Taxes and Retirement

Just a refresher on tax-advantaged savings plans – these plans, which include Individual Retirement Accounts, 401k’s, and 403b’s offer tax deductions today for contributions that grow tax free (from investments you make within the plan) until they are withdrawn when you reach retirement age.

You can also withdraw the funds before retirement age for certain life events. However, if the funds are withdrawn before retirement age, and not because of an exception, there is an additional 10% tax. Therefore, you should think through when you will need funds for various purposes.  You can still make contributions to an Individual Retirement Account for 2016 (and up until the date you file your tax return, through April 15 2017).

Contribution Limits

As is detailed below, the amount you can contribute can be limited based on circumstances, such as how much income you and your spouse have in a year as well as whether you or your spouse is covered by a retirement plan provided by your employer.

Please note that the ranges in the bullet points below mean that even if you earn more than the bottom of the range, you can still receive some deduction unless your income reaches the top of the range. 

  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000.
  • For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth Plans

Roth IRA’s and 401k plans offer the tax payer an opportunity to save for retirement and never have to pay tax on the earnings. The tradeoff is that the contribution is not deductible. Just like traditional IRA’s, the amount that can be contributed is limited:

  • AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly.  For singles and heads of household, the income phase-out range is $114,000 to $129,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, $45,000 for heads of household, and $30,000 for married individuals filing separately and for singles.
Affordable Healthcare Act (ACA)

The ACA has been in effect for a year now, for most people, that is. The Healthcare Market Place recently closed for open enrollment for the second year. While there have been court challenges to the law, its main provisions are intact and I believe it is safe to assume that it will be in effect for some time.

To recap, the ACA, also known as Obamacare, requires all citizens to have health insurance or pay a penalty. People can qualify for subsidies at income levels higher than most think. The credits are on a sliding scale.

The issues for employers regarding the ACA fall broadly into two categories:

  1. Offering health insurance that meets certain requirements.
  1. Filing compliance.

Generally, employers with fewer than 50 full-time employees or a combination of part-time employees, which that add up to full-time equivalents, are exempt from these requirements. Full-time is defined as an employee that works on average 30 hours per week.

Second is filing compliance. There are new IRS forms that employers must file that details their employees and the coverage offered if it has over 50 full-time employees or equivalent.

If you own more than one company, you may be required to combine the employees for purposes of the 50-employee limit.

Employers with fewer than 50 full-time equivalent employees may be eligible for a tax credit if they purchase insurance for their employees through the SHOP marketplace, which is a special section of Healthcare.gov for small employers.

Employers who do not comply are subject to penalties.

Disclaimer: The information in this document is not tax advice and should not be relied upon to take a position on a tax return or for tax planning.