Benefits of Roth IRA, by Chicago Accountants.

Many investors and financial professionals are familiar with the primary benefits of a Roth IRA: that after you pay taxes on the money going into the Roth IRA that the plans investments grow tax free and come out tax free.  That being said, there are so many more benefits to the Roth IRA that need to be noted. I’ll note just three.

First, Roth IRAs are not subject to RMD. Traditional retirement plan owners are subject to rules known as Required Minimum Distribution rules which require the account owner to start taking distributions and paying tax on the distributions (since traditional plan) when the account owner reaches the age of 70 ½. Not being subject to RMD rules allows the Roth IRA to keep accumulating tax free income (free of capital gain or other taxes on its investment returns) and allows the account to continue to accumulate tax free income during the account owner’s life time.

Second, a surviving spouse who is the beneficiary of a Roth IRA can continue contributing to that Roth IRA or can combine that Roth IRA into their own Roth IRA.  Allowing the spouse beneficiary to take over the account allows additional tax free growth on investments in the Roth IRA account. A traditional IRA on the other hand cannot be merged into an IRA of the surviving spouse nor can the surviving beneficiary spouse make additional contributions to this account. Non spouse beneficiaries (e.g. children of Roth IRA owner) cannot make additional contributions to the inherited Roth IRA and cannot combine it with their own Roth IRA account. The non spouse beneficiary becomes subject to required minimum distribution rules but can delay out required distributions up to 5 years from the year of the Roth IRA account owner’s death and is able to continue to keep the tax free return treatment of the retirement account for 5 years after the death of the owner. The second option for non-spouse beneficiaries is to take withdrawals of the account over the life time expectancy of the beneficiary (the younger the beneficiary the longer they can delay taking money out of the Roth IRA). The lifetime expectancy option is usually the best option for a non-spouse beneficiary to keep as much money in the Roth IRA for tax free returns and growth.

Third, Roth IRA owner’s are not subject to the 10% early withdrawal penalty for distributions they take before age 59 ½ on amounts that are comprised of contributions or conversions. Growth and earning are subject to the early withdrawal penalty and to taxes too but you can always take out the amounts you contributed to your Roth IRA or the amounts that you converted without paying taxes or penalties (note that conversions have a 5 year wait period before you can take out penalty and tax free).

Roth IRAs are a great tool for many investors. Keep in mind that there are qualification rules to being eligible for a Roth IRA that leave out many high income individuals. However, you can convert your traditional retirement plan dollars to a Roth IRA (sometimes known as a backdoor Roth IRA) as the conversion rules do not have an income qualification level requirement on converted amounts to Roth IRAs. This conversion option has in essence made Roth IRAs available to everyone regardless of income

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Is the rental cost of a safe deposit box Tax Deductible?

We are Accountants in Chicago and we were recently asked the following question by a client of ours.

Which is the best solution for the investment? Should Investments Be Kept In A Safe Deposit Box?  Is the cost of Safe Deposit box tax deductible?

Depending on the investment it could be a good idea to keep our investments in a safe deposit box. Certainly, some investments definitely require this sort of protection, such as rare coins, stamps, and similar collectables, gold and silver, and negotiable instruments, such as bearer bonds that can be cashed by anyone who possesses them. The cost of renting the box isjustifiable for keeping these items safe.

When we talk about stock certificates and other such proof of ownership, the need is less critical since these can be replaced, but the delay and inconvenience of replacing them may warrant safeguarding them as well. Although less critical, many individuals feel the need to also include insurance policies, deeds, birth certificates, wills, trust documents, etc., in their safe deposit box. If you do include the originals of these documents in the lockbox, be sure to make digital copies or photocopies for everyday reference. It is also important that the individual(s) you designate to handle your affairs in case of death or incapacity has a list of your investments and important documents and knows where they are kept.

However, if you do rent a safe deposit box to store valuables, you may wonder, is the cost a tax deduction?  For Individual Income Tax Return, the answer is YES if the box is used to store taxable income-producing stocks, bonds, or investment-related documents, if you itemize your deductions, and if the box rental plus other “miscellaneous” deductions exceeds 2% of your adjusted gross income. The answer is NOwhen you prepare your Individual Income Tax Return,  if you use the safe deposit box only to store jewelry or other personal items or for tax-exempt securities.

Call CPA in Chicago, Illinois at 773-728-1500 for questions regarding Individual Income Tax and the appropriateness of Tax Deductions.

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