Social Security benefits can begin for an eligible worker at age 62. The current full retirement age, which is the age at which benefits are not reduced, is 66. The full retirement age will reach 67 for those born in 1960 and later. If benefits are delayed past full retirement age, additional credits can be earned to age 70. Spouses, divorced spouses, and widow(er)s may be eligible to collect on a worker’s benefits at an earlier age. Regardless of the age at which benefits commerce, the same tax rules apply.
For federal income tax purposes, Social Security benefits may be tax free or includible in gross income at 50% or 85% (Code Sec. 86). High income taxpayers can assume they are subject to the 85% inclusion amount. Others may to do calculations to determine whether benefits are tax free or their applicable percentage.
If “income” is no more than a base amount, benefits are tax free. Income for this purpose is income that is taxed, such as wages, interest, ordinary dividends, capital gain distributions and pensions, tax exempt interest and one half of Social Security benefits. The base amount is $25,000 if single, head of household, qualifying widow(er), or married person filing jointly and zero if married filing separately who lived apart from his or her spouse for the entire year; $32,000 if married filing jointly, and zero if married filing separately but lived with the spouse for any part of the year. If “income” is more than the base amount but not more than $34,000 if single, head of household, qualifying widow(er), or married person filing separately who lived apart from his or her spouse for the entire year ($44,000 for joint filers), then 50% of benefits are includible in gross income. If income is more than $34,000, then 85% of benefits are includible in gross income.
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Who is Eligible?
You must have eligible income/ compensation to contribute to a Roth IRA. The current maximum contributions is the same as traditional IRA, $5,500 OR $6,500 if you are at least 50 years old by December 31, 2016. 154am
Are There Other Contributions Limits?
Yes. If your MAGI is over a certain amount for your filing status, your ability to contribute to your Roth IRA will be reduced. Your retirement distribution expert can help you determine your allowable contribution.
Can I Still Contribute to my Roth even though i’m over 70?
Yes if you are meeting other qualifications. Unlike traditional IRA’s, eligible contributions may be made to your Roth IRA regardless of your age.
May I Still Contribute to My Roth IRA as an Active Participant in My Workplace Plan?
Yes. Being an active participant in your workplace retirement plan doesn’t impact your ability to contribute to your Roth IRA.
Are My Roth Contributions Deductible?
No. Roth IRA contributions are never deductible on your tax return.
May I make Contributions to the Roth IRA I Inherited From My Sister?
No. Non- spouse beneficiaries are not permitted to make contributions to an inherited Roth IRA.
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Do you know what a Prohibited Transaction is? Its an impermissible transaction under the Internal Revenue Code that happens between an IRA and a disqualified person. A disqualified person could be an IRA owner, spouse, or owners lineal descendants. Some examples of IRA prohibited transactions are borrowing money from or lending money to your IRA, using your IRA as collateral for a loan, the sale, exchange or leasing of property involving your IRA.
Its ruled under the IRS that your entire IRA will lose its status as an IRA, if engaged with a prohibited transaction. This happens your tax-deferred IRA will then be treated as if assets were distributed to you on the first day of the year the prohibited transaction occurred. Income tax will be due on the distributed amount and if under fifty-nine you will also be subject to a 10% early distribution penalty.
Many people face the common problem of making prohibited transactions, here’s a quick tip that could help.
Tip: If you’re not certain the transaction you want to make is IRA prohibited, consider splitting your IRA prior to transaction. The idea is to cut out the amount you want to use from your original IRA, making a separate IRA only for the questionable transaction. By doing this you won’t destroy your entire IRA if the transaction was prohibited and only impact the IRA with the prohibited transaction.
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You could be subject to a gift tax if you give a non-spouse a gift valued in excess of the annual exclusion amount.
For 2016 the annual federal gift tax exclusion amount for gifts to a non-spouse is still $14,000 per person, per year. If you are married, you and your spouse may give up to $28,000 per person, per year, free from federal gift tax. Although there are no immediate tax concerns for the recipient of a gift tax because federal gift tax is imposed upon the donor, the recipient could be liable for capital gains tax in the cash to computerfuture.
Highly appreciated gifts such as real estate or stocks will render the recipient liable for capital gains tax when he or she decides to sell the gift at a later date.
The general rule is that the recipient’s basis in the gifted property is the same as the basis of the donor. For example, if you were given stock that the donor had purchased for $10 per share and you later sold it for $100 per share, you would pay tax on a gain of $90 per share.
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Rhonda A. Mannes,