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The end of the year is fast approaching! Are you ready?

By November 22, 2016No Comments

The 2016 tax year is coming to a close. Below are just a few of the many items to consider before it is too late:

  1. Do you qualify to contribute to an HSA?
  2. Have you contributed to your retirement plan?
  3. Have you considered making a Roth IRA conversion?
  4. Have you considered making a direct charitable contribution from your IRA?

Health Savings Accounts (HSA):

Who qualifies?

Individuals who are covered by a qualifying high deductible health plan (HDHP) (and are generally not covered by any other health plan that is not a qualifying HDHP) may make deductible contributions to an HSA, subject to certain limits.

2016 HDHP Minimum Required Deductibles:

The minimum annual deductible for self-only and family HDHP coverage, respectively, is $1,300 and $2,600 (these figures will remain the same for 2017).

2016 HDHP Out-of-Pocket Maximums:

The maximum limit on out-of-pocket expenses for self-only and family HDHP coverage, respectively, is $6,550 and $13,100 (these figures will remain the same for 2017).

When is the deadline to open and fund an HSA for 2016?

 April 15, 2017 (no extension)

Additional information:

If you are eligible to make HSA contributions in December of this year, you can make deductible HSA contributions for the full 2016 year (even if you first became eligible on Dec. 1, 2016). However, you cannot use HSA funds to pay for expenses incurred prior to opening the account.

This link will take you to additional details on Health Savings Accounts as well as Flexible Spending Accounts (FSAs).

Retirement Accounts:

The deadline to make contributions to your 401(k) is December 31, 2016.

To potentially receive a deduction on your 2016 Individual Income Tax Return, IRA (Individual Retirement Account) plans must be established and contributed to by April 17, 2017.

SEPs (Simplified Employee Pension plans) must be established and contributed to by the due date (or extended due date) of your individual income tax return.

Keogh plans must be set up by December 31, 2016. Contributions into these accounts can be made up to the due date (or extended due date) of your individual income tax return.

Roth IRA Conversions:

Benefits of Roth IRAs:

–          You can generally withdraw the money during retirement without paying income tax

–          No required minimum distributions

–          Compounded tax-free growth

Roth IRA conversions might make sense if:

–          You estimate your marginal tax bracket will be the same or higher when you withdraw

–        You have negative taxable income (your available deductions are greater than your income)

–       You need to reduce the size of your required minimum distributions from your traditional IRA

Roth IRA conversions do not make sense if:

–          You cannot pay the tax generated upon conversion

–          You plan on contributing your IRA to charity

–          You will be in a lower tax bracket at retirement

Qualified Charitable Distributions from an IRA:

As a result of year-end legislation in 2015, Qualified Charitable Distributions (QCDs) from IRAs were made permanent.

What is a Qualified Charitable Distribution?

A qualified charitable distribution allows individuals age 70 1/2 or above to make a direct transfer of funds from an IRA (other than a SEP or SIMPLE IRA) to a qualified charitable organization of up to $100,000 per year. NOTE: On a joint tax return, each spouse may make a qualified distribution of up to $100,000 provided both spouses are over age 70 1/2.

How can contributions be made?

To make a qualified charitable distribution, contact your IRA trustee or custodian to make a transfer directly from the IRA to the charity.

What are the benefits of a Qualified Charitable Distribution?

Qualified charitable distributions carry a number of benefits, such as:

–      QCDs can satisfy all or part of any required minimum distributions from an IRA

–      QCDs are not included in income on your individual income tax return, which can reduce the potential for both income tax on Social Security Benefits and limitations on deductions such as other charitable contributions and medical expenses

We are happy to help before you ring in the New Year! Please contact your L&B Professional for any questions on the above tax matters.

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