Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Retirement Perspectives

Now is the time to review and take action to maximize your retirement, education, and health care accounts and secure a variety of tax benefits for you and your family.

In the final weeks of the year, it’s important to take time to review your retirement, education, and health savings (HSA) accounts to ensure you’re taking full advantage of the benefits offered. Here’s my annual checklist to use as a guide when you review your accounts.

Q. Have you fully funded your 401(k)?
A. 
In 2019, you can defer maximum of $19,000 into your 401(k), 403(b), 457(b), or Thrift Savings Plan (TSP). The limit is an aggregate of all pretax and/or Roth contributions made.

Tip: 457(b) deferrals are not coordinated with contributions to a 403(b) or 401(k) plan. Thus, you can fully fund a 403(b) or 401(k) without reducing the contribution limits to either plan. In other words, participation in both plan types offers a tremendous opportunity to fully fund both plans to maximize deferral limit, thus doubling your salary deferrals

For example, in 2019, an individual participating in both a 457(b) and 403(b) or 401(k) can defer up to a $38,000 ($19,000 into a 457(b) plus an additional $19,000 into a 401(k) or 403(b), for a total of $38,000). In addition, individuals age 50 and older can defer an additional $12,000 in catch-up contributions.

Q. Have you fully funded your individual retirement account (IRA)?
A.
 While it is true that you can wait until April 15, 2020 to contribute your IRA for the 2019 tax year, why not fund it now?

Virtually anyone with reportable (earned) income is eligible to fund a traditional IRA up to $6,000 ($7,000 including the age 50+ catch-up contribution) in 2019. However, everyone is not eligible to make Roth IRA contributions. Roth IRAs carry statutory maximum income levels; therefore, investors must satisfy an annual income test. Notably, there are no maximum age restrictions on Roth contributors, although individuals older than 70½ cannot make contributions to traditional IRAs.

Spousal IRA is sole exception to the income requirement; available to those couples where one spouse has no earned income. Notably, the spousal IRA only applies to those (married) couples that file a joint tax return.

Q. Have you fully funded your SIMPLE IRA?
A. 
In 2019, you can defer maximum of $13,000 into your SIMPLE IRA. By participating, you are eligible to receive a non-forfeitable employer funded contribution in the form of a 3% match or 2% non-elective.

Q. Have you funded a Roth IRA for a child?
A.
 There is no minimum age to establish a Roth IRA. A child, regardless of age, who has reportable earned income, is eligible to fund a Roth IRA. Once established, the IRA can be funded by anyone, up to the amount earned by the minor. For more information, see my article about establishing Roth IRA for a child.

Q. Have you had the “back-door” Roth IRA discussion?
A. 
As noted, Roth IRA eligibility is means tested—that is, an investor must satisfy an annual income requirement. Since 2010, however, high-income earners, regardless of the amount of household income, have been eligible to fund a traditional IRA and subsequently convert those funds to a Roth IRA, a strategy commonly referred to as a “back-door” Roth IRA. For more information on this popular strategy, see my column here.

Q. Did you mistakenly “overfund” your IRA?
A
. It’s a common error to over contribute to an IRA. "Excess contributions," as the IRS refers to them, typically occur when individuals unwittingly deposit funds that are not permitted to be made to an IRA.

There are a number of scenarios that can lead an IRA owner to overfund their IRA. For example, contributing more than the maximum annual contribution limit, not satisfying Roth income-eligibility, and funding an IRA with an ineligible rollover are a few of the common errors that lead to excess IRA contributions.

Reviewing all of your IRA account activity for the past year with your financial and/or tax professional can help you avoid an inadvertent overfunding that could result in taxes and/or penalties.

Q. Did you make a nondeductible (aftertax) IRA contribution?
A. 
If you did, it is essential that you or most likely your tax professional complete and file IRS Form 8606 “Nondeductible IRAs.” For more on nondeductible IRAs and form 8606, see my article.

Participation in an employer-sponsored plan, such as a 401(k), 403(b), 457(b), TSP, SIMPLE, or SEP IRA, does not affect IRA eligibility or contribution limits. However, participation may affect whether or not your contributions are tax deductible.

A number of variables apply in determining whether taxpayers’ contributions to their traditional IRA are tax deductible. Variables include filing status, modified adjusted gross income (MAGI), and whether individuals and/or their spouses are active participants in a workplace retirement plan.

To learn more about IRA deductibility, see my column here.

Q. Did you take a distribution from a traditional IRA? 
A. 
The tax liability of a distribution (e.g. normal, conversion, RMD) from any IRA once you have accumulated basis is determined and reported on IRS Form 8606 “Nondeductible IRAs.” Therefore, an IRA owner (or their tax professional) is required file Form 8606 in those tax years that a non-deductible contribution was made and in any year that funds are distributed (including a conversion to a Roth IRA) from any IRA that contains non-deductible dollars.

For tax purposes, all IRAs (except Roth IRAs) are considered one single IRA regardless of where they were established (different investment managers) and your distributions are taxed “pro-rata,” partly from your deductible (pretax contributions plus earnings, if any) and partly from your non-deductible (aftertax) IRA funds. In other words, when there are aftertax dollars (basis) in a traditional IRA (including rollover IRA, SEP, and SIMPLE) and you don’t withdraw the entire IRA value (across all IRAs), the amount of the distribution subject to income tax is based on the ratio of aftertax dollars to total IRA assets (across all IRAs, including rollover IRA, SEP, and SIMPLE accounts) at the end of the year. This is known as the “pro-rata” rule.

See my article for more on nondeductible (after-tax) contributions.

Q. Did you (or intend to) convert to a Roth IRA in 2019?
A.
  Conversions are made on a calendar year basis. You do not have until April 15, 2020, to complete a prior year (e.g. 2019) conversion. Instead, the funds must be distributed in 2019 and reported on a 2019 1099-R.

The Tax Cuts and Jobs of 2017 Act lowered individual tax rates for many Americans, thus making Roth conversions more appealingPlus, IRA owners can convert as much or as little of a traditional IRA (including SEP and SIMPLE) to a Roth IRA as they want; although the amount of funds converted (minus any basis) is subject income tax (federal and state, if applicable) in the year of conversion. The conversion amount is taxed at your marginal tax bracket.

Tip: Converting to a Roth account is irrevocable. The Tax Cut and Jobs Act of 2017 repealed the recharacterization of a Roth conversion.

For more on the elimination of recharacterization, see my column.

Q. Did you turn 70½ in 2019?
A. 
In general, when you reach age 70½, you must begin to take required minimum distributions (RMDs) from your retirement accounts. However, you can defer your first RMD to April 1 of the following year (e.g. April 1 2020). However, if deferred, you must take two RMDs next year (both your deferred 2019 and 2020 RMD).

If you have a traditional SEP, rollover, SEP, SAR-SEP or SIMPLE IRA, you must begin taking required minimum distributions (RMDs) from that account  in the year you reach 70½ regardless if you are still working or if you don’t need or want the income. Not taking an RMD subjects you to a 50% penalty tax on the amount that was supposed to be taken but wasn’t.

401(k) assets are also subject to RMDs. However, unlike IRAs, your initial RMD could be deferred past age 70½. This exception, if available is known as the “still working exception.” Here, you may not have to take a distribution from your current 401(k) or like plan if: (1) You’re still working for the employer sponsoring the plan and (2) You’re not a “5% owner” of the company. In addition your plan must specifically allow for this exception.

To learn more about RMDs and the still working exception, see my column

Q. If you are older than age 70½, have you taken your RMD for 2019?
A.
 Don’t forget that a hefty 50% penalty tax is applied to the minimum distribution amount that was required, but not taken.

For example, suppose your 2019 minimum distribution is $10,000. The distribution would have to be taken by December 31, 2019. But if you mistakenly withdrew only $1,000, a 50% excise tax of $4,500 would be applied to the $9,000 shortfall, plus you would be subject to federal and state (if applicable) income tax on the $9,000 in the year it is eventually distributed. The penalty tax is reported on IRS Form 5329, “Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts.”

You can always take more than your annual minimum distribution.

Q. If you are subject to RMDs, have you included the value of all your IRAs in the calculation?
A.
 Government rules require account owners to calculate RMD amounts for each individual (separate) IRA, including SEP IRAs and SIMPLE IRAs, but not Roth IRAs. Once calculated, however, the total or aggregate amount may be taken from any one or more IRAs. Notably, 401(k) and 403(b) are subject to different set of RMD aggregation rules.

For more on aggregating RMDs, see my column here.

Q. If you are subject to RMDs, have you included your 401(k) account?
A.
 401(k) plans (unlike IRAs) follow a different set of RMD rules. Unlike an IRA, 401(k) participants who own 5% or less of their current employer’s plan can defer their RMD until the later of the year they turn 70½ or the year they retire, whereas participants who own more than 5% are required to start taking RMDs at 70½, regardless of work status.

Q. If you are subject to RMDs, have you included your 403(b) account?
A.
 Generally, RMDs must start no later than April 1 of the year after reaching age 70½, or the date the employee separates from the employer sponsoring the 403(b). Notably, for 403(b) plans only, a special exception applies for the account value on December 31, 1986 if it’s been separately tracked. Here, the required begin date for RMDs is the later of age 75 or the date the employee leaves the employer sponsoring the plan.

It’s common for participants to own multiple 403(b) accounts. Like IRAs, individuals who have more than one 403(b) account must determine the RMD separately, although the aggregate amount can be taken from any one or more multiple 403(b) accounts. However, not all 403(b) plan sponsors permit aggregation with another 403(b) account from a different sponsor.

You cannot satisfy RMDs for one plan type (e.g. 403(b)) with an RMD from another plan type (e.g. 401(k)).

Q. Did you or (are you planning) on using net unrealized appreciation (NUA) strategy?
A.
  NUA treatment requires a taxpayer to satisfy a number of rules. One requirement is all plan funds must be distributed by the end of the year. In other words, if plan funds remain (in the plan) at the end of the year, the lump sum distribution requirement will not be satisfied.

For more on NUA strategy, see my column here

Q. Did you turn any of these ages in 2019?

Q. Are all beneficiary designation forms in order?
A.
 Retirement accounts generally are not subject to probate; therefore, the beneficiary designation on file, rather than a will, is what prevails. Did you get married this year? Divorced? Did a previously designed beneficiary predecease you? Birth of a child? Adoption? Any of these life events could affect your beneficiary designation.

Review and, if necessary, update your beneficiary forms for all your retirement accounts. Are the correct individual(s) designated to receive the benefits? If you are unsure who to name as your beneficiary (primary or contingent), we suggest discussing your estate planning needs with your financial professional.

Q. Did you inherit an IRA or qualified plan from someone other than your spouse in 2018?
A.
 If you did, and intend on "stretching" the payout, you must begin taking minimum distributions—even if it’s a Roth account—before the end of 2019, regardless of your age. If this deadline is missed (a common occurrence), rules generally require the entire inherited account to be paid out in full within five years after the decedent’s death ( “five-year rule”). For example, a beneficiary inheriting an account in 2019, a complete and full distribution of all account assets would be required by December 2024.

Q. Has a separate inherited IRA been established for each designated beneficiary?
A.
 When multiple beneficiaries stand to inherit an IRA, it’s favorable to divide the (deceased’s) account into separate inherited IRAs for each beneficiary. This approach, when finalized by December 31 of the year following the death of the IRA owner, allows each beneficiary to use his or her own life expectancy for future minimum distributions. If separate inherited accounts are not established in a timely manner, all beneficiaries must use the life expectancy of the oldest beneficiary (i.e., shortest life expectancy) to determine the annual minimum distribution payout.

Designated (named) beneficiaries who inherited IRAs in 2018 have until December 31, 2019 (year following the year of the IRA owner’s death) to split the account into separate shares so that each beneficiary can use their own life expectancy to calculate required minimum distributions (RMDs). Each share should be transferred into a separate, properly titled inherited IRA. The account can be split after December 31, but beneficiaries will be “stuck” using the life expectancy of the oldest beneficiary.

It is best to split the IRA by the end of the year of death, if that’s possible. It is not required, but if you can do this, each beneficiary will have a separate account balance in his/her own inherited IRA as of the end of the year of death. That is the balance you would use to calculate your first RMD as a beneficiary.

Q. What do you need to know about qualified charitable distributions from IRAs this year?
A.
 In late December 2015, through the enactment of the Protecting Americans from Tax Hikes (PATH) Act, Congress made qualified charitable distributions (QCDs) permanent.

First permitted in 2006, QCDs are tax-free IRA distributions up to $100,000 annually, which are sent directly to a qualifying charity. QCDs can be made from traditional IRAs, Roth IRAs, and inactive SEPs and SIMPLE IRAs belonging only to account owners or beneficiaries who are 70½ or older.

Tip: If you have already taken your 2019 IRA RMD, it’s too late to satisfy it with a QCD.

To learn more about qualified charitable distributions, see my column.

Q. Did you do a 60-day rollover in 2019?
A. Verify that 60-day rollovers were completed in a timely fashion.  Further, confirm that only one 60-day IRA-to-IRA rollover per account owner was done in a 365-day period (not calendar year).

Q. Have you funded a Coverdell Education Savings Account?
A. 
The deadline to establish and/or fund a Coverdell ESA for 2019 is April 15, 2020. The total contributions for the beneficiary cannot exceed $2,000 in any year, no matter how many accounts have been established. Any individual can contribute to a Coverdell ESA if the individual's household income (MAGI) for the year is less than $110,000. For married couples filing joint returns, that amount increases to $220,000. (See here for more on Coverdell ESAs.)

Q. Have you funded a 529 ABLE Account?
A:
Section 529 ABLE (Achieve a Better Life Experience) accounts are tax-advantaged savings and investment accounts for individuals with disabilities. The total annual contribution by all participating individuals in 2019 is $15,000. The amount may be adjusted periodically for inflation. Under current tax law, $15,000 is the maximum amount that individuals can make as a gift to someone else and not report the gift to the IRS (gift tax exclusion)

Click here to learn more about ABLE Accounts.

Q. Have you contributed to a health savings account (HSA)?
A. 
You may be eligible to contribute to a HSA if you are enrolled in a high deductible health plan (HDHP). HSAs are triple tax-advantaged accounts that are designed to be used for future medical costs. In 2019, an eligible individual with single coverage can contribute $3,500, whereas the limit is $7,000 for family coverage. In addition, a $1,000 catch-up contribution is available to those individuals aged 55 and older.

Tip: Once you determine the maximum allowable HSA limit, contributions can be made anytime between January 1 and April 15 of the following year. For example, you can make a 2019 HSA contribution as late as April 15, 2020.

Learn more about HSAs here.

Q. Did you have any activity in your HSA in 2019?
A. 
If so, you are required to file Form 8889 “Health Savings Accounts” and file it along with your 1040. Activity includes contributions (including those made by an employer) and distributions.

Q. Did you inherit a HSA in 2019?
A HSA requires an account holder to name a beneficiary, just as you would with an IRA or 401(k). And similar to retirement accounts, the individual you name inherits the HSA after your death. Moreover, as with retirement accounts, you can name anyone as beneficiary, including spouse, non-spouse, estate, etc. Naming a HSA beneficiary follows a number of guidelines for group retirement plans and IRAs—but that is generally where the parallel ends. Read more about beneficiary rules for HSAs here.

Q. Small business owners: Have you distributed SIMPLE IRA plan notifications to eligible employees?
A. 
Employers that sponsor SIMPLE plans are required to distribute notices to eligible participants providing plan information such as the opportunity to make or change salary deferrals, summary plan description, and employer contribution formula (3% match or 2% non-elective) for the following year. The election period is generally the 60-day period immediately preceding January 1 of a calendar year (November 2 to December 31).

Q. Small business owners: Are you complying with the SIMPLE IRA “exclusive plan” rule?
A. 
A SIMPLE IRA must be the only qualified retirement plan an employer maintains during a calendar year (“exclusive plan rule”). However, if no contributions are made and no benefits accrue to an existing qualified plan (e.g., 401(k)) during this time period, the employer will satisfy the requirement.

For more information on SIMPLE IRAs and the “exclusive plan” rule, see my column.
 

Advisors, if you have additional questions, please contact your Lord Abbett representative at 888-522-2388.

 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

GLOSSARY OF TERMS

Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an individual retirement account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.

A simplified employee pension plan (SEP IRA) is a retirement plan specifically designed for self-employed people and small-business owners. When establishing a SEP IRA plan for your business, you and any eligible employees establish your own separate SEP IRA; employer contributions are then made into each eligible employee’s SEP IRA.

401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. Employers offering a 401(k) plan may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

A 403(b) plan is a retirement savings plan that allows employees of public schools, nonprofit, and 501(c)(3) tax-exempt organizations to invest on a pretax and or Roth aftertax basis. Contributions to a 403(b) plan are conveniently deducted directly from your paycheck. In addition, your employer may elect to make a contribution on your behalf.

A governmental 457(b) deferred-compensation plan allows employees of states, political subdivisions of a state, or any agency or instrumentality of a state to invest money on a pretax or Roth aftertax basis through salary reductions. The employer deposits amounts withheld into an annuity, custodial, or a trust account, where the funds accumulate tax-deferred or potentially tax free in the case of Roth aftertax contributions until withdrawals commence, usually at retirement.

A Thrift Savings Plan (TSP) is a tax-deferred retirement savings and investment plan that offers Federal employees the same type of savings and tax benefits that many private corporations offer their employees under 401(k) plans. By participating in the TSP, Federal employees have the opportunity to save part of their income for retirement and receive matching agency contributions.

Required minimum distribution (RMD) is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

health savings account (HSA) is a savings account that lets employees set aside money on a pretax basis to pay for qualified medical expenses.

An ABLE Account, also called a 529A account, allows individuals with disabilities and their families a tax-advantaged way to save money for disability-related expenses of the account’s designated beneficiary. Contributions to an ABLE account may be made by any person (the account beneficiary, family and friends) using post-taxed dollars. The ABLE account was created with the passage of the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014, or the ABLE Act.

A Coverdell Education Savings Account (ESA) offers investors the ability to save for a child’s education. Contributions to an ESA are made with aftertax dollars, however, withdrawals used to pay for qualified education expenses are tax-free. Qualified expenses include: tuition, fees, books, etc. Learn more about the Coverdell account from Lord Abbett.

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field