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Individuals

Things to consider before the clock strikes midnight!

By December 4, 2015No Comments

Flexible Spending Account (FSA):

In 2015, you were able to elect to contribute up to $2,550 to your health FSA and $5,000 to your dependent care FSA. Depending on what your employer offers, the deadline to use that money is either:

  1. March 15, 2016 (March 15th is the last day to incur expenses, but claims may be submitted through May 31, 2016).  Please note that this grace period is optional.  It is recommended that you contact your benefits office regarding this aspect of your FSA.
  2. December 31, 2015. Up to $500 per year can be carried over to be used in the following year.  Please note that this carryover is dependent on your company electing to allow this carryover.

You will lose the funds remaining in your health FSA after the run-out period ends and, if applicable, after the carryover is applied. It is essential to contact your employer to see if these benefits are available to your plan.

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.

2015 HDHP Minimum Required Deductibles:

The minimum annual deductible for self-only HDHP coverage is $1,300 (this figure will remain the same for 2016)

The minimum annual deductible for family HDHP coverage is $2,600 (this figure will remain the same for 2016)

2015 HDHP Out-of-Pocket Maximums:

The maximum limit on out-of-pocket expenses for self-only HDHP coverage is $6,450 ($6,550

for 2016).

The maximum limit on out-of-pocket expenses for family HDHP coverage is $12,900 ($13,100 for 2016).

What are the contribution limits?

For calendar year 2015, assuming a full year of coverage, the maximum contribution is $3,350 for self-only coverage and $6,650 for family coverage ($3,350 and $6,750 for 2016), plus an additional $1,000 for those age 55 or older.

When is the deadline to open and fund an HSA for 2015?

April 15, 2016 (no extension)

How are distributions treated?

 Distributions from an HSA to pay qualified medical expenses are not taxable. Distributions used for nonmedical purposes are taxable, and if made before age 65, are subject to a 20% penalty tax.

Additional information:

 An individual’s HSA contribution level may be based on expected out-of-pocket medical expenses, but there is nothing to prevent an individual from making deductible contributions up to the maximum allowable, regardless of expected expenses. These contributions in excess of medical needs can be withdrawn from the HSA and used for any purpose without penalty (but subject to tax) once the individual reaches age 65.

Also, if you are eligible to make HSA contributions in December of this year, you can make a full year’s worth of deductible HSA contributions for 2015 (even if you first became eligible on Dec. 1, 2015). However, you cannot use HSA funds to pay for expenses incurred prior to opening the account.

Retirement Accounts:

The deadline to make contributions to your 401(k) is December 31, 2015.

IRA (Individual Retirement Account)  plans must be established and contributed to by April 15, 2016.

SEPs (Simplified Employee Pension plan) must be established and contributed to by the due date of the return or extension date for the return.

Keogh plans must be set up by December 31, 2015. Contributions into these accounts can be made up to the due date for filing your tax return (including extensions).

Roth IRA Conversions:

Benefits of Roth IRAs:

–          You can generally withdraw the money during retirement without having to pay income tax

–          No required minimum distributions

–          Compounded tax-free growth

Roth IRA conversions might make sense if:

–          You think 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 your size of required minimum distributions from your traditional IRA.

Roth IRA conversions do not make sense if:

–          You cannot pay the tax bill from conversion.

–          You plan on contributing your IRA to charity.

–          You will be in a lower tax bracket at retirement.

We are happy to help before you ring in the New Year!  Call our office and speak with one of our tax professionals.

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