The Tax Efficient Path to Financial Independence
Is earned income required to contribute to an individual retirement account (an “IRA”)? If you’re married, it may not be, thanks to the Spousal IRA. The Spousal IRA is a great opportunity for families to build financial stability, and perhaps get a juicy tax deduction, even if only one of the spouses work outside of […]
Few things seem to generate more confusion than the Pro-Rata Rule. It’s time for the FI Tax Guy to tackle it head on! The Rule For all the confusion about the Pro-Rata Rule, it is actually a very simple rule. All the Pro-Rata Rule says is that IRA Basis is allocated between two things. One […]
If you have basis in an IRA, you will want to read this post. Basis in an IRA creates all sorts of confusion, but it also presents a great planning opportunity for many of those still working. I refer to this opportunity as the Basis Isolation Backdoor Roth IRA. Where Does IRA Basis Come From? […]
There are only three types of annual contributions to individual retirement accounts (“IRAs”). They are: This post discusses when a taxpayer can make one or more of these types of annual contributions. Let’s dispense with what we are not talking about. This post has nothing to do with annual contributions to employer retirement plans (401(k)s […]
HUGE UPDATE: On October 16, 2023, the IRS issued this, extending the October 16, 2023 deadline for 2022 tax acts and filings to November 2023. The IRS announcement allows (most) Californians to make Roth IRA, traditional IRA, and HSA contributions for 2022 up to November 16, 2023 and delays the deadline for many 2022 federal […]
Roth IRAs allow tax-free distributions to fund retirement. However, to help secure retirement savings and avoid premature raiding of Roth IRAs, Congress did not give them blanket exemption from taxes and penalties. Thus, there are times where distributions from Roth IRAs are subject to either or both ordinary income tax and/or the 10% early withdrawal […]
You know what gets too much attention in the personal finance space? The two five-year Roth IRA rules. Why do I say that? Because the odds are extremely low that either rule will ever impact most Roth IRA owners. While the rules theoretically have wide effect, in practice, discussed further below, they rarely impact the […]
The newly passed SECURE Act 2.0 has put a renewed focus on the use of retirement funds to cover pre-retirement emergencies. This post discusses the options available with respect to using tax-advantaged retirement accounts to fund emergency expenses. To my mind, there are five primary ways to use retirement funds to pay for emergencies. Considering […]
An Open Letter to the Members of the 118th Congress Dear Senators and Congressmen, Congratulations on your victories in the Senate and House elections. I write with respect to one aspect of your legislative endeavors in the 118th Congress: reforming our tax-advantaged retirement savings system. As you will see, much of it is antiquated and […]
When it comes to the Backdoor Roth IRA, I’ve seen it all. Reporting a Backdoor Roth IRA on tax returns remains confusing for both taxpayers and tax return preparers. Here’s the recipe I recommend using to report the Backdoor Roth IRA on the tax return and avoid overpaying taxes. Let’s consider a hypothetical Backdoor Roth […]