RETIREMENT PLANNING

Stephen P. Polizzi, Financial Planner
March 8th, 2017 | 02:32 PM

Keep in mind the following retirement plan deferral limits for 2017:

401(k) Plans:
The contribution limit remains unchanged at $18,000. The catch-up contribution limit for those ages 50 and over also remains unchanged at $6,000. Note that with many 401(k) plans, the catch-up contribution is an active election which must be made annually. Keep in mind that some programs also allow you to make additional non-deductible contributions up to the defined contribution plan limit  ($54,000 as noted below). Lastly, if you are receiving a match from your employer on your 401(k) contributions, you should consult with your Lenox team to ensure you are making your contributions in a way that maximizes your employer match.

IRA Accounts (Traditional & Roth): The contribution limit remains at $5,500. The catch-up contribution limit for those ages 50 and over remains at $1,000. Remember that non-working spouses can continue to make contributions to their own IRA based on the working spouse’s earnings.

Defined Contribution Plans: The contribution limit has increased to $54,000 or 100% of compensation, whichever is smaller.

ROTH PLANS

You can still convert any Traditional IRA to a Roth IRA with no limits on income. As you may be aware, the Roth conversion strategy allows you to pay taxes today on your retirement account. Ultimately, you will create an asset which will provide tax-free retirement income; avoid Required Minimum Distribution rules, and provide a tax-free income legacy to heirs who can stretch the account out over their longer life expectancies. Here are some notable items related to Roth conversion strategy:

  • 401(k) Conversions: Many 401(k) Plans now offer the ability to convert Traditional 401(k) plans to a Roth 401(k) during continued employment. The 401(k) plan has to allow for this, and the conversion CANNOT be re-characterized (see below for details on re-characterization).
  • “Free Look”: A loophole remains where you can convert your IRA to a Roth now and then decide later if you would like to reverse the decision with no penalty. On any conversion, you have until October 15 of the following year to formally re-characterize the transaction. This reason makes it more attractive to make the conversion early in the year.
  • Multiple Accounts: If you are making a sizable Roth conversion, you may want to open multiple Roth IRA Accounts. This will allow you to re-characterize part of the conversion. Segregating conversion accounts (for example, by asset class) allows you to re-characterize only accounts that have faced a decline instead of the entire converted amount. If you do choose to convert a Traditional IRA to a Roth, it is important to keep the original account open – if you re-characterize, funds must return to the original account.
  • ROTH and your Estate Plan: For those who that don’t think they will need to use their IRA in retirement, you may be better off converting to a Roth IRA. With a Roth, you can avoid having money forced out of your retirement account for Required  Distributions starting at age 70½. Your children will also be able to inherit the IRA and stretch distributions throughout their life, and therefore continuing the tax-free growth.

RETIREMENT PLAN DISTRIBUTIONS

Review any required 2017 distributions on qualified accounts to ensure your tax withholding is appropriate. Also important to note – the Qualified Charitable Distribution (QCD) rule, a tax-free direct distribution from your IRA to a charity, has been made a amount that would otherwise be taxed as ordinary income; the maximum annual amount that qualifies as a QCD is $100,000; and these distributions must leave your IRA by the Required Minimum Distribution deadline.

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