Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. Saving for retirement is essential for financial security. Here are the basic rules, deadlines and strategies. If you're getting a refund, you have several options for receiving it. We explain inside.

1. Toll Free: 877.880.4477
Phone: 281.880.6525
Countdown to Filing: There's Still Time to
Contribute to an IRA or SEP
IRA or SEP
IRA or SEP
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2. » The clock is ticking down to the tax filing deadline. The good news: There
may still be an opportunity to save on your tax bill from last year.
» If you qualify, you can make a deductible contribution to a traditional IRA
right up until the April 15, 2013 filing date and still benefit from the
resulting tax savings on your 2012 return.
» Small business owners can set up and contribute to a Simplified Employee
Pension (SEP) plan up until the due date for their returns, including
extensions.
» You also have until Monday, April 15, to make a contribution to a Roth
IRA.
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3. Here are the main differences between a traditional IRA and a Roth:
1 Contributions to a traditional IRA are deductible on your tax return
1
depending on your income and whether you -- or your spouse, if filing
jointly -- are covered by an employer's pension plan (see table below).
In contrast, contributions to a Roth IRA are not deductible.
2 Withdrawals from a traditional IRA are taxable, while withdrawals from
2
a Roth are tax-free as long as the account has been open at least five
years and you are age 59 1/2 or older.
3 At age 70 1/2, you must begin to take withdrawals from a traditional
3
IRA or face steep penalties. But with a Roth IRA, you don't have to take
withdrawals at any age, meaning the account can continue to grow tax-
free for decades and be passed on to your heirs tax-free.
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4. Below is a chart with all the details for this filing season. (Note: These
figures are for 2012. They increased for 2013).
2012 IRA Deadlines and Limits
You can contribute up to $5,000 until Monday,
IRA and
April 15, 2013 ($6,000 if you were age 50 on
Roth IRA contributions
12/31/12).
You can contribute up to $50,000 by April 15, 2013
or by the extended due date (up to Tuesday,
SEP contributions
October 15, 2013) if you file a valid extension.
(There is no SEP "catch up" bonus.)
You must be under age 70 1/2 at the end of
12/31/12 to contribute to a traditional IRA.
Age limits
Contributions to a Roth can be made regardless of
age, if you meet the other requirements.
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5. 2012 IRA Phase-Out Ranges
Traditional IRAs when not covered
Any amount of adjusted gross income (AGI).
by a retirement plan at work
• For married filing jointly between AGI of
$92,000 and $112,000;
• For single or head of household, $58,000 to
Traditional IRAs when active in an
$68,000;
employer retirement plan
• For married, filing separately, $0 to $10,000,
if you lived with your spouse at anytime
during the year.
Traditional IRAs if spouse
Phase-out occurs between AGI of $173,000
participates in employer-sponsored
and $183,000.
plan
• For married filing jointly, $173,000 to
$183,000;
• For single or head of household, $110,000
Roth IRAs to $125,000;
• For married filing separately, $0 to $10,000,
if you lived with your spouse at anytime
during the year.
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6. An Option for High Wage Earners
» Let's say you can't qualify for IRA deductions because you actively participate
in an employer-sponsored retirement plan and your adjusted gross income
exceeds the level allowed.
» Fortunately, highly paid wage earners aren't completely closed out of the IRA
market. Even if you can't deduct IRA contributions or contribute to a Roth
IRA, you're still permitted to make nondeductible contributions to a
traditional IRA. As with regular IRA or Roth IRA contributions, the limit for
2012 is $5,000, plus a "catch-up contribution" of $1,000 if you were age 50 or
older on December 31, 2012.
» Contributions to a nondeductible IRA allow you to build up tax-deferred
earnings, just like a regular IRA, until distributions are made. This allows you
to save more for retirement. The portion of your IRA distributions
representing nondeductible contributions is tax-free.
» Important: When making a deductible or nondeductible
contribution, be sure to tell the IRA trustee that the
contribution is for 2012. Otherwise, the trustee may report it as
being for 2013.
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7. Working Teens Can Also Have IRAs
» Did your children or grandchildren earn some money working last year? If so,
they also have time to make a 2012 IRA contribution. As you'll see, the IRA
contribution strategy is a terrific idea because the children can potentially
accumulate a truly amazing amount by retirement age.
» Specifically, your child can contribute the lesser of earned income or $5,000
for the 2012 tax year.
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8. Working Teens Can Also Have IRAs
» Children with earned income have the option of contributing to either a
traditional deductible IRA or a tax-free Roth IRA. The contribution limits are
the same for both. Having your child contribute to a Roth account is usually
the best alternative, even though it doesn't create a tax deduction.
» Why? Your child can later withdraw all or part of his or her Roth IRA
contributions -- without any federal income tax or penalty -- to pay for
college, buy a car, put a down payment on a new house or for any other
reason. (However, he or she generally cannot withdraw any Roth
account earnings tax-free before age 59 1/2.)
» Of course, even though the child will have the right to withdraw Roth IRA
contributions without any adverse federal income tax consequences, the best
strategy is to leave as much of the account balance as possible untouched
until retirement age.
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9. Working Teens Can Also Have IRAs
Example: Let's say your child contributes $1,000 to a Roth account this
year. After 45 years, the account would be worth $31,920 assuming an
8 percent annual return. Say your kid contributes another $1,000 next
year and lets the money ride. The Roth IRA would be worth $61,475
after 45 years. As you can see, the numbers really start adding up. After
age 59 1/2, your child can begin taking federal-income-tax-free
withdrawals. In other words, your child will never owe any federal
income tax on the accumulated Roth IRA earnings. In contrast, if your
child contributes to a traditional deductible IRA, all subsequent
withdrawals will be taxable income. Payouts before age 59 1/2 are also
hit with a 10 percent penalty tax, unless they are used for certain IRS-
approved reasons (including paying for college or a first home).
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10. » Here's another big reason for the Roth IRA alternative: Your child may not
actually save any taxes by contributing to a traditional deductible IRA.
» Why? Because an unmarried dependent taxpayer's standard deduction
amount automatically shelters up to $5,950 of earned income for 2012
from the federal income tax. (For 2013, the standard deduction increases
to $6,100.)
» Therefore, contributing to a
traditional IRA won't necessarily
create any current tax
savings unless your child has a fairly
substantial amount of income. So a
Roth IRA is generally the best move.
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11. One more plus:
Owning a Roth IRA (or a traditional IRA for that matter) generally won't
cost your child any financial aid dollars at college time (at least not under
the current guidelines). This is because the financial aid calculations
generally don't count IRAs as assets.
Reminder: Report 2010 Roth Conversions on 2012 Returns
Taxpayers who converted amounts to a Roth IRA or
designated Roth account in 2010 must generally report half of
the resulting taxable income on their 2012 returns.
Normally, Roth conversions are taxable in the year the conversion occurs. For
example, the taxable amount from a 2012 conversion must be included in full on
a 2012 return. But under a special rule that applied only to 2010 conversions,
taxpayers could generally include half the taxable amount in their income for
2011 and half for 2012. You don't have to worry about this if you chose to
include all of it in income on your 2010 return. Ask your tax adviser if you have
questions about your situation.
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12. 14550 Torrey Chase, Suite 100 Houston, TX 77014 USA
Toll Free : 877.880.4477
Phone : 281.880.6525
Fax : 281.866.9426
E-mail : info@hrp.net
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