Showing posts with label income tax tips. Show all posts

Mid-Year Steps to Save on Your Taxes (Fidelity)

Key takeaways

✔ Evaluate the tax impact of life changes such as a raise, a new job, marriage, divorce, a new baby, or a child going to college or leaving home.

✔ Check your withholding on your paycheck and estimated tax payments to avoid paying too much or too little.

✔ See if you can contribute more to your 401(k) or 403(b). It is one of the most effective ways to lower your current-year taxable income.

In the midst of your summer fun, taking time for a midyear tax checkup could yield rewards long after your vacation photos are buried deep in your Facebook feed.

Personal and financial events, such as getting married, sending a child off to college, or retiring, happen throughout the year and can have a big impact on your taxes. If you wait until the end of the year or next spring to factor those changes into your tax planning, it might be too late.

“Midyear is the perfect time to make sure you’re maximizing any potential tax benefit and reducing any additional tax liability that result from changes in your life,” says Gil Charney, director of the Tax Institute at H&R Block.

Here are 9 questions to answer to help you be prepared for any potential impacts on your tax return.

1. Did you get a raise or are you expecting one?

The amount of tax withheld from your paycheck should increase automatically along with your higher income. But if you’re working two jobs, have significant outside income (from investments or self-employment), or you and your spouse file a joint tax return, the raise could push you into a higher tax bracket that may not be accounted for in the Form W-4 on file with your employer. Even if you aren’t getting a raise, ensuring that your withholding lines up closely with your anticipated tax liability is smart tax planning. Use the IRS Withholding Calculator; then, if necessary, tell your employer you’d like to adjust your W-4.

Another thing to consider is using some of the additional income from your raise to increase your contribution to a 401(k) or similar qualified retirement plan. That way, you’re reducing your taxable income and saving more for retirement at the same time.

2. Is your income approaching the net investment income tax threshold?

If you’re a relatively high earner, check to see if you’re on track to surpass the net investment income tax (NIIT) threshold. The NIIT, often called the Medicare surtax, is a 3.8% levy on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) above $200,000 for individuals, $250,000 for couples filing jointly, and $125,000 for spouses filing separately. In addition, taxpayers with earned income above these thresholds will owe another 0.9% in Medicare tax on top of the normal 2.9% that’s deducted from their paycheck.

If you think you might exceed the Medicare surtax threshold for 2017, you could consider strategies to defer earned income or shift some of your income-generating investments to tax-advantaged retirement accounts. These are smart strategies for taxpayers at almost every income level, but their tax-saving impact is even greater for those subject to the Medicare surtax.

3. Did you change jobs?

If you plan to open a rollover IRA with money from a former employer’s 401(k) or similar plan, or to transfer the money to a new employer’s plan, be careful how you handle the transaction. If you have the money paid directly to you, 20% will be withheld for taxes and, if you don’t deposit the money in the new plan or an IRA within 60 days, you may owe tax on the withdrawal, plus a 10% penalty if you’re under age 55.

4. Do you have a newborn or a child no longer living at home?

It’s time to plan ahead for the impact of claiming one more or less dependent on your tax return.

Consider adjusting your tax withholding if you have a newborn or if you adopt a child. With all the expenses associated with having a child, you don’t want to be giving the IRS more of your paycheck than you need to.

If your child is a full-time college student, you can generally continue to claim him or her as a dependent—and take the dependent exemption ($4,050 in 2017)—until your student turns 25. If your child isn’t a full-time student, you lose the deduction in the year he or she turns 19. Midyear is a good time to review your tax withholding accordingly.

5. Do you have a child starting college?

College tuition can be eye-popping, but at least you might have an opportunity for a tax break. There are several possibilities, including, if you qualify, the American Opportunity Tax Credit (AOTC). The AOTC can be worth up to $2,500 per undergraduate every year for four years. Different college-related credits and deductions have different rules, so it pays to look into which will work best for you.

Regardless of which tax break you use, here’s a critical consideration before you write that first tuition check: You can’t use the same qualified college expenses to calculate both your tax-free withdrawal from a 529 college savings plan and a federal tax break. In other words, if you pay the entire college bill with an untaxed 529 plan withdrawal, you probably won’t be eligible for a college tax credit or deduction.

6. Is your marital status changing?

Whether you’re getting married or divorced, the tax consequences can be significant. In the case of a marriage, you might be able to save on taxes by filing jointly. If that’s your intention, you should reevaluate your tax withholding rate on Form W-4, as previously described.

Getting divorced, on the other hand, may increase your tax liability as a single taxpayer. Again, revisiting your Form W-4 is in order, so you don’t end up with a big tax surprise in April. Also keep in mind that alimony you pay is a deduction, while alimony you receive is treated as income.

7. Are you saving as much as you can in tax-advantaged accounts?

OK, this isn’t a life-event question, but it can have a big tax impact. Contributing to a qualified retirement plan is one of the most effective ways to lower your current-year taxable income, and the sooner you bump up your contributions, the more tax savings you can accumulate. For 2017, you can contribute up to $18,000 to your 401(k) or 403(b). If you’re age 50 or older, you can make a “catch-up” contribution of as much as $6,000, for a maximum total contribution of $24,000. Self-employed individuals with a simplified employee pension (SEP) plan can contribute up to 25% of their compensation, to a maximum of $54,000 for 2017.

This year’s IRA contribution limits, for both traditional and Roth IRAs, are $5,500 per qualified taxpayer under age 50 and $6,500 for those age 50 and older. Traditional and Roth IRAs both have advantages, but keep in mind that only traditional IRA contributions can reduce your taxable income in the current year.

8. Are your taxable investments doing well?

If your investments are doing well and you have realized gains, now’s the time to start thinking about strategies that might help you reduce your tax liability. Tax-loss harvesting—timing the sale of losing investments to cancel out some of the tax liability from any realized gains—can be an effective strategy. The closer you get to the end of the year, the less time you’ll have to determine which investments you might want to sell, and to research where you might reinvest the cash to keep your portfolio in balance.

9. Are you getting ready to retire or reaching age 70½?

If you’re planning to retire this year, the retirement accounts you tap first and how much you withdraw can have a major impact on your taxes as well as how long your savings will last. A midyear tax checkup is a good time to start thinking about a tax-smart retirement income plan.

If you’ll be age 70½ this year, don’t forget that you may need to start taking a required minimum distribution (RMD) from your tax-deferred retirement accounts, although there are some exceptions. You generally have until April 1 of next year to take your first RMD, but, after that, the annual distribution must happen by December 31 if you want to avoid a steep penalty. So if you decide to wait to take your first RMD until next year, be aware that you’ll be paying tax on two annual distributions when you file your 2018 return.

No significant changes in your life situation or income?

Midyear is still a good time to think about taxes. You might look into ways you can save more toward retirement, gift money to your children and grandchildren to remove it from your estate, or manage your charitable giving to increase its tax benefits and value to beneficiaries. A little tax planning now can save a lot of headaches in April—and maybe for years to come.

Tax-smart investing: What order to take funds out in retirement? (Fidelity)

Keys takeaways

✔ Understand the difference between taxable, tax-deferred, and tax-exempt accounts.

✔ Know which accounts to tap—and when—to maximize tax efficiency.

Chances are you contributed to a 401(k) or IRA as you saved for retirement. Now the time has come to use that money. Withdrawing from retirement savings accounts with an eye toward reducing taxes is important. Taxes can reduce income, and diminish potential future earnings and growth, which affects how long savings may last.

"The important thing to keep in mind is that managing withdrawals with taxes in mind can help boost income in retirement," explains Ken Hevert, senior vice president of retirement at Fidelity.

Let’s start by reviewing the types of investment accounts and then some tax-efficient ways to withdraw from them. Of course, everyone’s situation is unique, so it is important to consult a tax professional.

Three types of investment accounts

A typical retiree may have three types of accounts—taxable, tax-deferred, and tax-exempt. Each has an important, but different, role to play in helping manage tax exposure in retirement.

Taxable accounts like bank and brokerage accounts. Any earnings from these accounts, including interest, dividends, and realized capital gains, are generally taxed in the year they’re generated. In the case of capital gains, keep in mind that any increase in value of the accounts’ investments, such as mutual fund shares or an individual stock, isn’t a taxable event in itself. It’s only when an appreciated investment is sold that the gain is realized; i.e., it generates a taxable capital gain or loss. When you own a mutual fund, however, capital gains may be realized by the fund manager and distributed to you—often subjecting you to a tax liability—even if you haven’t sold your fund shares.
Tax-deferred accounts like traditional IRAs, 401(k)s, 403(b)s, or SEP IRAs. Most, or all, of contributions to these accounts were likely made "pretax." That means ordinary income tax on those contributions are owed when withdrawals are made in retirement. Any earnings from these accounts are also typically taxed as ordinary income when they’re withdrawn.
Tax-exempt accounts like Roth IRAs, Roth 401(k)s, and Roth 403(b)s. Contributions to these accounts are typically made with after-tax money. That means the contributions—and any earnings—are not taxable provided certain conditions are met.1

Manage withdrawals to help reduce taxes

The aim is to manage withdrawals to help reduce taxes, thereby maximizing the ability of remaining investments to grow tax efficiently.

The simplest, most basic withdrawal strategy is to use money from savings and retirement accounts in the order below, with one important caveat. For certain retirement accounts, if you are 70½ or older, required minimum distributions (RMDs) come first. For inherited qualified accounts like a traditional IRA, RMDs may come before age 70½, but the rules are complex, so be sure to check with a tax professional.

1.	Taxable accounts (brokerage accounts)

Money in taxable accounts is typically the least tax efficient of the three types. That’s why it usually makes sense to draw down the money in those accounts first, allowing qualified retirement accounts to potentially continue generating tax-deferred or tax-exempt earnings.

Investments may need to be sold when taking a withdrawal. Any growth, or appreciation, of the investment may be subject to capital gains tax. If you’ve held the investment for longer than a year, you’ll generally be taxed at long-term capital gains rates, which currently range from 0% to 20%, depending on your tax bracket (a 3.8% Medicare tax may also apply for high-income earners). Long-term capital gains rates are significantly lower than ordinary income tax rates, which in 2017 range from 10.0% to 39.6%. These are federal taxes; be aware that states may also impose taxes on your investments. (See your federal tax rate.) If you have a loss, you can use it to reduce up to $3,000 of your taxable income, or to offset any realized capital gains. Read Viewpoints "Five steps to help manage taxes on investment gains."

2.	Tax-deferred, such as traditional IRAs, 401(k)s, 403(b)s, and SEP IRAs.

You’ll have to pay ordinary income taxes when you withdraw pretax contributions and earnings from a tax-deferred retirement account, but at least these investments have had extra time to grow by taking withdrawals from a taxable account first. You may find yourself in a lower income tax bracket as you get older, so the total tax on your withdrawals could be less. On the other hand, if your withdrawals bump you into a higher tax bracket, you might want to consider taking withdrawals from tax-exempt accounts first. This can be complex, and it may be a good idea to consult a tax professional.

And remember, the IRS generally requires you to begin taking RMDs the year you turn 70½. For employer-sponsored accounts, like a traditional 401(k), you may be eligible to delay taking RMDs if you’re still working at the company and do not own 5% or more of the company or business. You cannot, however, delay starting RMDs for retirement accounts for employers you no longer work for. Read Viewpoints "Smart strategies for required distributions."

3.	Tax-exempt, such as Roth IRAs, Roth 401(k)s, and Roth 403(b)s.

Last in line for withdrawals is money in tax-exempt accounts. The longer these savings are untouched, the longer the potential for them to generate tax-free earnings. And withdrawals from these accounts generally won’t be subject to ordinary income tax. They’re totally tax free, as long as certain conditions are met.1

And leaving any Roth accounts untouched for as long as possible may have other significant benefits. For example, money for a large unexpected bill can be withdrawn from a Roth account to pay for a bill without triggering a tax liability (as long as certain conditions are met1). Qualified Roth withdrawals are not factored into adjusted gross income (AGI) because they are not taxable income. This may help reduce taxes on Social Security and other income because they don't bump up taxable income.

For Roth IRAs, it is important to note that RMDs are not required during the lifetime of the original owner, but for Roth 401(k)s and Roth 403(b)s, the original owners do have to take RMDs. That can be a good reason to consider rolling Roth 401(k)s and 403(b) accounts into Roth IRAs. Roth accounts can be effective estate-planning vehicles for those who wish to leave assets to their heirs. Any heirs who inherit them generally won’t owe federal income taxes on their distributions. On the other hand, Roth accounts are generally not an advantageous vehicle for charitable giving, so those involved in legacy planning may want to avoid the use of Roth accounts to the extent that this money is intended for charity. Be sure to consult an estate planner in either case.

Creating a plan

While the traditional withdrawal hierarchy of taxable, tax-deferred, and tax-exempt assets is a good starting point for many retirees, a person's situation and changing circumstances may mean making adjustments. That’s why it is important to have an overall retirement income plan and regularly revisit it and update it when necessary.

Suppose, for example, that a person's tax rate will be higher later in retirement than in the first few years. For instance, they move from a low-tax state to a high-tax state. If so, they might want to consider strategies where they pay taxes on their retirement savings earlier in retirement in order to potentially lower taxable income later. One way to do that, depending on a person's situation, would be to shift more of savings to a Roth IRA by converting a portion of a traditional IRA. Learn more about this in Viewpoints “Four tax-efficient strategies in retirement.”

Those who have a significant portion of investments in taxable accounts may be looking for ways to lower a tax bill on the earnings as they gradually draw down the principal to cover retirement living expenses. One consideration that might help is to invest the bond portion of taxable accounts in a diversified mix of municipal bonds, the earnings from which are generally exempt from federal income tax.

Another situation that many retirees experience when they begin withdrawing money from their traditional IRA or 401(k) is that the amount pushes them into a higher tax bracket. In that case, it might make sense to consider withdrawing from a tax-deferred account until taxable income nears the top of a tax bracket, and then tapping a Roth or other tax-exempt account for any additional income.

Those age 70½ or older might also consider making a qualified charitable distribution (QCD) to satisfy all, a portion of, or even an amount greater than an RMD—up to the IRS limits ($100,000 in 2017). Because the amount donated directly from an IRA to a qualified charity isn’t considered taxable income, this move can help avoid being pushed into a higher tax bracket. It can also be a very useful strategy for those whose high incomes result in phaseouts of itemized deductions. Be sure to consult a tax professional in such cases.

Other factors that could play a significant role in a retirement tax strategy are whether a person intends to continue working, the income tax rate in the state and locality where they plan to retire, and how much of an inheritance they would like to leave for family members or to a charity.

Know your situation

The keys to managing withdrawals from retirement accounts is to know your situation and tax exposure, to understand the basics of smart tax planning, and to consult a trusted professional to get the help you need in designing a tax-efficient retirement income plan.

You work long and hard to build retirement savings; smart tax planning can help keep your savings working for you.

Get Ready to Retire -- Straight Talk (Marketwatch)

6 ways to keep your dream retirement on track

By Andrea Coombes

Published: Nov 7, 2016 11:53 a.m. ET

You may be ready to retire, but your money may not be

Are you a retirement “do-it-yourselfer,” convinced you can plan for your own retirement without paying for a financial adviser? That’s all well and good, but given that money managers work with people in a variety of financial situations, their experiences with the problems that prevent people from retiring can offer insights into how to overcome those challenges.

I spoke to a few experts to find out how they handle that difficult situation: a client who wants to retire but whose financial picture suggests she shouldn’t yet do so.

Ideally, of course, advisers want people to seek financial advice early on, years before they plan to retire. “Then we have the ability to help you work towards your goals over a period of time and make adjustments as things change,” said Nancy Skeans, managing director of personal financial services at Schneider Downs Wealth Management Advisors in Pittsburgh, Penn.

But sometimes people don’t show up at the adviser’s office until they’re eager to leave the workforce for good. In those cases, she said, advisers sometimes are forced to deliver bad news.

“We just had that situation with an individual and his wife,” Skeans said. “He’s thinking about retiring in two to three years. It was very obvious to me when I looked at his balance sheet, coupled with what I backed out as to their spending, that if they retired immediately they would put themselves into a precarious situation.”

One red flag was that this couple hadn’t accounted for their retirement tax bill. “All of their assets were in tax-deferred accounts,” Skeans said. “Every dollar they spend is going to be a dollar plus the taxes. That means, if you’re trying to support a standard of living after tax, you’re going to have to gross that money up.”

So, one lesson is to remember that the government is going to take a bite out of your retirement account. Here are more lessons financial advisers say they’ve been forced to teach new clients:

1. Be disciplined about a budget

In 2008, Skeans said, a client who was about 64 years old was laid off. “He decided he wasn’t going to look for other work,” she said. “We ran the projection. Obviously, at that point in time the portfolios were down because of the market and I was deeply concerned.

“Fortunately the guy was a finance guy, a controller for a small company. He heard us loud and clear that the biggest thing he and his wife needed to do was stay within a budget,” she said.

At the time, Skeans talked with the couple about how to stabilize their finances through reduced spending. “He was very adamant he did not want to go back to work,” she said. “We were able to help him and his wife structure a budget and they have stuck to it and continue to do so.”

And now? “Eight years later, their portfolio is just slightly below where it was eight years ago,” Skeans said.

2. Take a practice run

People sometimes underestimate what they’ll spend in retirement, especially in the early years when they suddenly find themselves with plenty of free time and energy, said Tripp Yates, a wealth strategist at Waddell & Associates in Memphis, Tenn.

“I’ve seen it where people do a budget for retirement and they tell me, ‘OK, we’ve done all the numbers and we can live off $50,000 a year,’” Yates said. Too often, that’s a bare-bones budget that doesn’t take into account travel and other activities. “The first five to 10 years of retirement, people are probably going to spend more rather than less, because they’re in fairly good health and want to enjoy that time,” he said.

One way to get a good handle on your spending is to test-run your retirement budget, he said. In one recent conversation with a couple, he told them: “Maybe one spouse who really wants to retire can. The other spouse continues working and maybe we take six months to a year and try to live on that budget, practice, see if it’s actually doable before both husband and wife call it retirement,” Yates said.

3. Don’t focus on the market

Given the media’s attention on the market’s every move, it’s no surprise that people seeking help from an adviser often fret about what happen next. That’s the wrong focus, said Robert Klein, president of the Retirement Income Center in Newport Beach, Calif. (Klein is also a writer for MarketWatch’s RetireMentor section.)

“People read so much in the media about performance and that’s naturally their focus until you show them on paper it’s all about your goals and planning for those and controlling what you can control,” he said. While investors must make sure their investments are diversified, there’s no way of knowing when the market might take another steep plunge.

“You have to control what you can control and develop prudent strategies that are going to work no matter what the market does,” Klein said.

4. Be clear about your goals

Retirement planning is about more than “just having X dollars in income,” Klein said. Figure out what you want retirement to look like, and then work from that. “It’s about a lifestyle in retirement. What are they going to be doing day-to-day in retirement?” he said. “Then you can focus on the finances: ‘What is it going to take so I can do that?’”

For some people, a hard look at a retirement lifestyle leads them to choose to work longer, Klein said. “A lot of people are better off working longer even if they can afford to retire. They just don’t have the hobbies. It’s a whole different routine when you retire,” he said. “Phased retirement is really good for a lot of those people, so they can take baby steps into retirement,” he added.

5. Use software that provides a picture

If you’re planning your own retirement, are you using financial software that will create projections as a chart? “Most people don’t communicate with numbers, they communicate pictorially,” said Kimberly Foss, founder of Empyrion Wealth Management Inc. in Roseville, Calif.

Foss said she shows clients a simple chart depicting how long their money is likely to last if they retire now. In some cases, she might produce a second chart that shows how spending less might make their outlook improve, and then talk with the client about options, such as downsizing the house or refinancing, working longer or delaying the purchase of a new car.

For one couple, seeing those pictures and having that discussion made all the difference, Foss said. They wanted to spend the same amount of money in retirement that they’d been spending while they worked, but the size of their savings account didn’t support that goal. So, they switched from the country club to a lower-cost health club, refinanced into a cheaper mortgage and started cooking at home more rather than eating out.

Reducing those costs and others preserved their portfolio for the long haul. Said Foss: “It created the income so that they could retire.”

6. Get real with your adult children

In some cases, people retire but unforeseen expenses put their financial security at risk. Skeans said one client unexpectedly found herself supporting her adult daughter and grandson, who live in her home, even as she herself recently entered a care facility.

“She’s taken out enormous amounts of money to help her daughter and grandson,” Skeans said. “She’s supporting their household and she’s paying the cost of assisted living. I said, ‘If you continue at this pace, this portfolio is going to be gone in five years.’”

Skeans said if the client sells her home—that is, asks her daughter to find her own place—that money would bolster her finances. “She should be able to make it and still leave something to this daughter in the end,” Skeans said. “She said, ‘I’m going to talk to my daughter about that.’”

when are taxes reduced on withdrawals from inherited retirement plans? (Natalie Choate)

12 No-Tax and Low-Tax Retirement Plan Distributions

If a recipient qualifies for one of these deals, the distribution may be taxed more favorably than as a 100% taxable chunk of ordinary income.

Natalie Choate, 08/12/2016

Question: A client has inherited a retirement plan account from the deceased participant. The client plans to cash out the account as soon as possible (he needs the money). He has asked me whether the distribution is taxable. My first reaction was yes, the distribution would simply be treated as ordinary income in the year received. But now I'm not sure--is that response correct?

Answer: The answer is probably yes--the distribution is probably fully includible as ordinary income in the recipient's gross income, but here's how to be sure: Run through the following checklist of no-tax and low-tax retirement plan distributions. If your recipient qualifies for one of these deals, the distribution may be taxed more favorably than as a 100% taxable chunk of ordinary income.

This checklist was prepared to cover ANY retirement plan distribution, so some of the items clearly don't apply to your guy. I have added in comments for your particular situation:

1. Roth plans. Qualified distributions from a Roth retirement plan are tax-free. Even nonqualified distributions are tax-free to the extent the distribution represents the return of prior contributions. Is this a Roth account?

2. Tax-free rollovers and transfers. Generally, distributions can be "rolled over" tax-free to another retirement plan, if various requirements are met. But the rollover option is not available to a beneficiary, unless he is the surviving spouse of the deceased IRA owner.

3. Life insurance proceeds, contracts. Distributions of life insurance proceeds from a qualified retirement plan after the participant's death are tax-free to the extent the death benefit exceeds the pre-death cash surrender value of the policy. Distribution of a life insurance policy on an employee's life to that employee during his lifetime may be partly tax-free as a return of his "investment in the contract."

4. Recovery of basis. If the participant has made or is deemed to have made nondeductible contributions to his plan account or IRA, these become his "investment in the contract" in the retirement benefits. This "investment" is nontaxable when distributed to the participant or beneficiary. The problem is figuring out how much, if any, aftertax money the decedent had in the account. For an IRA, start by checking the decedent's last-filed Form 8606 (attached to his/her income tax return). For other plans, ask the plan administrator.

5. Special averaging for lump-sum distributions. Certain qualified retirement plan lump-sum distributions of the benefits of individuals born before Jan. 2, 1936, are eligible for reduced tax. This one never applies to IRAs.

6. Net unrealized appreciation of employer securities (NUA). Certain distributions of employer stock from a qualified retirement plan are eligible for deferred taxation at long-term capital gain rates rather than immediate taxation at ordinary income rates. This one also never applies to IRAs.

7. No tax when annuity contract is passed out. When the plan distributes an annuity contract, there is no tax payable at that time--provided the annuity contract the plan administrator has distributed to the participant (or beneficiary) complies with the minimum distribution rules and is nonassignable by the recipient. Instead, the participant (or beneficiary) pays income tax on the monthly distributions he or she later receives from the insurance company under the contract.

8. Return of IRA contribution. In some circumstances IRA contributions can be returned to the contributor tax-free before the extended due date of the income tax return.

9. Income tax deduction for certain beneficiaries. A beneficiary taking a distribution from an inherited retirement plan is entitled to an income tax deduction for federal estate taxes paid on the benefits, if any.

10. Distribution to charitable entity. If the beneficiary is income tax-exempt, it will not have to pay income tax on the distribution. This one clearly does not apply to an individual!

11. Qualified Health Savings Account Funding Distributions (QHSAFD). An IRA owner is permitted, once per lifetime, to transfer funds tax-free directly from an IRA to a Health Savings Account (HSA). But this option is not available for a beneficiary.

12. QDROs and divorce-related IRA divisions. An individual can transfer all or part of his qualified retirement plan benefits or IRA to his spouse without being liable for income taxes on the transfer if the transfer is pursuant to a "qualified domestic relations order" (QDRO) (in the case of a qualified plan) or similar divorce court order (in the case of an IRA).

In summary: Any retirement plan distribution, whether it's a lump-sum distribution of the entire account or a partial distribution, is taxable. That is to say, it is fully includible as ordinary income in the gross income of the participant or beneficiary who received it--unless one of the above 12 exceptions applies!

Where to read more: "¶" symbols refer to sections of Natalie Choate's book Life and Death Planning for Retirement Benefits (7th ed. 2011; http://www.ataxplan.com/). Regarding the income tax treatment of distributions from Roth IRAs and designated Roth accounts, see ¶ 5.2.03 and ¶ 5.7.04. See ¶ 2.6 for rollovers by the participant, ¶ 3.2 for rollovers by the surviving spouse, and ¶ 4.2.04 for rollovers by other beneficiaries. See ¶ 2.6.08 for why certain IRA-to-IRA transfers are not taxable because they are not considered to be distributions at all. Regarding the income tax treatment of distributions of and under qualified plan-owned life insurance policies, see Natalie Choate's Special Report: When Insurance Products Meet Retirement Plans (http://www.ataxplan.com/). See ¶ 2.2 regarding how aftertax contributions are recovered tax-free from a retirement plan. See ¶ 2.4.06 regarding special treatment of lump-sum distributions for individuals born before 1936. See ¶ 2.5 regarding special treatment of "NUA" in distributions of plan-owned employer stock. Regarding tax-free distribution of annuity contracts, see theSpecial Report: When Insurance Products Meet Retirement Plans. See ¶ 2.1.08(D), (F), regarding tax treatment of returned IRA contributions. See ¶ 4.6.04-¶ 4.6.08 regarding a beneficiary's income tax deduction for estate taxes paid on retirement benefits. See ¶ 7.5.01-¶ 7.5.04 and ¶ 7.5.08 regarding paying retirement plan death benefits to an income-tax-exempt (charitable) entity. Regarding the one-time ability to use an IRA distribution to directly fund a health savings account, see Internal Revenue Code § 223 and § 408(d)(9), and IRS Notice 2008-51, 2008-25 IRB 1163. For information regarding QDROs and divorce-related divisions of IRAs, see § 402(e)(1), § 414(p), and § 408(d)(6) of the Internal Revenue Code and Chapter 36 of The Pension Answer Book by Stephen Krass.

Morningstar Important Tax Facts for 2016

Improving Your Finances

Your 2016 Tax Fact Sheet and Calendar

By Christine Benz | 01-10-16 |

It's not hard to find tax information on the Internet--when quarterly taxes are due, 401(k) contribution limits, and so forth. But in the interest of saving you a few clicks, we've amalgamated all of 2016's important tax facts and dates in a single spot.

2016: Important Tax Facts for Investors

IRA contribution limits (Roth or traditional): $5,500 under age 50/$6,500 over age 50.

Income limits for deductible IRA contribution, single filers or married couples filing jointly who aren't covered by a retirement plan at work: None; fully deductible contribution.

Income limits for deductible IRA contribution, single filers covered by a retirement plan at work: Modified adjusted gross income under $61,000--fully deductible contribution; between $61,000 and $71,000--partially deductible contribution; more than $71,000--contribution not deductible.

Income limits for deductible IRA contribution, married couples filing jointly who are covered by a retirement plan at work: Modified adjusted gross income under $98,000--fully deductible contribution; between $98,000 and $118,000--partially deductible contribution; more than $118,000--contribution not deductible.

Income limits for nondeductible IRA contributions: None.

Income limits for IRA conversions: None.

Income limits for Roth IRA contribution, single filers: Modified adjusted gross income under $117,000--full Roth contribution; between $117,000 and $132,000--partial Roth contribution; more than $132,000--no Roth contribution.

Income limits for Roth IRA contribution, married couples filing jointly: Modified adjusted gross income under $184,000--full Roth contribution; between $184,000 and $194,000--partial Roth contribution; more than $194,000--no Roth contribution.

Contribution limits for 401(k), 403(b), 457 plan, or self-employed 401(k) (traditional or Roth): $18,000 under age 50/$24,000 for age 50 and above.

Income limits for 401(k), 403(b), 457 plans: None.

SEP IRA contribution limit: The lesser of 25% of compensation or $53,000.

Saver's Tax Credit, income limit, single taxpayers: $30,750.

Saver's Tax Credit, income limit, married couples filing jointly: $61,500.

Health-savings account contribution limit, single contributor under age 55: $3,350.

Health-savings account contribution limit, single contributor age 55 and above:$4,350.

Health-savings account contribution limit, family coverage, contributor under age 55: $6,750.

Health-savings account contribution limit, family coverage, contributor age 55 and above: $7,750.

High-deductible health plan out-of-pocket maximum, single coverage: $6,550.

High-deductible health plan out-of-pocket maximum, family coverage: $13,100.

Section 529 college-savings account contribution limit: Per IRS guidelines, contributions cannot exceed amount necessary to provide education for beneficiary. Deduction amounts vary by state, and gift tax may apply to very high contribution amounts.

Section 529 college-savings account income limit: None.

Coverdell Education Savings Account contribution limit: $2,000 per year per beneficiary.

Coverdell Education Savings Account income limit, single filers: Modified adjusted gross income under $95,000--full contribution; between $95,000 and $110,000--partial contribution; more than $110,000--no contribution.

Coverdell Education Savings Account income limit, married couples filing jointly:Modified adjusted gross income under $190,000--full contribution; between $190,000 and $220,000--partial contribution; more than $220,000--no contribution.

2016: Important Tax Dates to Remember
Jan. 1, 2016: New IRA, retirement-plan, and HSA contribution and income limits go into effect for 2016 tax year, as listed above.

Jan. 15, 2016: Estimated tax payments due for fourth quarter of 2015.

April 18, 2016:

Individual tax returns (or extension request forms) due for 2015 tax year.
Estimated tax payments due for first quarter of 2016.
Last day to contribute to IRA for 2015 tax year (contribution limits: $5,500 under age 55; $6,500 for age 55 and above).
Last day to contribute to health-savings account for 2015 tax year (2015 contribution limits: $3,350 for single coverage, contributor under age 55; $4,350 for single coverage, contributor age 55 and above; $6,650 for family coverage, contributor under age 55; $7,650 for family coverage, contributor age 55 and above).

June 15, 2016: Estimated tax payments due for second quarter of 2016.

Sept. 15, 2016: Estimated tax payments due for third quarter of 2016.

Oct. 17, 2016: Individual tax returns due for taxpayers who received a six-month extension.

Dec. 31, 2016:

Retirees age 70 1/2 and above must take required minimum distributions from traditional IRAs and 401(k)s.
Last date to make contributions to company retirement plans (401(k), 403(b), 457) for 2016 tax year.

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual

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