change on your home — mean- ing you sell the home or it stops being your pri- mary residence — you must report it on a Form 5405 to keep the IRS up-to-speed on your tax obli- gation. Don’t think the IRS won’t find out if you neglect to file the Form 5405. The IRS
Rollover Chart
Roll to Roll from
Traditional IRA/
SEP IRA
Simple IRA Roth IRA
Qualified Plan1 (pretax)/403(b) (pretax)
403(b), or 457(b)2] 457(b)
Designated Roth Account [401(k),
(govt. plan)
after 2 years
Yes, No Yes No Yes Yes No No
No No
1-QUALIFIED PLANS INCLUDE PROFIT-SHARING, 401(K), MONEY PURCHASE, AND DEFINED BENEFIT PLANS. 2-GOVERNMENT 457(B) PLANS AFTER DEC. 31, 2010. 3-MUST INCLUDE IN TAXABLE INCOME IN THE YEAR TRANSFERRED.
Traditional IRA/ SEP IRA
Yes Simple IRA Roth IRA Qualified Plan1 No Yes3
Yes3, after 2 years
Yes Yes3 Yes Yes3 Yes
after 2 years
Yes, No Yes No Yes
(pretax)/403(b) (pretax)
403(b), or 457(b)2 ] No
Designated Roth Account [401(k),
No No
9/27/10 (403(b)) or 12/31/10 (Qualified Plan1)
Yes 3,5, after trustee transfer if trustee to Yes,
Yes 3,5, after 12/31/10
4-MUST HAVE SEPARATE ACCOUNTS. 5-MUST BE AN IN-PLAN ROLLOVER. SOURCE:
WWW.IRS.GOV/PUB/IRS-TEGE/ROLLOVER_CHART.PDF
(govt. plan) Yes4
457(b)
Yes4, aſter 2 years
No Yes4 No Yes4
will find out when paper- work from financial firms, title com- panies, local/county tax records, etcetera, starts to flow.
5. VA funding fee An extension to the law allows the VA funding fee to be deducted in the year a mortgage agreement is signed. The deduction is phased out for filers exceeding $100,000 in adjusted gross income (AGI) at 10 percent per each $1,000 (or portion thereof) over the $100,000 thresh- old. If your AGI is over $109,000, you get no deduction. (If you file as a single, the threshold is $50,000, and the deduction is phased out in $500 increments.)
6. Social Security payroll tax For 2011, payroll checks saw a slight increase in take-home pay because the Social Security payroll tax was re- duced by 2 percent. Come 2012, your take-home pay will show a slight de- crease, as the Social Security tax rises back to its normal level in 2012.
7. Kids in college Qualified student loan interest may be claimed as a deduction, up to $2,500, through 2012. To qualify, you must
have income less than $70,000 (for single filers; $140,000 for married filing jointly). The deduction starts phasing out at $55,000 (for singles; $110,000 for married filing jointly).
8. Estate tax changes The unused portion of your estate and gift tax exclusion became por- table starting in 2011. This means a married individual who does not use all of his or her $5 million exclusion automatically can pass the unused portion to a surviving spouse. You no longer are required to pass on your unused exclusion amount by retitling property or establishing trusts de- signed to take full advantage of each spouse’s exclusion amount. A survi- vor must make the election by filing a Form 706, Estate Tax Return, with- in nine months of the spouse’s death. With the current estate tax exclu- sion amount of up to $5 million, you can leave more estate to your spouse — but your will, trusts, beneficiary arrangements, powers of attorney, etcetera, might unintentionally limit how much your spouse gets and cause others to get too much if your legal documents set transfer quantities based on old exclusion amounts. Your plan might stipulate specific amounts,
percentages, or divisions that no lon- ger make sense with the higher exclu- sion amount. Check to ensure your spouse doesn’t get shortchanged. Another consideration is your
state’s estate and inheritance tax laws. The federal estate tax exclusion is $5 million, but your state’s exclusion amount could be a lot less. Investigate this, and determine your options.
9. Video tax help Need help with a tax issue? The IRS has videos explaining many common tax situations. Go to
www.irsvideos .gov to watch for yourself.
10. State tax issues Review the big-ticket items state-by- state at
www.moaa.org. Look under “Access Member Benefits” on the red bar at the top, click on “Finance,” “Financial Planning Tools” and drill down through “Taxes.” That’s it for this year. Happy fil-
ing, and be sure to check IRS Pub- lication 3, Armed Forces’ Tax Guide,
www.irs.gov/pub/irs-pdf/p3.pdf.
— Lt. Col. Shane Ostrom, USAF- Ret., CFP®
, is a deputy director in
MOAA’s Benefits Information and Finan- cial Education Department.
F E B R UARY 2012 MILITARY OFFICER 65 MO
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