link below.


As a plan participant, you have the option of contributing to your plan on a pretax basis. This will allow you to take a deduction on your personal taxes.

You may also have the ability to contribute without taking a deduction (many plans do not allow). This is an after tax deferral, meaning you do not get a tax deduction. Eventually when you take a distribution of these funds, you will only be taxed on the earnings (remember you already paid taxes on the deferred contribution).

Finally, your plan may allow for you (not all plans do, but this is becoming more popular) to contribute to a designated Roth account. This contribution is after tax, and when it is eventually distributed (both the deferral and the earnings) to the participant, it is income tax free.

NOTE: Although the record-keeper of the retirement plan is hired to make sure that the funds in the account are categorized appropriately, the ownership is on the account holder.  If ever questioned by the IRS, it is the responsibility of the account holder to show proof of their position. The account funds are broken down by year, who is making the contribution, the tax status, etc. 

September 15, 2014

Donor Advised Funds - WSJ Article

Recently the WSJ published this article focusing on Donor Advised Funds that we wanted to share.

The article highlights the ways Donor Advised Funds (DAF) can help simplify & organize your family's charitable giving.  It also outlines how utilizing DAFs can help maximize the tax impact of the gifts you make.

We have seen this impact firsthand in helping clients establish and manage DAFs.  Companies like Vanguard, Fidelity and Schwab have made it easy to establish these funds and manage them online, while providing a great tool for tracking your giving over time.

By utilizing a DAF, it is very easy to give assets other than cash. Specifically, giving low-basis stock can increase the tax impact of your gift.

You don't need to be Bill Gates to take advantage of these tools, your DAF can be established with as little as $5,000, and you can spread the grants you make to charities over a number of years.

For more information on gifting strategies, see our post on Charitable Planning from May 2013.

September 4, 2014

2014 Retirement Plan Year End Deadlines

This post is for you if you are the owner of a business,  self-employed, or a decision maker on your company's retirement plan. Now that summer is behind us (according to the work/school calendar), end of the year deadlines are fast approaching. 


October 1 
-This is the deadline to establish a new  Safe Harbor 401k plan for 2014. The plan must be in effect for 3 months in the first plan year. 
-If you currently have a SIMPLE IRA and want to start a 401k , you must give your employees notice of 60 days(see below). Therefore, you need to handle operational items prior to November 1.

November 1
-If you have SIMPLE IRA plan and you are ending this to start a 401k plan in 2015, you must notify your employees at least 60 days in advance of change.

December 1
-If you already have a 401k plan but want to add a Safe Harbor provision to the plan, proper notices must be delivered to plan participants at least 30 days prior to change

-If you are starting a retirement plan for the first time, you may be eligible for a $500 tax credit (available for the first 3 plan years to cover administrative fees)
- 401k plans offer a number of design options to maximize the deferrals for business owners, key employees, or anyone else in the company. 
-In 2014 a participant can put away up to $52,000/year into the plan (plus $5,500 in "catch-up" contributions for those over age 50)