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2015 Tax Law Changes


 Contribution limits to 401(k)/Thrift Savings Plan (TSP)/403(b) plans increased to $18,000.


 Catch-up (over age 50) contributions to 401(k)/ TSP/403(b) plans increased to $6,000.


 Exemption amount is $4,000.


 Standard Deductions are • married, $12,600; • single, $6,300; and • head of household, $9,250.


 Maximum contribution to a defined contribution plan increased to $52,000.


TSP/401(k) plans


and IRAs Individual Retirement Account (IRA) eligibility. You’ve been told that because you are covered by the Thrift Savings Plan (TSP) or a 401(k) plan at work, the plan aff ects your ability to contribute to an IRA. It just ain’t so. Your participation in a plan at work has zero eff ect on your ability to contribute to an IRA or the amount you can contribute. What it does limit is your ability to deduct your contri- butions to a traditional IRA. Traditional IRA. If you participate


in a retirement plan at work, you lose your ability to deduct tradi- tional IRA contributions starting at $60,000 of modifi ed adjusted gross income (MAGI), and deductibility is completely phased out at $70,000 of MAGI. If you’re married, the phase- out range runs from $96,000 to $116,000 if the taxpayer or spouse is covered by a plan at work. However, if both the taxpayer and spouse are employed and one of them is not cov- ered by a retirement plan at work, the uncovered spouse can deduct the full contribution to a traditional IRA as long as the couple’s MAGI is less than $181,000. The deduction completely phases out at $191,000. If a couple’s income is above the phase-out limit,


Inheritance taxes Asset transfer and step-up. You might


be pretty sure you’ll have to pay income taxes when you get an inheritance. But don’t worry. It just ain’t so. Assets trans- fer from the decedent’s estate to you and other heirs without income taxation. But that doesn’t mean there will never be income taxes. It works like this: When the original owner of the asset dies, the basis (think of it as the cost of the asset) steps


up to the value of the asset on the date of death. When the estate or the person who inherits the asset sells the asset, capital gains or loss will be cal- culated based on the price the asset is sold for and the stepped-up basis. So, no income taxes are due when you receive the asset, but there could be some taxes based on the sale price of the asset when it is disposed of. Of course, there still could be estate or inheritance taxes.


the contributions can be made to a nondeductible traditional IRA. Roth IRA. As previously men-


tioned, your retirement plan at work does not aff ect your ability to con- tribute to a Roth IRA. If your income is below certain limits, you can make a full contribution to a Roth IRA. The phase-out for a single taxpayer starts at $114,000 and ends at $129,000. For a married couple fi ling jointly, the phase-out range runs from $181,000 to $191,000.


Tax laws are complicated. Be very


careful if you decide to act on some- thing you heard or your tax software insinuates. Before you take a deduc- tion, read the IRS publication (search at www.irs.gov) that addresses the topic you heard about and confi rm whether it just ain’t so.


MO


— Col. Curtis Sheldon, USAF (Ret), is a certifi ed fi nancial planner, an enrolled agent, and president of C.L. Sheldon & Co. LLC. His last article for Military Offi cer was “3 Military Tax Benefi ts,” February 2014.


FEBRUARY 2015 MILITARY OFFICER 51


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