New Direction IRA Releases End Of Year Tips for IRA Holders

The tips and deadlines are relevant to investors who hold IRAs or Health Savings Accounts (HSAs) – especially if those accounts are self-directed.

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“It is easy to overlook important deadlines and processes, but if investors make a habit of going through this checklist at the end of each year, they can avoid many headaches later on.” --Catherine Wynne, New Direction IRA

Louisville, CO (PRWEB) December 17, 2012

The end of the calendar year often spurs a flurry of activity around financial matters, particularly with retirement investments. New Direction IRA today released tips to help IRA holders meet important end-of-year deadlines and get their investments in order for the New Year.

Among the most valuable tips, those with retirement investments need to think about important contribution deadlines, fair market valuations, tax filing requirements, 1099-R forms, updating beneficiaries and required minimum distributions. The tips and deadlines below are relevant to investors who hold IRAs or Health Savings Accounts (HSAs) – especially if those accounts are self-directed.

“The end of the year is a great time to ensure you have all of your ducks in a row with your IRAs,” said Catherine Wynne, co-founder and president of New Direction IRA. “It is easy to overlook important deadlines and processes, but if investors make a habit of going through this checklist at the end of each year, they can avoid many headaches later on.”

Important Contribution Deadlines

Traditional IRA and Roth IRA Dates to Remember:

  • The deadline to open an account is April 15 (tax day) of next year.
  • The deadline to contribute to an account is April 15 (tax day) of next year.
  • The deadline to make a Traditional to Roth conversion for the 2012 tax year is Dec. 31. This will affect your personal taxes for 2012.

SEP IRA Dates to Remember:

  • SEP IRAs can be established prior to the employer's tax filing deadline (plus extensions) for the tax year to which the qualifying contribution(s) will apply.
  • SEP contributions can be made up until the tax filing deadline for the company, including extensions.

SIMPLE IRA Dates to Remember:

  • The deadline to open a SIMPLE IRA is Dec. 31 for that tax year.
  • The deadline for the employee to contribute is Dec. 31 for that tax year.
  • The deadline for the employer to contribute is the extended due date of the company return.

Individual 401(k) Plan Dates to Remember:

  • The deadline to open an Individual 401(k) is Dec. 31 for that tax year.
  • The deadline for the employee to contribute is Dec. 31 for that tax year.
  • The deadline for the employer to contribute is the extended due date of the company return.

HSA Dates to Remember:

  • The deadline to open an account is April 15 (tax day) of next year. However, keep in mind that you cannot use HSA funds to pay (tax free) for qualified medical expenses incurred prior to opening the account. Also, a high-deductible health plan (HDHP) must be in place at some point in the contribution year.
  • The deadline to contribute to an account is April 15 (tax day) of next year.

Fair Market Valuations

An IRA must have a substantiated value each year. A fair market valuation is used to assign the value of each asset. IRA custodians are required to provide a year-end value for all IRA accounts. For most assets in self-directed IRAs, the IRA owner will prepare a fair market valuation form and have an independent professional provide the actual value. The value itself may not be determined by the IRA owner or a disqualified person.

Tax Filing Requirements

Remember that IRAs that hold some specific assets may have tax filing requirements. Profits from leveraged real estate or investment in an entity can result in taxable income for the IRA. There are three common sources of unrelated business taxable income (UBTI) for your IRA. Your self-directed IRA (or IRA-owned LLC) will likely need a tax filing if the plan or entity has received any of these in the past year:

  • A K-1 with line 1 (operating income)
  • Debt-financed income
  • Rental income from IRA-owned (non-real estate) property

The appropriate tax form is called a 990-T for taxable income in a nonprofit entity and is due on April 15. The IRA must pay the tax.

1099-R Forms

You may have occasion to ask yourself, “Why did I get this 1099-R?” See below for a list of reasons why people receive 1099-Rs. Depending on the reason you receive a 1099-R, you may or may not have personal tax consequences, so it is a good idea to understand the form and why you received it.

You will receive a 1099-R if you:

  • Took a distribution from a retirement account
  • Made a conversion of a Traditional IRA to a Roth IRA
  • Devalued an asset to zero and had it distributed from the account
  • Rolled funds over from a 401k to an IRA or other retirement plan
  • Rolled funds over from an IRA to an HSA

If you performed one of the first two items on the above list, your reported income will increase by the amount reported on the 1099-R form. If your asset was devalued to zero and you distributed that asset, you are technically paying tax on a distribution that has zero value and therefore no tax. If you received the 1099-R form for one of the last two reasons listed above, and the rollover was completed within the proscribed limits, you will not have a personal tax consequence for this tax year but will still have to report the amounts on your personal return.

Updating Beneficiaries

The year’s end is a good time to ensure your beneficiaries are current. Because an IRA is a long-term investment instrument, it is not uncommon for circumstances around your designated beneficiaries to change. In order for your IRA assets to be inherited by your beneficiaries, your IRA paperwork must have them properly named. Check your account beneficiaries and make any needed changes to your designations.

Required Minimum Distributions

For Traditional, SEP and SIMPLE IRA owners who are 70 1/2 or over, remember that the IRS requires you to take a minimum distribution – called a Required Minimum Distribution (RMD) – each year from your Traditional, SEP or SIMPLE IRA. The deadline to request your RMD is Dec.31, 2012. The IRS allows you to take the total amount of your RMD from any or all of the Traditional, SEP or SIMPLE IRAs you hold, but if you don’t take the total amount required, you can be assessed a 50 percent penalty for each year that amount remains in the IRA.

About New Direction IRA

New Direction IRA is a trusted provider of investor education and recordkeeping services for self-directed IRA and precious metals IRA holders. Since its inception in 2003, New Direction IRA has been at the forefront of the self-directed retirement investment market. The company enables individual investors to take control of and diversify their tax-advantaged retirement funds using alternative asset opportunities such as real estate, precious metals, LLCs, notes and lending, and more. Headquartered in Louisville, Colo., New Direction IRA administers more than $570M in assets on behalf of over 7,000 account holders. Visit the website at http://www.newdirectionira.com.

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