With several conversations around this topic of late, we thought this post worth a re-run, freshened up of course… hope you enjoy the reminder!
Every penny we save is great. On a daily basis we are bombarded with buy now pay later, so while it may sound contradicting, there are less complicated ways to save and more difficult ways in the end to save.
Perils of After Tax Dollars in an IRA
After tax dollars as opposed to PRE-TAX (deductible from your income taxes) funds in and IRA are not your friend.
- Upon eventual distribution you must calculate a distribution basis which will be different from your actual distribution – Easy for the IRS to confuse
- You must carry the basis on your tax return- forever- IRS Form 8606 must be filed to keep up with your basis
- Your heirs may also have to deal with this basis upon your death
- From a really high level, it is confusing
- IRS Audit Possibility – The IRS will receive a distribution amount of greater than you will be reporting on your tax return, making a paper letter or audit inquiry much more possible upon eventual distribution of assets
How Do After Tax Funds get into an IRA?
There are two basis ways after tax funds enter or get added to an IRA:
- After-Tax – Non-Deductible IRA contribution: (Very popular about 15 years ago)- Please save the money, but look for a better way to save it and avoid this method
- 401k or other Corporate Pre-Tax retirement plan is rolled into an IRA along with the after tax funds- Easy fix- Look to take the after tax distribution directly thereby separating the PRE and AFTER tax funds-
- Watch rollovers that contain a Roth contributions as these are after tax and may be directed to their own separate account, once again simplifying the process
It’s not the end of the world if you have after tax funds in your IRA, great work for saving the funds … But if you have the choice, avoiding comingling after and pre-tax funds in your IRA or other similar retirement account may save complications later!
Have a Great “KISS- keep it simple” day!
John A. Kvale CFA, CFP
March 2018 Podcast Video, Financial Planning and Capital Market Update – By John Kvale
Hello and Welcome to our March 2018 Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format.
March 2018 Video
Financial Planning Tip (s) –
Final of FIVE Tax Savings Ideas you can do NOW for LAST Year’s (2017) Taxes
We completed the five part series … Three were let out of the box last month …. Let’s quickly review them and then the two final parts from this month!
HSA or Health Savings Account
Our post here, speaks of the terrific opportunity to set aside Pre-Tax dollars to use now or later for medical expenses.
SEP – Simplified Employee Pension
As mentioned in our Post Here, there are very high limits of contribution, and the SEP can be done during mandated RMD’s, as well as in tangent with a 401k program, as long as the upper limits collectively of contribution are not violated.
Pre-Tax Deductible IRA
As the one of the original retirement vehicles and so vintage many forget (We Don’t!) we want to remind here in our post about the IRA – Individual Retirement Account.
Tax Savings reach back reminders from THIS month/March
Maximizing the Sales Tax Deduction
Here in our post this month, we remind everyone to be sure and maximize your Sales Tax Deduction.
From the post …
Here are a few items that may make your standard sales tax deduction drastically inaccurate and woefully low- thereby costing you tax dollars:
Be sure to maximize this deduction as it looks like the new tax rules will greatly mitigate it’s use moving forward.
Medical Expense Deduction
We all some type of medical expenses each year. What is a challenge if determining what is and is not deductible.
The IRS does a terrific job with their Publication 502 of reminding and outlining what may be a deduction. In our post here, we remind of a few favorites that we find are frequently missed …
Are possible (check to make sure) deductions we find interesting and easily forgotten.
Capital Market Comments
Finding our Footing After Getting Ahead of Ourselves
Another month and our thoughts are the exact same…so much we did not even have to change the title of this part of the review from last month… the chart is updated … looks about the same…
We think patience is needed as this will take time to digest and again find our footing.
Here is where we are now —
For those wondering …. for now, it looks like the 200 Day Moving Average (line below our trend line) is the lower level of support … It may break, which is fine, but for now, looks like someone wants it to hold.
We will keep watch and keep you updated!
Have a Great Day! Talk to you at the end of April!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com
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Posted in General Financial Planning, Investing/Financial Planning, Market Comments, Monthly Review, Podcast, Tax Related, Video
Tagged HSA, IRA, Market, S & P 500, SEP, Trendline