Understanding Your Rights as Trust Beneficiary

August 24, 2015 by Leave a Comment

Understanding Your Rights as Trust Beneficiary

As a trust beneficiary, you may have rights, depending on both the type of trust and the type of beneficiary you are, to ensure the trust is properly managed.

A trust is a written agreement whereby a person called a settlor or grantor designates someone called a trustee to be responsible for managing their assets or property. The trustee holds legal title to the assets for another person, called a beneficiary. The rights of a trust beneficiary depend on the type of trust and the type of beneficiary.

If the trust is a revocable trust, the person who set up the trust can change it or revoke it at any time so the trust beneficiaries other than the grantor have very few rights. Because the grantor can change the trust at any time, he can also change the beneficiaries at any time. Often a trust is revocable until the grantor dies and then it becomes irrevocable. An irrevocable trust is a trust that cannot be changed except in rare cases by court order.

Beneficiaries of an irrevocable trust have rights to information about the trust and to make sure the trustee is acting properly. The scope of those rights depends on the type of beneficiary. Current beneficiaries are beneficiaries who are currently entitled to income from the trust. Remainder or contingent beneficiaries have an interest in the trust after the current beneficiaries’ interest is over. For example, a wife may set up a trust that leaves income to her husband for life making him the current beneficiary, and then the remainder of the property to her children who are the remainder beneficiaries.

The terms of the trust determine exactly what rights a beneficiary has, but following five common rights given to beneficiaries of irrevocable trusts:

  • 1. Payment. Current beneficiaries have the right to distributions as set forth in the trust document.
  • 2. Right to information. Current and remainder beneficiaries have the right to be provided enough information about the trust and its administration to know how to enforce their rights. This usually means given access to the trust document and the year-end bank or brokerage statements.
  • 3. Right to an accounting. Current beneficiaries are entitled to an accounting. An accounting is a detailed report of all income, expenses, and distributions from the trust. Usually trustees are required to provide an accounting annually, depending on the terms of the trust. Beneficiaries may waive the accounting if they are satisfied with the handling of the trust assets by the trustee.
  • 4. Remove the trustee. Current and remainder beneficiaries have the right to petition the court for the removal of the trustee if they believe the trustee is not acting in their best interest. Trustees have an obligation to balance the needs of the current beneficiary with the needs of the remainder beneficiaries, which can be difficult to manage. For example if the trustee does not make necessary repairs to real estate that the current beneficiary has a life estate in, and that will pass to the remainder beneficiaries or not following the intent of the trust. If the reason for removing the trustee is because of large losses of principal, the Court may order the trustee to repay the trust.
  • 5. Terminate the trust. In some circumstances, if all the current and remainder beneficiaries agree, they can petition the court to terminate the trust. Usually, the purpose of the trust or the intent of the grantor must have been fulfilled or it is impossible to fulfill.

If you need a trust or are a trust beneficiary with questions call Gregory J. Spadea of the Law Offices of Spadea & Associates, LLC at 610-521-0604.

Filed Under: Estate Planning, Trusts

Protection From Abuse Order in Delaware County

July 15, 2015 by

Man Arrested for Domestic Abuse

What To Do if Someone Files For a Protection From Abuse Order Against You in Delaware County

When someone you have a relationship with such as a spouse, parent, girlfriend or family member applies for an emergency temporary protection from abuse (PFA) order against you, you will be served by your local police to show up for a hearing. You should hire an attorney because you are not eligible for a public defender at the initial hearing. If you represent yourself and are found guilty the court will make the Order permanent and you can face:

1. immediate eviction if you live with the Plaintiff;

2. you have to relinquish any firearms or license to carry to the Delaware County’s Sheriff’s Office;

3. the PFA will be part or your criminal record and may affect your ability to get future employment.

If you fail to show up for the hearing or violate a protection from abuse order, the Court will hold you in contempt and you can face up to 6 months in prison or a $1,000 fine or both. Therefore it is important not to contact the party that filed a protection form abuse against you. It is also very important to bring witnesses to the hearing who can testify on your behalf as well as any other evidence.

The longest a protection abuse order can remain in effect is 3 years. However, if there was a violation of the PFA and you were held in contempt, it can be extended until the end of the criminal contempt hearing and possibly longer.

Therefore, if you receive Notice that a PFA has been filed against you contact Gregory J. Spadea at the Law offices of Spadea & Associates, LLC at 610-521-0604.

Filed Under: Criminal Law

Affirmative Defenses to Criminal Charges in Pennsylvania

June 4, 2015 by

Close up of aman wearing handcuffs

Affirmative defenses are strategies in situations where the defendant introduces evidence, which, if found to be credible, will negate or mitigate criminal liability. In essence the defendant admits that he committed a crime but some type of justification existed for it. Affirmative defenses include the following:

  • Self-Defense – which embraces the concept that conduct which would otherwise constitute a crime can be excused when necessary to prevent a greater harm. Conduct which the defendant believes to be necessary to avoid a harm to oneself or to another is justifiable if the harm sought to be avoided by such conduct is greater than that sought to be prevented by the law defining the offense charged.
  • Mental Insanity – a defense of insanity acknowledges commission of the act by the defendant, while maintaining the absence of legal culpability.  The test of legal insanity is not whether the defendant was mentally ill from a medical viewpoint, but whether the defendant knew what he was doing and knew that it was wrong.
  • Voluntary Intoxication – based upon the ingestion of a drug or alcohol is a limited defense. The defendant has the burden to prove that he was overwhelmed through the use of drugs or alcohol to the extent that he could not formulate the specific intent to commit murder.  It is only a defense to first degree murder which is murder with the specific intent to kill. It is not a defense to everyday crimes, such as retail theft.
  • Entrapment – to prove entrapment the defendant has to show that the crime is one that he would not have committed, and he had no predisposition to commit, without the inducement of an undercover cop acting with him.  The fact that the undercover cop tricked the defendant into assuming he would not get caught doesn’t make it entrapment.
  • Defense of Others – similar to self-defense which embraces the concept that conduct which would otherwise constitute a crime can be excused when necessary to prevent a greater harm to others.
  • Mistake of fact – can be a defense to a criminal charge when the conduct in question would have been lawful had the facts been what they were reasonably thought to be. However, mistake of age is not a defense when the criminal charge deals with photographing, videotaping, or depicting children. Ignorance of the law is no defense but ignorance or a mistake as to a fact which made the defendant act in a certain way is a defense if the mistake negates the intent, knowledge, belief, or negligence required to establish a material element of the offense. An example is if a defendant goes into a store and presents nine items to the cashier for payment. Both honestly believe that all nine items have been scanned, and the defendant pays the sum shown on the bill. However, the store detective reviews the bill and notices only eight of items were paid for. Since the defendant honestly believes that he has become the owner of goods in a sale transaction, he cannot form the intent for the theft when he removes them from the store. Accordingly, he has not committed a crime due to a mistake of fact. The most common exception to the mistake a fact rule is mistake as to age. If criminal conduct depends on a child being under the age of 14 the defendant cannot assert that he did not know the age of the child as a defense. If, however, criminality depends on an age 14 years or older the defendant may assert that he reasonably believes the child to be above the required age. While the defendant may assert this defense the burden is on his attorney to prove it beyond a preponderance of the evidence.
  • Consent – when asserting this defense the defendant does not dispute that a criminal act took place but rather he states that the conduct was permitted by the victim. Generally consent is a defense if the alleged victim gives competent, intelligent, and voluntary consent to the conduct charged. Consent is a defense because it negates the mental element of a crime. For example, if crime requires bodily injury or the threat of bodily injury consent as a defense provided that the conduct and the injury are reasonably foreseeable hazards from the activity. It is important to understand, however, that consent is not a defense if the person consenting is not legally competent because of their youth, mental illness, or intoxication to make a reasonable judgement. Consent is also invalid if it is given because of force, duress, or deception.
  • Unavoidable Accident – the defendant while exercising reasonable care could not have avoided the accident because the victim put themselves in harms way.
  • Coercion – occurs if the defendant is forced by another party to act in an involuntary manner by use of intimidation or threats or some other form of pressure.
  • Execution of public duty – a defendant may use deadly physical force in execution of public duty only to protect against another’s use or apparent attempted or threatened use of deadly physical force. For example a security guard can shoot someone who is attacking someone else if he feels the person being attacked is in danger.
  • Defense of property – the defense of property permits individuals to use a reasonable amount of force to protect their property. If an intruder enters your home you can defend yourself by using deadly force if you feel threatened and there is no duty to retreat inside your home. However, if you are outside your home there is a duty to retreat before using force to defend yourself if you can do so with complete safety. An example would be if you are driving in a bad neighborhood and are stopped at a red light and a man walks up to the car and pulls a knife and tells to get out of the car and he can drive away to escape you have a duty to drive away.

Always remember that a defendant is not required to admit to anything to assert an affirmative defense and should always maintains the right to remain silent. Your attorney can assert an affirmative defense using other witnesses, photographs, videos or documents. If you are charged with a crime and need representation, call Gregory J. Spadea at 610-521-0604 in Ridley Park, Pennsylvania.

Filed Under: Criminal Law

What You Need to Know About IRS Late Filing and Late Paying Penalties

May 7, 2015 by

Late taxes legal action notice

April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.

  1. Two penalties may apply. If you file your federal income tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.
  2. Penalty for late filing. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes. However if you requested a six month extension by filing form 4868 by April 15, and filed the return by October 15, you will not be penalized for late filing.
  3. Minimum late filing penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.
  4. Penalty for late payment. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.
  5. Combined penalty per month. If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.
  6. File even if you can’t pay. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov or calling 1-800-829-1040 or filing form 9465.
  7. Late payment penalty may not apply if you filed an extension. If you requested a six month extension of time to file your federal income tax return by April 15 and paid at least 90 percent of the taxes you owe, you will not face a failure-to-pay penalty. However, you must pay the remaining balance by the October 15. You will owe interest on any taxes you pay after the April 15 due date.
  8. No penalty if reasonable cause. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014. If you have any questions please contact Spadea & Associates, LLC online or at 610-521-0604.
Filed Under: Tax Law, Tax Return Tagged With: , ,

Courtroom Appearance Really Matters

February 5, 2015 by

Man wearing suit

Clients often ask how they should act and what they should wear when appearing in court. As a general rule your overall appearance and that of your defense counsel should always try to convey trustworthiness and credibility.

With regards to your actions in the courtroom, you should be prepared to testify and understand what the prosecution is going to question you about and what he must prove to meet his burden of proof. In addition to the obvious content of your testimony, you should understand that it is not only what you say but how you say it, including the tone of your voice, how quickly you speak and always maintaining eye contact. It is also a good idea to be aware of your conduct when sitting next to your attorney. Understand that someone will always be watching you therefore wild outbursts, eye rolling and hand gestures are not unacceptable. Instead practice sitting calmly with a pad of paper and a pen and focus on listening. Your attorney also needs to listen to be effective so do not interrupt him. Interrupting him during opposing counsel’s direct examination or cross examination could cause him to lose his focus and miss a critical response. You should remain silent while writing down your questions and inconsistencies in the witness testimony and wait until the other attorney is finished questioning the witness before you speak to your attorney.

With regard to courtroom dress, I always wear a suit so I recommend a suit for men and a suit or a longer skirt for women. At the very least men should wear a collared shirt, a sports coat, and slacks. Women should avoid wearing anything too provocative. Neither men nor women should ever wear t-shirts, hoodies, sneakers, sandals, flip flops, or jeans. Men and women should wear conservative dress shoes and women should avoid open toe foot wear. Men should be clean shaven and well groomed. While a professional appearance will not necessarily make a bad case good, a poor appearance will just give the judge or jury one more reason not to believe or respect you. Do not underestimate the power of nonverbal communication. Your appearance and that of your witnesses creates a positive or negative impression. Appearance must reinforce your attorney’s arguments. In most cases your attorney may present a mistaken identity theory (it wasn’t my client) and so your appearance should reinforce the argument that you couldn’t have committed this type of crime because you don’t fit the part. Proper appearance can reinforce good character but it can also imply good character when your attorney can’t talk about it. The law understands that appearance and nonverbal communication matter. In their final instructions to a jury prior to their deliberations, judges tell jurors that they are permitted to use a person’s nonverbal responses and cues to determine credibility.

The bottom line is that appearance matters and preparation is critical, so be prepared and give the judge and jury every reason to like you. If you are charged with a crime contact Gregory J. Spadea online or at 610-621-0604 of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Filed Under: Criminal Law, General Tagged With: , ,

Making Federal Estimated Tax Payments

January 23, 2015 by

A picture of a tax return form

I often get phone calls from clients asking how to calculate estimated federal and state income tax payments. The payment for the first quarter estimate is due on April 15th.
In general, estimated taxes must be paid on any income which is not subject to withholding, including taxable income from self-employment, interest, dividends, alimony, gambling winnings, unemployment compensation, social security, rent, and gains from the sale of assets. You may also have to pay estimated tax if the amount of income tax being withheld from your salary, social security, pension or other income is not enough to cover your tax due. Estimated tax is used to pay income tax and self-employment tax, as well as other taxes reported on your personal income tax return. If you do not pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty. You may be charged a penalty even if you are due a refund when you file your return. Estimated tax payments are made in four quarterly installments and can be based on a regular tax method or an annualized income installment method.

If you choose not to use the “Regular installment method”, the annualized installment method allows you to compute your estimated tax based on actual income earned in each of four specific periods. As a result, tax on income which is seasonally earned will not be paid until the period in which it is earned. For example, if a significant percentage of your income is earned in the last quarter of the year, then utilizing the annualized income installment method will allow you to defer the payment of tax on this income to the final quarter as opposed to paying the tax on this amount in equal installments throughout the year.

In general, under the regular installment method, the required annual payment which is paid quarterly through estimated taxes (if no tax is withheld) is the smaller of 1) 90% of the current year’s total expected tax or 2) 100% of the tax shown on the prior year return. Note that if your last year’s Adjusted Gross Income was over $150,000 ($75,000 for married filing separately); the safe harbor is 110%. Adjusted Gross Income refers to all taxable income less certain deductions such as your SEP/IRA/Other Retirement Plan contributions, alimony payments, deductible health insurance premiums paid for self-employed individuals, moving expense deductions, deductible tuition, student loan interest and fees and self-employment tax deductions.

Timing of Payments, Penalty for Underpayment

The year is divided into four payment periods for estimated tax purposes. Each period has a specific payment due date. Note that if you do not pay enough tax by the due date for each period, you may be charged a penalty through the date any underpayment remains outstanding even if you are due a refund upon filing your income tax return. The penalty is equal to the interest rate charged on tax deficiencies (3% per year as of January 20, 2015) on the amount of the installment underpayment from the date the installment is due until the earlier of the date the underpayment is made up for April 15th of the next year. Thus, generally the penalty for underpayment of an estimate is equivalent to paying the IRS non-deductible interest.

The specific due dates for estimated tax payments are as follows:

Period Due Date
January 1 – March 31 April 15
April 1 – May 31 June 15
June 1 – August 31 September 15
September 1 – December 31 January 15 of following year

Here are tips worth considering about estimated taxes and how to pay them.

  1. As a general rule, you must pay estimated taxes in 2015 if both of these statements apply: 1) You expect to owe at least $1,000 in tax after subtracting your tax withholding and tax credits, and 2) You expect your withholding and credits to be less than the smaller of 90% of your 2015 taxes or 100% of the tax on your 2014 return. There are special rules for farmers, fishermen, certain household employers and certain higher income taxpayers.
  2. For Sole Proprietors, LLC Members, Partners and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.
  3. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year. You can use the worksheet in Form 1040ES, Estimated Tax for Individuals for this, or just email me your year to date Profit and Loss and I will help you.

The easiest way to pay estimated taxes is electronically through the Electronic Federal Tax Payment System or EFTPS. You can also pay estimated taxes by check or money order using 1040ES – Estimated Tax Payment Voucher or by credit or debit card, but I do not advise using your credit card due to the expensive service charge. If you have any questions please email or call Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley park, Pennsylvania

Filed Under: Tax Law, Tax Return Tagged With: , , ,

Achieving a Better Life Experience Act (ABLE) for 2015

January 13, 2015 by

Close up of female accountant making calculations

The Tax Increase Prevention Act of 2014 includes the new “Achieving a Better Life Experience Act (ABLE).” ABLE establishes a new type of tax-advantaged account for disabled individuals, allowing them to save money for future needs while remaining eligible for government benefit programs like Medicaid. Here is a quick summary of the most important tax changes-starting with those that affect individuals.

Beginning in 2015, the Act allows states to establish tax-exempt Achieving a Better Life Experience (ABLE) accounts to assist persons with disabilities in building an account to pay for qualified disability expenses. An ABLE account can be set up for an individual (1) who is entitled to benefits under the Social Security disability insurance program or the Supplemental Security Income (SSI) program due to blindness or disability occurring before the individual reached age 26 or (2) for whom an annual disability certification has been filed with IRS for the tax year.

Annual contributions are limited to the annual gift tax exclusion amount for that tax year which is $14,000 for 2015. Distributions are tax-free to the extent they don’t exceed the beneficiary’s qualified disability expenses for the year. Qualified disability expenses include housing, transportation, education, job training, health, financial management and legal fees.

Distributions that exceed qualified disability expenses are included in taxable income and are subject to a 10% penalty tax. However, distributions can be rolled over tax-free within 60 days to another ABLE account for the benefit of the beneficiary or an eligible family member. Similarly, an ABLE account’s beneficiary can be changed, as long as the new beneficiary is an eligible family member.

Except for Supplemental Security Income (SSI), ABLE accounts are disregarded for federal means-tested programs.

If you have any questions or would like help setting up an ABLE account feel free to contact Gregory J. Spadea online or at 610-521-0604, of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Filed Under: Tax Law Tagged With: , , , , , ,

How Much Can I Deduct For a Business Car or Truck in 2014 under IRC Section 179

December 29, 2014 by

Lot full of cars

To encourage businesses to buy equipment as well as cars and trucks Congress passed Internal Revenue Code (IRC) Section 179. For passenger vehicles, trucks, and vans (with a gross weight of less than 6,000 pounds), that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction as well as 50% Bonus Depreciation is limited to $11,060 for cars and $11,160 for trucks and vans. If the automobile cost $20,000 and is used 100% for business the business would get an IRC Section 179 deduction of $11,060 and a regular depreciation deduction of $1,788 (20% of the $8,490.00 difference). If the vehicle is used less than 100% for business both the Section 179 deduction and regular depreciation deduction are reduced proportionately based on the actual business use percentage.

SUV’s, trucks and vans with a gross vehicle weight rating above 6,000 lbs. but no more than 14,000 lbs. qualify for expensing up to $25,000 if the vehicle is financed and placed in service prior to December 31. In addition the business can deduct 50% of the remaining cost over $25,000 as bonus depreciation. However, the 50% bonus depreciation break will expire on December 31, 2014 unless Congress extends it.

For example, a new heavy SUV used 100% for business that costs $52,000 and qualifies for Section 179 could be written-off in 2013 as follows:

First Year Section 179 Deduction:                        $25,000
Bonus Depreciation (50% of remaining balance):  13,500
Regular Depreciation (20% of remaining balance):  2,700
Total First-Year Write-Off:                                     $41,200

However, businesses that experience net operating losses cannot claim an IRC Section 179 deduction that would create or increase an overall business tax loss. However they may take the 50% bonus depreciation deduction, and carry the remaining net operating loss forward were it can be used in future years.

If you have any questions or need help with your taxes or business deductions call Gregory J. Spadea of Spadea & Associates, LLC in Ridley Park at 610-521-0604. Spadea & Associates, LLC prepares business and individual tax returns year round.

Filed Under: Uncategorized

2015 Retirement Plan Contribution Limits

December 23, 2014 by

Jar with label Retirement Plan

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2015. In general, many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Here are the highlights:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit amount for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • Contribution limits for SIMPLE retirement accounts is increased from $12,000 to $12,500. The additional catch-up contribution limit amount for individuals aged 50 and over is increased from $2,500 to $3,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000 in 2014. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000 in 2014. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. Keep in mind there is no income limit for taxpayers who are not covered by a qualified retirement plan.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014. For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
  • The deductible contribution for Simplified Employee Pension Plans (SEPs) is $53,000, up from $52,000 in 2014.
  • The AGI limit for the saver’s credit, which also known as the retirement savings contribution credit, is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000 in 2014; and $30,500 for married individuals filing separately and for singles, up from $30,000 in 2014.

Spadea & Associates, LLC

Contact us online or at (610) 521-0604 to schedule a free consulation. At the law offices of Spadea & Associates, LLC, in Ridley Park, Pennsylvania, we represent individuals and businesses throughout southeastern Pennsylvania, including Delaware County, Montgomery County and Camden County. We also work with clients in Philadelphia and Burlington Counties.

Filed Under: Tax Law, Tax Return Tagged With: , , , , , , ,

IRS Clarifies One-Per-Year Limit on IRA Rollovers in 2015

December 18, 2014 by

Retirement plan documents and pen

The Internal Revenue Service recently issued guidance clarifying the impact a 2014 individual retirement arrangement (IRA) rollover has on the one-per-year limit imposed by the Internal Revenue Code on tax-free rollovers between IRAs.

The clarification relates to a change in the way the statutory one-per-year limit applies to rollovers between IRAs. The change in the application of the one-per-year limit reflects an interpretation by the U.S. Tax Court in a January 2014 decision applying the limit to preclude an individual from making more than one tax-free rollover in any one-year period, even if the rollovers involve different IRAs.

Before 2015, the one-per-year limit applies only on an IRA-by-IRA basis (that is, only to rollovers involving the same IRAs). Beginning in 2015, the limit will apply by aggregating all an individual’s IRAs, effectively treating them as if they were one IRA for purposes of applying the limit.

To allow transition time, the IRS made it clear that the new interpretation will apply beginning Jan. 1, 2015. A distribution from an IRA received during 2014 and properly rolled over within 60 days to another IRA, will have no impact on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. In other words, IRA owners will be able to make a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

Although an eligible IRA distribution received on or after Jan. 1, 2015 and properly rolled over to another IRA will still get tax-free treatment, subsequent distributions from any of the individual’s IRAs (including traditional and Roth IRAs) received within one year after that distribution will not get tax-free rollover treatment. As the guidance makes clear, a rollover between an individual’s Roth IRAs will preclude a separate tax-free rollover within the 1-year period between the individual’s traditional IRAs, and vice versa.

Keep in mind Roth conversions which are rollovers from traditional IRAs to Roth IRAs, rollovers between qualified plans and IRAs, and trustee-to-trustee transfers which are direct transfers of assets from one IRA trustee to another are not subject to the one-per-year limit and are disregarded in applying the limit to other rollovers.

Therefore IRA owners should request trustee to trustee direct transfers or request a check made payable to the receiving IRA trustee and deliver it to the receiving trustee themselves within 60 days of the check date.

If you have any questions, please contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604.

Filed Under: Tax Law Tagged With: , , , , , , ,

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