529 Plans: Invest for Anyone

529 plans allow people to save for college and the costs of higher education. In MN this is called the “Minnesota College Savings Plan”. This flexible plan allows any U.S. citizen over 18 years of age to open an account on behalf of a beneficiary.

There are numerous benefits that go along with the College Savings Plan. There are no federal or state tax deductions for contributions to the fund. However, all of the account earnings are considered “tax-free investment income”, meaning they are not subject to federal or state income tax.

Any distributions for qualifying higher education expenses (including tuition, books or supplies are also tax free. Room and board is also permitted as an education expense if the student is enrolled more than half-time. If a non-qualifying distribution is made, the earnings are taxable at the state income tax rate for your tax bracket. Furthermore, federal law assigns a … Read More

Casualty Losses and Income Taxes

A casualty loss is classified as “The damage, destruction or loss of your property”. These losses can be tricky to report and deduct on your taxes. However, we have compiled a few tips to help you.

In Minnesota, both federal and state tax reporting follow the same set of procedures. If you have a casualty or loss relating to real property (your home, household items or vehicles), you are allowed to deduct it on both your federal and state tax return. A casualty event includes unexpected or uncommon events and disasters but does not include normal wear, tear or breakdown from usage.

If your property is not completely demolished you need to find the lesser of the adjusted basis of your property or the decrease in fair market value. This can be difficult to do, so it is recommended that consult an appraiser. Once you have calculated this amount, you must … Read More

5 Reasons to Convert to a Roth IRA

Why might you wish to convert all or some of your Traditional IRA to a Roth IRA?

1.  The ability to recharacterize allows you 20/20 “hindsight”, effectively allowing you to “undo” conversions that were not advantageous.  This allows you to protect against adverse market swings.  At a later date recharacterized funds can be converted.

2. The 70 1/2 minimum distribution rule is suspended for Roth IRAs.  This will allow additional tax free deferral.

3.  Tax rates are expected to increase in the future.  Higher future tax rates means that more tax will be paid on taxable IRA distributions than the tax that would be paid on  a conversion at a lower rate.

4.  Distributions to beneficiaries after your death are tax-free.  The might be one of the better reasons for a Roth IRA conversion.

5.  If you can afford to pay the income tax on the IRA with non IRA funds, … Read More