Year-End Tax Moves For Self-Directed IRA Investors
The end of a calendar year always brings a series of deadlines and imposes timelines for the execution of tax mitigation strategies, both inside and outside of Self-Directed IRAs. Here are a few of the most important issues that commonly affect our Self-Directed IRA clients and the affluent/higher net worth community.
- It’s time to set up your self-directed solo 401(k), SEP or SIMPLE retirement plan for the year. Yes, IRAs and a Self-Directed IRA, including Roth IRAs, let you wait until April 15th of the following year to make your contributions. But these workplace/employer retirement plans require you to have your plan set up and your contributions made by the end of the tax year. That is, Dec. 31st.
- Take RMDs. If you turned 70½ in 2015 or earlier and you have a Self-Directed IRA, IRA, SEP, SIMPLE or 401(k) balance, you must take out your required minimum distribution for the year prior to midnight on December 31st. Strive to have the entire transaction completed by then. There is an exception for Roth accounts, which are not subject to RMDs.
- Execute IRA and Self Directed IRA Conversions for the Year. You have until the end of the year to convert any traditional IRA, including Self-Directed IRAs, into Roth accounts. You’ll have to take a taxable distribution for the amount you convert, but it may be worth it – expecially if you expect to have higher income next year.
- Shelter money from the top tax bracket. The top bracket for ordinary income is a doozy: 39.6 percent. That’s on top of state and local taxes. Combine that with self-employment tax and the additional 3.8 percent surcharge on certain income thanks to the ACA, and you could quickly be paying 50 percent or more on part of your income.
The 3.8 percent tax, called the Net Investment Income tax (NII), applies to the lesser of net investment income or the excess of modified adjustment income over the following threshold amounts:
Married taxpayers and surviving spouses: $250,000
Marred with separate returns: $125,000
Everyone else: $200,000
The 39.6 percent marginal income tax bracket applies as follows:
Married filing jointly and surviving spouse: $466,950 and up
Heads of households: $444,000 and up
Unmarried individuals: $415,050 and up
Married filing separately: $233,475 and up
One strategy is to shelter income over the highest tax bracket in a Self-Directed IRA, SEP, or solo 401(k). Generally, sound tax planning often involves sheltering as much income as possible from the highest marginal tax bracket, either by deferring income, spreading it out over many different years, investing it in a tax-deductible vehicle (whether in or out of a Self-Directed IRA), or investing it in something that may not provide a deduction this year, but will grow tax free, such as a Roth solo 401(k) account.
American IRA, LLC works exclusively with the Self-Directed IRA community, and with business owners and entrepreneurs who choose to set up self-directed company pension plans, such as self-directed solo 401(k)s, SEPs and SIMPLE plans.
With offices in Asheville and Charlotte, North Carolina, we are happy to work with self-directed retirement investors and those interested in learning more about the concept from anywhere in the U.S.
For more information, call us today at 866-7500-IRA (472). Or visit us online at www.americanira.com.
We look forward to working with you.