Retirement

For taxpayers who were born after 1935, the lump-sum distribution 5 year averaging option previously reported on IRS Form 4972 is no longer available. For taxpayers born before 1935, the option to use the 10 year averaging on IRS Form 4972 will still be available.

Generally, if the present value of your benefits is less than $5,000, then the old employer may distribute your funds without your consent. If the amount is more than $5,000, you probably have the option to leave your funds in the plan of your former employer.

A pension rollover must be completed by the 60th day following the day on which you received the pension distribution.

The trustee custodial fees you paid to set up and manage your IRA are investment expenses deductible as an miscellaneous itemized deduction subject to the 2% AGI limitation on IRS Schedule A.

A IRA is a retirement account to which up to $5,500 (6,500 if you are 50 or older) can be contributed. The contribution may be deductable or non-deductable depending whether you are covered by your employer's retirement plan and income limitations. There are various types of IRAs; there are traditional, Roth, Simple, and SEP IRAs.

A Roth IRA is a special, nondeductible IRA. Earnings are tax-deferred and tax-free upon withdrawal if certain requirements are met. (If requirements are not met, taxes and penalties may apply).
Contributions are not tax-deductible. You may continue making Roth IRA contributions after age 70 1/2 if you have earned income.
Your modified adjusted gross income must be below certain limits depending on your tax filing status and you or your spouse must have earned income. You are not required to take mandatory distributions at any age during your lifetime. Non-spouse beneficiaries are subject to minimum distributions rules.

A retirement plan that covers self-employed persons (sole proprietors or partners)is referred to as a Keogh or H.R. 10 plan. With partnerships, the Keogh must be set up by the partnership, not the partner. Employees who are at least 21 and have at least one year of service must be allowed to participate. Employer contributions are tax deductible subject to certain income limitations. Employees may be permitted to make nondeductible voluntary contributions. There are two types of Keogh plans. Different rules apply to both types of plan. A Keogh plan can be set up as a defined benefit plan or a defined contribution plan which includes 3 types: a Money Purchase plan, Profit Sharing and a Combination of the two.

IRA Annual Report Form 5498 must be sent to you from the bank by January 31st. It must include the market value of the account as of December 31st. A statement showing contributions for the year must be sent by May 31st.

Prohibited transactions generally include the following transactions: a transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person; any act of a fiduciary by which plan income or assets are used for his or her own interest; the receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets; the sale, exchange, or lease of property between a plan and a disqualified person; lending money or extending credit between a plan and a disqualified person; and furnishing goods, services, or facilities between a plan and a disqualified person.