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San Jose retirement plan tax attorney self-correctionThe administration of retirement accounts is notoriously technical, and mistakes by plan sponsors can occur. Furthermore, since an account holder will be maintaining and contributing to a retirement account for many years, there are often changes that must be made. Tax issues may arise when 403(b) and 401(a) retirement plans need to be corrected, and the IRS must typically be notified of any corrections. Fortunately, the IRS has several self-correction mechanisms in place that allow plan sponsors to resolve errors or mistakes on their own.

The IRS has three correction programs:

  1. Self-Correction Program (SCP): Used to amend certain plan failures without communicating with the IRS or paying a user fee.
  2. Voluntary Correction Program (VCP): Used to rectify failures not eligible for the SCP or get the IRS’s statement in writing that specified failures were correctly resolved.
  3. Audit Closing Agreement Program (CAP): Used to correct failures found in the course of an IRS audit that cannot be self-corrected.  

The IRS recently announced an expansion of the self-correction program to allow additional types of failures to be remedied through the SCP instead of requiring parties to make a VCP submission to the IRS. The VCP process can often be expensive and lengthy.

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San Jose retirement plan tax attorneyRetirement should be a carefree time for those who have earned the chance to enjoy the later years of their life. When you no longer have to work, you are probably looking forward to spending time with family and pursuing hobbies, and you will be able to use the money you have saved throughout your career to provide for your needs. However, one thing that retirees are often surprised by is the fact that the funds coming out of their retirement accounts may be subject to taxes.

Because retirees are on a fixed income, every dollar counts, and these taxes can cut into the amount of money you will be able to comfortably withdraw from your retirement savings. Fortunately, an experienced tax attorney can help you understand how you will be taxed during your retirement years.

Taxation on Retirement Income

Here are some common income streams for retirees and how each is taxed:

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San Jose tax planning attorneyIf you are one of the millions of Americans who is saving for retirement, the IRS recently announced some good news for you. Starting in 2019, you can contribute more money to certain retirement accounts, including IRAs, 401(k)s, 403(b)s, most 457 plans, and the Thrift Savings Plan for federal workers. These changes will allow many people to save more money for retirement, and more tax deductions will be available.

Changes to Contribution Limits and Deductions

With this change, the IRS has increased the annual IRA contribution limit for the first time since 2013. The IRS also announced rules that make it easier to qualify for a Roth IRA as well as to deduct contributions to a traditional IRA. The changes include:

  • With respect to the contribution limits to IRAs and Roth IRAs, the limit in 2019 is $6,000. That is a $500 increase from years prior.
  • An extra $500 can be contributed to 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans. The new limit is $19,000 in 2019.

Starting in 2019, more people will be eligible for Roth IRAs. These IRAs have the distinct advantage of tax-free distributions during retirement. Only those under certain income levels qualify for a Roth IRA.

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