Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Although withdrawals from a 529 college savings plan are tax-exempt if the money is spent for qualified education expenses, investors should plan carefully to withdraw the amount enough to cover the costs, according to Morningstar. That's because making excess withdrawals could result in taxes on the earnings portion of the amount and a hefty 10% penalty. “If you figure the amount correctly, though, no tax or penalty will be due,” the Morningstar expert writes.
Clients who inherit IRAs from deceased loved ones must handle the assets properly, as mistakes could result in bigger tax liability and loss of tax-deferral benefits for these assets, according to Kiplinger. Inherited IRAs are different from self-owned IRAs, so clients should ensure that the inherited IRAs' title is correct and prepare for required minimum distributions starting in the year after the original IRA holder's death. They should also transfer the assets to the inherited IRA properly, follow the rules, know how to stretch the distributions and engage in proper tax planning.
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When a tax-deferred account is part of an estate, failure to follow the tax rules correctly can result in a financial disaster.
February 17 -
Clients who make these prohibited transactions can face devastating penalties.
February 1 -
How IRA conversions can come at a steep price for clients. Plus, ways to dodge a surprise bill from the IRS.
February 27
Clients that make alimony payments to their former spouse after divorce should ensure they meet the requirements necessary to make them tax deductible, according to MarketWatch. They cannot deduct money given to their former spouse for child support as alimony. They are advised to fill out Worksheet 1 in the IRS Publication 504 to avoid the alimony recapture rule.
Fifteen tax planning tips from analysts and industry experts advisers may consider in 2017.
House Committee on Ways and Means Chairman Kevin Brady, R-Texas, said the current tax reform plan could push the country's deficit up during the early years of implementation because of tax revenue losses, according to The Hill. The deficit, however, would eventually disappear after the country starts to undergo economic growth, says Brady, reiterating his call for other lawmakers to support the plan. “I think they bring so much to the table,” Brady said. “We’re working in the House with our House Democrats in exploring common ground on tax reform.”
Some expenses are inevitable, and clients should plan for these costs to avoid debt and worry in the future, according to this Motley Fool article. There are also strategies for clients to reduce these expenses. For example, parents who have access to a flexible spending account should contribute the maximum amount to the account to make the most of the tax breaks that the account offers.
