FROM THE BLOG

Tax Considerations for the Retiree – Qualified Plan Issues

Now that you’ve worked through your family and filing issues, as well as your investment income and other issues, it’s time to take a look at the last category for tax time consideration: qualified plan issues.

Qualified plans often play a large part in the retirees income equation, so it’s essential to properly account for distributions taken throughout the year. Additionally, each account type carries slightly different rules, so you want to stay on top of when you can begin distributions from one account or what your distribution requirements are for another.

This article is third in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

Here are some questions to ask as you approach your qualified plan issues this season.

Are You Above Age 70 ½:

  • With an Inherited IRA?

    Ensure that your RMD has been met and reported (Form 1040, Lines 4a and 4b).
  • And Have Completed a Qualified Charitable Distribution?

    Double check that this amount if properly accounted for and that the amount is excluded on Form 1040, Line 4b.

 

Did you Fail to Take the Required Minimum Distribution?

Your Required Minimum Distribution is the minimum amount of money that you should withdraw from your retirement account(s). If you failed to take the RMD, you will need to pay a penalty, which can be calculated on Form 5329 and carried over to Schedule 4, Line 59.

Have You Made a Non-Deductible IRA Contribution?

Look at Form 8606 for more information about your non-deductible IRA contribution. Then, ensure that the cost basis for this contribution is properly tracked.

Have You Taken a Non-Qualified Distribution from a 529 Account?

If you took a non-qualified distribution from a 529 account, you’ll need to pay the penalty on the withdrawal amount. File form 5329 to account for the penalty and then carry it over to Schedule 4, Line 59. Your tax professional can provide personalized guidance if you want to understand more about whether your 529 distribution(s) is qualified.

Did You Withdraw from a Non-Deductible IRA?

You can use Form 8606 to ensure that the taxable and non-taxable portions of your distribution were calculated correctly.

Did You Convert Funds from a Traditional IRA to a Roth IRA?

Conversion of funds from a traditional IRA to Roth IRA can impact your bottom line at tax time. Use Form 8606 to report the converted amount and to ensure that non-deductible IRA contributions were converted and treated as non-taxable. If you made any conversions of this type, you’ll want to enlist your tax professional in assisting you to calculate this properly.

Have You Rolled Retirement Funds from One Account Type to Another?

Similarly, if you’ve converted retirement funds from one account type to another (ex. Moving funds from a 401(k) to an IRA), you want to ensure that this is reported and calculated properly. Ensure that funds are treated as a rollover and not as a distribution by double checking that Form 1040, Line 4a displays the rollover amount. Meanwhile, Form 1040, Line 4b should show $0.

Did You Rollover Retirement Funds and Utilize NUA?

If yes, you will need to review Form 1040, Lines 4a and 4b to see that your IRA distributions are recorded and to ensure that the basis was taxed.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, see our posts on family and filings issues, as well as what to do about investment income.

This article is third in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.