Retirement Tax Changes For 2014

Ryan C. Fuhrmann for Investopedia writes: Having enough money to retire comfortably has become a front and center issue for most Americans. To keep saving efficiently, it pays to understand changes to the tax laws affecting retirement. Among the 75,000 pages in the current tax code are changes for 2014 that affect Social Security, pension plans, and health care. Below is an overview of the major adjustments.

Social Security

Changes to the Federal Insurance Contribution Act (FICA) have raised the taxable limit on wages for the Social Security portion to $117,000 from $113,700 in 2013 with the tax rate set at 6.2% for both the employee and the employer, respectively. About 10 million (of 165 million workers) will pay higher taxes as a result of this increase, according to the Social Security office. The Medicare tax is the other part of FICA. That tax is now 0.9% for wages above $200,000, although this is paid by the employer.

The IRS also changed the federal income tax withholding tables and allowance amounts. According to the IRS:

1. The personal exemption amount has been increased to $3,950 from $3,800.

2. Tax withholding rates for both single and married taxpayers remain unchanged; however, wage brackets for these rates have changed.

Social Security benefits for those receiving them will increase by 1.5% in 2014. This qualifies as a cost of living adjustment (COLA). There are other minor increases to the amount of retirement earnings that are tax exempt, as well as changes to disability thresholds, federal payment standards, resource limits, and student exclusions. All of the specific details can be found on the Social Security Administration’s 2014 changes summary.

Estimated average monthly Social Security benefits payable in January 2014:

	Before 1.5% COLA	After 1.5% COLA
All Retired Workers	$1,275	$1,294
Aged Couple, Both Receiving Benefits	$2,080	$2,111
Widowed Mother and Two Children	$2,583	$2,622
Aged Widow(er) Alone	$1,225	$1,243
Disabled Worker, Spouse and One or More Children	$1,914	$1,943
All Disabled Workers	$1,131	$1,148

Pension Plan Limits

According to the IRS website, the contribution limit remains at $17,500 for defined contribution plans such as 401(k), 403(b) and the majority of 457 plans. Catch-up provisions for these plans are also unchanged at $5,500 for individuals aged 50 or older.

Allowable deductions in 2014 for traditional Individual Retirement Arrangement (IRA) plans have remained the same as last year - $6,500 for people age 50 or older, and $5,500 if you are 49 or younger. The IRA phase-out limits, or restrictions on tax-deductible contributions for individuals at higher income levels, have changed. The limits apply to those who are covered by workplace retirement plans and have certain levels of modified adjusted gross income (MAGI).

For single individuals and those who qualify as the head of the household, the MAGI limits were between $59,000 and $69,000 in 2013, but will increase to between $60,000 and $70,000 for 2014. Anyone earning above those levels can still contribute to an IRA, but will not get a tax deduction. For married couples who file jointly, the phase-out range is between $96,000 and $116,000 for 2014, which represents an increase from a range of $95,000 to $115,000.

Roth IRA ranges for married couples increased to $181,000 and $191,000, up from $178,000 to $188,000 last year. However, there are a few rules to know regarding phase outs. According to the IRS:

"For 2014, your Roth IRA contribution limit is reduced (phased out) in the following situations.

• Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $181,000. You cannot make a Roth IRA contribution if your modified AGI is $191,000 or more.
• Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2014 and your modified AGI is at least $114,000. You cannot make a Roth IRA contribution if your modified AGI is $129,000 or more.
• Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more."

There are certain exceptions and savings contribution credits for lower income levels thatcan be found at the IRS website.

Healthcare 

Below is an overview of changes to Medicare for 2014 compared to 2013:

Costs at a Glance	2013	2014
Part B premium	Most people pay $104.90 each month.	Most people pay $104.90 each month.
Part B deductible	$147 per year	$147 per year
Part A premium	Most people don't pay a monthly premium for Part A. If you buy Part A, you'll pay up to $441 each month.	Most people don't pay a monthly premium for Part A. If you buy Part A, you'll pay up to $426 each month.
Part A hospital inpatient deductible	You pay:	You pay:
	Days 1-60: $1,184 for each benefit period	$1,216 deductible for each benefit period Days 1-60: $0 coinsurance for each benefit period
	Days 61-90: $296 coinsurance per day of each benefit period	Days 61-90: $304 coinsurance per day of each benefit period
	Days 91 and beyond: $592 coinsurance per each "lifetime reserve day" after day 90 for each benefit period (up to 60 days over your lifetime)	Days 91 and beyond: $608 coinsurance per each "lifetime reserve day" after day 90 for each benefit period (up to 60 days over your lifetime)
	Beyond lifetime reserve days: all costs	Beyond lifetime reserve days: all costs

MyRA

In February, the White House rolled out MyRA for Americans who don’t have access to an employer-sponsored retirement savings plan. It cited data that 50% of all workers in the U.S. and 75% of part-time workers aren’t eligible for the retirement 401(k), 403(b), and related pension plans. It mentioned that to get a well-rounded retirement plan, employees utilize a mix of Social Security, individual savings plans and employer-provided pension schemes.

MyRA is intended to give those ineligible for traditional pension plans an opportunity to put away part of their paychecks into savings plans. The plan is still in the pilot stage and looks to be fully available toward the end of 2014. Another distinction is that contributions are to be invested in Treasury securities that, despite being safer and “backed by the full faith and credit of the United States,” don’t pay very high interest rates to really boost savings levels over the long haul.

The Bottom Line

One criticism of the MyRA initiative is that it includes savings plans and vehicles that are already available to workers. The confusion when it comes to retirement benefit changes might discourage employers and employees alike, but there are plenty of ways to take advantage of the available programs out there. Plus, the changes for the current year largely boost contribution and catch-up limits, though tax benefits have become more challenging for higher earners. Combined with the incentives and a recovering economy, however, those that prepare can be in great shape.

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Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.

Net Investment Business Tax hits real estate businesses

Tom B. Johnson for finance-commerce.com & Boulay Group writes: The new federal Net Investment Income Tax became effective in 2013, making this the first year that we are seeing its effects on tax returns. It’s a 3.8 percent tax on net investment income, which is intended to help finance the federal Affordable Care Act.

The accounting profession has told people for a couple of years that this was coming, but it’s still generating confusion.

This tax kicks in for incomes greater than $250,000 for those who are married and filing a joint return. It is having the greatest impact on entrepreneurs and investors because it applies to gains from any kind of activity that is not related to their primary career.

For example, a company’s CEO may invest in a lawn care business, hiring others to do the work. This makes him a “passive investor” and his profit from that lawn care business will be subject to the 3.8 percent tax. Similarly, income or gains from the sale of rental property may also be subject to the Net Investment Income Tax.

The two areas where we are seeing the greatest impact of this new tax are real estate and family businesses.

Real estate

If you are married and have lived in the home you are selling for at least two of the last five years, there is no tax on gains less than $500,000. But if you sell a vacation home that is not your primary residence, that is a taxable gain and will more than likely be subject to the 3.8 percent tax.

This tax also kicks in at just $12,000 of income for real estate that is held in trusts, meaning it could lead to changes in how people pass on their assets to others.

To avoid paying this tax on gains from real estate investments, it is important to be declared a real estate professional. To be classified as such, you must be able to document that you’ve spent more than 700 hours during the year performing qualified real estate professional services such as property management, brokering, development, construction or even buying and flipping houses.

In addition, those 700 hours must equate to more than half of your service time. If you can meet both of these requirements, then none of your real estate income or gains on property sales will be subject to the new 3.8 percent tax.

Those who are in real estate full time will find it simple to meet this definition. But if you dabble in real estate on the side, it’s going to be difficult.

For example, if you work 2,000 hours in another full-time job, you would need to also perform 2,001 hours in the real estate business to qualify as a real estate professional. Reaching that level of service hours is unlikely. If you fall into this category, it becomes important to plan ahead to try and qualify as a real estate professional before you recognize large gains.

Family businesses

This new tax is affecting family businesses where children are allocated income through ownership in the company, yet aren’t actively involved with day-to-day operations. Even if every owner receives the same amount of income, those who are classified as passive business participants will be taxed the additional 3.8 percent, while those classified as material participants will be exempt from this new tax.

There are seven tests to see if you qualify as a material participant. The primary test states that you must have spent at least 500 hours actively involved in the business. That equates to 10 hours per week for 50 weeks. This can be difficult to document for most entrepreneurs as they typically don’t fill out time cards. So it becomes vitally important to maintain a calendar so that all time invested in the business can be substantiated.

Another win/win opportunity to avoid paying the 3.8 Net Investment Income Tax is to donate appreciated assets to charity. This way, you’ll also receive a tax deduction for your contribution.

Editor’s note: The author is a certified public accountant and partner at the Boulay Group in Eden Prairie.

How to Deal With Limited Options in a 401k / Love your ETFs, but can't find something similar in your company's 401k? Here's how to adjust.

David Fabian, FMD Capital Management  for Investorplace.com writes: Clients often ask me what they should choose in their 401k when they are limited to a small subset of mutual funds. They often want to participate in an investment strategy similar to the ETFs we have selected for them, but they don’t want to be saddled with the high fees and limited transparency you can get through traditional mutual funds.

But I’ve got some good news and bad news for you.

The bad news is that you don’t have a choice — for now, you have to deal with the restrictions that your 401k provider has chosen as part of their guidelines.

The good news is that you can still implement a similar asset allocation strategy and steer your portfolio toward areas thatmimic low-cost ETFs. Even though a 401k is more restrictive, it is still a vastly better retirement savings vehicle than a taxable account.

401k Mutual Funds: Form Your Strategy

The first step toward positioning your employer-sponsored retirement account for success is determining what your asset allocation will look like. Everyone typically has their own split between equities and bonds based on risk tolerance, time horizon and a host of other factors.

My only recommendation in this area is to invest with a longer timeline in mind than you would with a more liquid investment account. People often think that they can time the market with their 401k, but are surprised to find that the number of trades in a year is limited or the funds may impose penalties for short-term redemptions. In short, always know what kinds of penalty fees and trading restrictions you could face.

Once you have your asset allocation targets, you should screen the list of available funds for passive index strategies. Often times these will have similar names to major stock indices such as the S&P 500, S&P Midcap 400, Russell 2000 or MSCI EAFE (international) index. These funds will be excellent core holdings that most likely will have the fewest limitations and lowest management fees when compared to their actively managed peers.

You also can find out exactly what the underlying stocks are because they’re based on well-established indexes that don’t change frequently. Actively managed equity mutual funds often are loaded with higher fees and only report their underlying holdings on a quarterly basis.

In addition, it has been proven in many studies that the majority of actively managed funds are not able to successfully beat their benchmark index — one reason why investors began a mass exodus to passive ETFs to begin with.

For the fixed-income side of your portfolio, you might actually benefit by choosing an actively managed holding such as the PIMCO Total Return Fund (PTTAX). Many fixed-income managers such as PIMCO have been able to successfully beat their benchmarks over the last decade by strategically allocating to sectors that offer superior returns. But in the event that the quality of your fixed-income selections is poor or fees are too high, it might make sense to turn to an index fund as a suitable alternative.

When you find yourself unable to substitute an area of the market in which you want exposure because your 401k menu isn’t up to par, consider compromising. You might have to adjust your asset allocation to increase exposure to stocks or bonds that you normally wouldn’t own in your other investment accounts. However, that can sometimes lead to better diversification and enhance your returns in other areas.

The Bottom Line

My preference is to use ETFs whenever possible to increase trading flexibility, lower fees and enhance transparency. However, sometimes they aren’t offered (such as in 401ks), and occasionally a better alternative to a mutual fund simply doesn’t exist.

Also, review your 401k at least quarterly to ensure that it is performing in line with your expectations and consider making changes when opportunities present themselves. The end game is to have a large nest egg when you are ready to retire that you can roll over into an IRA and manage with as few restrictions as possible.

David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management.   You can read InvestorPlace.com here.

SAGENEXT INTRODUCES CLOUD COMPUTING FEATURES FOR CPA AND OTHER ACCOUNTING FIRMS TO WORK EFFICIENTLY

Cloud Computing has changed the lives of CPA and other tax and accounting professionals. It's now a need to go with trusted cloud techniques and reveal the benefits of using QuickBooks and Tax softwares online.

Cloud computing has been one of the leading trend around the information technology world in recent years. It has helped small organizations to gain access to the technical resources which were extremely difficult before due to heavy expense, management burdens and other limitations. But, cloud computing has removed all the barriers to benefit all level of organizations in many ways. It has not only made our IT budget a cost effective but also increased the productivity of the organizations. It has made a good impact on tax and accounting practices, hence, many CPA firms, accounting organizations and tax practice firms are widely implementing cloud as their core IT practices. 

SageNext is a leading tax and accounting cloud solution provider. The company uses it’s SAS70 II and SSAE certified data centers to host many tax and accounting applications like: QuickBooks, Sage 50 (Peachtree), ATX tax, Drake tax, Ultratax, Lacerte etc. There are many QuickBooks Hosting Provider but below mentioned points prove the SageNext as leader amongst them.

1- A common platform for tax and accounting practices: SageNext helps you to setup a complete online office for you. The online office will be equipped with your tax and accounting applications, Ms Office, document viewer and other required tools and utilities. Surprisingly, the common platform is shared across your entire staff so that a CPA can check what their bookkeeper is doing. The same platform can even share with the clients if they need to provide any input without coming to the CPA firm. 

2- Easy to upload and download from server to your local computer and vice-versa: Your tax and accounting data consists of critical business information and you will always need the recent copy of your data with you. SageNext makes the required settings to upload and download your data from hosted QuickBooks cloud to your local computer. 

3- Adequate printing and scanning solution: The company practices with efficient printing and scanning solution so that if your want to print or scan something, you will be able to do with any of your local printer or scanner. Just to notice, printing and scanning is always a challenge while using remote access methods.

4- Free daily data backup: While you are with SageNext, your data is always backed up with powerful backup tool. The backup is encrypted enhancing an additional layer of security to your data. The backup copies are kept at 3 different locations to prevent the data from any physical disasters. 

5- 24X7 free technical support: SageNext has a dedicated team for technical support available by 24X7 via chat, phone or email. If you send an email to support for any queries, the maximum response time is 10 mins only. 

6- Many years of application hosting experience: We have been dealing in tax and accounting application, including QuickBooks hosting for almost 5 years. We have more than 500 CPA's and their clients across USA, Canada and other parts of the world. Many testimonials on our website elaborates how efficient we are. 

SageNext also deals in all tax and accounting application hosting. Major projects are QuickBooks hosting, PeachTree hosting, ATX hosting, Lacerte hosting, Drake hosting etc.

SageNext Infotech is an application hosting provider dealing in major tax and accounting application hosting services. SageNext is specialized in QuickBooks hosting, ATX tax hosting, Sage 50 hosting, Lacerte tax hosting, Drake tax hosting etc. The company has it’s SAS-70 and SSAE-16 certified data centers located in New York and Dallas. SageNext has free data backup, free technical support, no migration and setup cost and no other hidden cost.