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New Tax Rules To Know
In our last article, we looked at new limits for defined contribution plans such as 401(s) and the MyRA, the newest retirement plan. This week we look at two more ways new rules by the IRS that will impact retirement plans:
- Limit on IRA rollovers
- AGI phase-out ranges
Rollover IRA — A type of traditional individual retirement account into which employees can transfer assets from another retirement plan. Why use a Rollover IRA? When an individual rolls over a retirement plan distribution, they generally don’t pay tax on it until it is withdrawn from the new plan. By rolling over, the money continues to grow tax-deferred.
Beginning in 2015, individuals can only execute one IRA rollover per year. A rollover involves taking money out of one IRA, holding it for fewer than 60 days, and then depositing it into another IRA. Note however, this new rule does not apply to the following:
- rollovers from traditional IRAs to Roth IRAs (conversions)
- trustee-to-trustee transfers to another IRA
- IRA-to-plan rollovers
- Plan-to-IRA rollovers
- Plan-to-plan rollovers
For more information on rules governing Rollover IRAs, visit the IRS Rollover IRA page.
AGI Phase-Out Ranges — The IRS defines AGI, or Adjusted Gross Income, as gross income minus adjustments to income. With respect to IRAs, the IRS limits the ability to contribute to these retirement plans based on income. Most individuals can contribute the same amount to a Roth IRA as they would otherwise be allowed to contribute to a traditional IRA. However, the amount that can be contributed to a Roth IRA is phased out at certain levels of income. In 2015, the AGI phase-out range for singles and heads of household taxpayers making contributions to a Roth IRA is $116,000 to $131,000, up from $114,000 to $129,000. For married couples filing jointly, the phase-out range has been adjusted to $183,000 to $193,000, up from $181,000 to $191,000 in 2014.
Turning to Traditional IRAs, 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 AGIs between $61,000 and $71,000, up from the $60,000 to $70,000 range in 2014. 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 now $98,000 to $118,000, up from $96,000 to $116,000 last year. 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 $183,000 and $193,000, up from the $181,000 to $191,000 range in 2014.
Mr. James C. Molet holds a MBA from Wayland Baptist University. He blogs on financial topics at retirement savvy.net and author of RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit. Mr. Molet retired from the U.S. Army after 21 years in 2005.