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Retirement Reform – What could it mean for you?


     By Keelie Bishop


Many individuals, regardless of generation, face the overwhelming question as to if they will ever be able to afford to retire. Too often many people do not save enough to retire. According to a U.S. Government Accountability Office review, about 48% of households had no retirement savings in 2016 and even when people are saving, their retirements won’t last very long (10-20 years). In response, Congress has made it a point to focus on retirement legislation.

For the first time in over a decade, lawmakers are working on passing comprehensive retirement reform. For example, on May 23, 2019 the U.S. House of Representatives passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act by a margin of 417 to 3. This is legislation that aims to encourage retirement savings by increasing access to retirement plans.

The changes currently include: making it easier for small businesses to band together to offer 401(k) plans, requiring businesses to let long-term, part-time workers become eligible for retirement benefits and repealing the maximum age for making contributions to traditional individual retirement accounts (right now, the age is 70½), and changing the required minimum distribution age to 72 for certain retirement accounts.

The bill is intended to increase the amount of tax credit that the government will give to small businesses for having plans up to a maximum of $5,000 per year, from $500 per year. For businesses that automatically enroll employees, the maximum is $5,500.

This particular bill is now in the Senate, but is not the only bill aiming towards retirement reform. In addition there is also the RESA (Retirement Enhancement and Savings Act) bill and the Social Security 2100 Act currently being worked on. As a result it is expected that there will be significant changes to come.

When is it time to retire? Is it some set age such as when social security or medicare benefits are available? It’s different for everyone. And people are continuing to work later in life. Why? Maybe because they need to (haven’t saved enough – the recession hit them hard) or maybe because they want to (enjoy what they are doing).

The toughest decision to make for many is “when do I have enough?” “When can I stop accumulating and be okay with spending?” It’s a difficult mindset to get around. During our careers we are constantly accumulating. It’s tough for some to flip that switch and say “ok, I’ll be okay. I’ll be able to continue living in the lifestyle I want.”

Lisa Du, in her article “Golden Years Redefined as Older Americans Buck Trend and Work“, provides some real life examples of why people are continuing to work:

  1. Using dollars for discretionary spending, i.e. vacations.
  2. Wanting to maintain their lifestyle.
  3. Worried their lifespan will outpace their wealth.

There are other reasons for continuing to work other than just financial. Some want to keep their mental skills sharp and working is an opportunity to do this. They want to feel they are contributing and have a purpose. This is especially true for owners when they sell their business. They have worked long and hard and kicking back in the rocking chair doesn’t appeal to them.

I recommend that you think through what you want to do during your “retirement” years. Determine what you need to accomplish that. Evaluate what you have. Develop a timeline that fits. Be flexible. You may move it. This is your life plan. Make it happen.

There are many financial planning tools and advisors that can assist you. Utilize them. We have assisted clients with determining if it is “ok” to flip that switch. Feel free to give us a call.




According to a recent survey performed by, a third of people (roughly 36%) in the U.S. have nothing saved for retirement. Of the 1,003 adults surveyed, 69% of those with no retirement savings were between the ages of 18 to 29. That’s not entirely shocking given the fact that not only are most adults at that age not even concerned with retirement, but generally things like moving out on your own, higher education expenses, etc. take precedence. However, 33% of those surveyed between the ages of 30 to 49 had no retirement savings and 14% of those age 65 and older had no retirement savings. Most of those surveyed acknowledged that they were not on track in saving for retirement. One can only assume that these individuals are relying in part or in whole on social security.

Given the fact that most reports have predicted the Social Security Trust Fund will run out of money in 2033 and benefits from that point forward would need to be reduced, these statistics are troubling. Those surveyed between the ages of 30 to 49 won’t have even reached retirement age before the Fund runs dry, and the life expectancy of the average American continues to increase.

The Social Security Administration actually has some fairly decent calculators, one of which is the life expectancy calculator. Also, almost all banks and investment companies have free calculators online that can give someone at least a rough of idea of what you would need saved along with Social Security benefits in order to retire. Remember, it’s never too late to start saving!




The IRS in Notice 2014-37 is allowing certain 401(k) and 403(m) retirement plans, including 403(b) plans, to make midyear amendments to reflect the U.S. Supreme Court’s Windsor decision.

The Supreme Court struck down Section 3 of the Defense of Marriage Act in U.S. v. Windsor, et al. (Sup Ct 2013) as an unconstitutional deprivation of equal protection. Section 3 had defined marriage for purposes of administering federal law as the “legal union between one man and one woman as husband and wife.” As a result, same-sex spouses were not recognized for purposes of qualified retirement plans.

Following the court’s decision, the IRS issued Revenue Ruling 2013-17 stating that same-sex couples who were legally married in jurisdictions that recognize their marriage will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage.

In Notice 2014-19, the IRS provided guidance on the effect of the Windsor decision on qualified retirement plans and plan amendments. To be considered a qualified plan, a cash or deferred arrangement (CODA), such as a 401(k) plan, must meet certain nondiscrimination tests. A CODA that meets safe-harbor provisions described in regulations generally must have those provisions in place before the beginning of the plan year and be maintained throughout a full 12-month plan year.

The IRS has now said that a plan will not fail to satisfy the requirements to be a Code Section 401(k) or 401(m) safe-harbor plan merely because the plan sponsor adopts a midyear amendment pursuant to Notice 2014-19, Q&A 8. ■

©2014 CPAmerica International


The Tax Court agreed with the IRS in a recent case that the one-rollover-per-year rule applies to all of a person’s IRAs, not to each of his IRAs separately. What is curious is that the IRS’s position in this case and the court’s holding are contrary to an IRS publication and at least one private letter ruling.

During 2008, Alvan Bobrow requested and received a distribution from his traditional IRA. Later, he received a distribution from his rollover IRA. Within 60 days of each distribution, Alvan replaced the funds in the IRA accounts.

The Tax Court ruled in favor of the IRS, saying that the distribution from the rollover IRA was taxable because Alvan failed the one-rollover-per-year rule. The court said that the plain language of the tax code limits the frequency of nontaxable rollovers a taxpayer may elect. By its terms, the one-year limitation is not specific to any single IRA maintained by an individual but instead applies to all IRAs maintained by a taxpayer. The court also upheld the IRS’s assessment of the accuracy-related penalty (Alvan J. and Elisa Bobrow v. Commissioner, TC Memo 2014-21, Jan. 28, 2014).

The IRS position and the court’s holding are at odds with the IRS position in IRS Publication 590, Individual Retirement Arrangements, and in Private Letter Ruling 8731041.

“Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover,” according to Publication 590.

Publication 590 contains the following example:

Illustration: A taxpayer we’ll call Chris has two traditional IRAs (IRA-1 and IRA-2). On Date 1, Chris makes a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Chris cannot, within one year of Date 1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. However, Chris can make a tax-free rollover from IRA-2 into any other traditional IRA because Chris has not, within the last year, rolled over, tax free, any distribution from or made a tax-free rollover to IRA-2.

Neither the courts nor the IRS are bound by positions stated in IRS publications or tax form instructions. And only the taxpayer who receives a private letter ruling may rely on the conclusions expressed in it. The court in Bobrow did not address IRS Publication 590 or the private letter ruling.

©2014 CPAmerica International

Christine Peterson was an independent beauty consultant for Mary Kay, Inc. She earned commissions on wholesale purchases of Mary Kay products by her network of independent beauty consultants.

Peterson and Mary Kay entered into a nonqualified deferred compensation arrangement, whereby Peterson would continue to receive a portion of her commissions after retirement.

Christine Peterson and her husband formed a partnership under which they created a defined benefit retirement plan for her. The partnership reported the post retirement payments from Mary Kay as income and deducted contributions to the retirement plan.

The Tax Court agreed with the IRS that the payments made by Mary Kay under the nonqualified deferred compensation arrangement were subject to self-employment tax. Moreover, since the partnership was not engaged in a trade or business, it could not deduct contributions made to the defined benefit retirement plan (Christine C. Peterson and Roger V. Peterson v. Commissioner, TC Memo 2013-27, Nov. 25, 2013).

©2013 CPAmerica International


The Tax Court determined in a recent case that, because an individual’s IRA owned the shares of his limited liability company, the payment of compensation to the individual for his services to the company was a prohibited transaction.

The prohibited transaction resulted in disqualification of the IRA and a deemed distribution of its assets.

In 2005, Terry Ellis organized a limited liability company (LLC), signing the operating agreement on behalf of the Terry Ellis IRA, an entity that did not yet exist. The IRA owned 98 percent of the membership units.

The LLC was formed to engage in the business of used car sales, with Ellis as the general manager. A month later, Ellis created the Terry Ellis IRA. He then transferred cash from his 401(k) account with a former employer to the IRA. The IRA transferred the funds to the LLC and received its membership units. The LLC elected to be treated as an association taxable as a corporation.

During 2005, the LLC paid Ellis $9,754 as compensation for his role as general manager and deducted that amount on its corporation tax return. Ellis’s 2005 return reported the $9,754 as taxable compensation. It also reported the distribution from the 401(k) account but did not report any portion of the distribution as taxable.

The IRS concluded that Ellis engaged in a prohibited transaction with his IRA either:

  1. When he caused his IRA to engage in the sale and exchange of membership interests in the LLC; or
  2. When he caused the LLC, an entity owned by his IRA, to pay him compensation.

The Tax Court concluded that the formation of the LLC did not involve any prohibited transaction. However, the compensation that the LLC paid to Ellis was a prohibited transaction.

The court agreed with Ellis that, at the time of its formation, the LLC was not a disqualified person with respect to the IRA because, at that point in time, the LLC had no owners or ownership interests. However, the court said that, by paying the compensation, Ellis engaged in a prohibited transaction.

Ellis argued that the payment of compensation was not a prohibited transaction because the amounts paid to him by the LLC did not consist of plan income or assets of his IRA. He saw the compensation as merely the income or assets of a company in which his IRA had invested.

Given the facts in this case, the court concluded that the LLC and the IRA were substantially the same entity.

As a result of the prohibited transaction, the full amount that Ellis transferred to the IRA from his old 401(k) account was deemed distributed to him on Jan. 1, 2005. That amount was therefore includible in his gross income.

The court also found that Ellis was subject to the 10 percent additional tax that applies to early distributions from qualified retirement accounts. Finally, the court found that Ellis was liable for the 20 percent accuracy-related penalty (Terry L. Ellis v. Commissioner, TC Memo 2013-245, Oct. 29, 2013).

©2013 CPAmerica International

The fastest growing segment of the labor force is workers over the age of 65,  according to the U.S. Bureau of Labor Statistics.

If you plan on working past 65, there are some issues to be aware of that author Mark Miller points out in his Wealth article:

Social Security timing: It doesn’t make sense to take Social Security in your first year of eligibility (age 62) if you continue to plan on working for two main reasons: 1) you will only receive 75% of your primary insurance amount and 2) there are penalties incurred on Social Security benefits if you earn income. For example, if you have earned income of more than $15,480 in 2014, you will be hit with a penalty of $1 for every $2 over that amount. These withheld benefits are given back after you reach full retirement age, but it does not make much sense to take the reduced benefits early. Instead, if you continue to work and can wait until the age of 70, you will receive 132% of the primary insurance amount for the rest of your life, and that is nearly double the amount you would receive at age 62. After age 70 benefits stop accruing.

Medicare filing: The article notes that Medicare benefits are by the far the most important and the most complicated. If you already receive Social Security benefits, the sign-up for Medicare is automatic. If not, your window to sign up is the three months before turning 65 up through the three months following. Failing to do so can result in expensive premiums down the road. For example, monthly Part B premiums jump 10% for each full 12 month period that a senior could have had coverage but didn’t sign up. If you plan on working past age 70, you can delay starting Medicare without penalty if you are insured based on your active work status by an employer with more than 20 employees. However, if you are self employed, or your employer has fewer than 20 employees, you should sign up at age 65.

Required Minimum Distributions (RMDs): RMD’s are mandatory from IRA accounts and 401(k)s (unless you are working for an employer who sponsors the plan) starting the year you turn 70.5. If you are working, you do not have to take RMDs from the 401(k) of your current employer; it is only required from former workplaces if they were never rolled over. These distributions can affect what tax bracket you will fall into, so it’s important to plan accordingly.




In a private letter ruling, the IRS has refused to waive the requirement to roll over IRA distributions within 60 days for an individual whose bank failed to advise her of the deadline.

The IRS determined that the taxpayer did not qualify for relief because she did not show that the bank had a duty to inform her of the 60-day requirement. The overall facts also indicated that the ability to redeposit the amount was within her reasonable control during the time period in question (PLR201339002).

Normally, there is no immediate tax if distributions from an IRA are rolled over to an IRA or other eligible retirement plan. For the rollover to be tax-free, the amount distributed from the IRA generally must be re-contributed to the IRA or other eligible retirement plan no later than 60 days after the date that the taxpayer received the withdrawal from the IRA.

A distribution rolled over after the 60-day period generally will be taxed and may be subject to a 10 percent premature withdrawal penalty tax. Only one tax-free IRA-to-IRA rollover per IRA account can be made within a one-year period.

The IRS may waive the 60-day rule if an individual suffers a casualty, disaster or other event beyond that person’s reasonable control and if not waiving the 60-day rule would be against equity or good conscience (i.e., hardship waiver).

The IRS will consider several factors in determining whether to waive the 60-day rollover requirement. These factors may include, for example, the time elapsed since the distribution; the inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; and errors committed by a financial institution.

In the new private ruling, an individual withdrew money from three IRAs maintained at a bank (Bank A) with the intent of depositing these funds at a later time into another IRA that would yield a better rate of return. The individual opened a rollover IRA at Bank B 68 days later but was informed that the intended deposit could not be accepted as a rollover contribution because the 60-day period had expired.

The IRS declined to waive the 60-day requirement. Although one of the factors on which relief can be based is whether errors were committed by the relevant financial institutions, the taxpayer did not demonstrate that Bank A had a duty to inform her of the 60-day rollover requirement.

Instead, the IRS found that the ability to timely redeposit the money into a rollover IRA was within the reasonable control of the taxpayer. Although the bank did not tell her that she needed to redeposit the funds within 60 days, she had the ability to do so.

When it comes to the tax law, not knowing about the rules generally is an insufficient excuse for not complying with them.

©2013 CPAmerica International


More people are heading to their retirement plans at work for a bail out in today’s economic times. An individual will have financial options if he or she should be so lucky as to a have a retirement plan at work.

An employee may request a hardship distribution or a loan from their retirement plan at work, if available. There are strict rules that must be followed or unwanted tax consequences may occur due to non-compliance.

A retirement plan may, but is not required to, provide hardship distributions. The plan, if it provides for hardship distributions, must specify the criteria used to determine hardship. Hardship withdrawals are subject to income tax and the 10% early withdrawal penalty if the employee is under 59 ½ years of age.

Borrowing from your retirement plan is another option available if offered. The maximum amount a participant may borrow from his or her plan is 50% of his or her vested account balance or $50,000, whichever is less. A plan could include an exception to the 50% of the vested account balance limit if the balance is less than $10,000. A participant may borrow up to $10,000 if the exception is included in the plan.

Federal law mandates that participant loans must be repaid within five years and payments must be made at least quarterly. An exception to the 5-year rule is if the loan is used to purchase a primary residence. The rules for repayment for a primary home loan can vary by the individual plan.

Any outstanding participant loan balance in the event of termination of employment is treated as a fully taxable distribution at the time of separation from employment. The “distribution” may also be subject to the 10% early withdrawal penalty if the employee is under the age of 59 ½.

Depending on the personal situation, one option may be better than the other from a tax standpoint.

No repayment is required on a hardship distribution. Taxes must be paid on the distribution and may incur the 10% early withdrawal penalty as well.

Participant loans must be repaid but are not taxed as income unless employment terminates.



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