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New Retirement Account Option – myRA
Filed under: Retirement Assets | Tags: Employee Benefit Research Institute, G-Fund, Government Securities Investment Fund, income limit, My Retirement Account, myRA, Obama, retirement plan trinkets, Roth-IRA, Thrift Savings Plan, TSP
Comments (3) Originally published in the Cedar Street Times
March 21, 2014
President Barack Obama announced in his State of the Union Address at the end of January, the formation of a new retirement plan option which will likely get started towards the end of 2014. The account type, dubbed “myRA” (pronounced “My R.A.”) is short for “My Retirement Account.” Despite a plethora of retirement plan options already available, one might ask, do we need yet another option to complicate planning? Despite all of the options available, roughly one third of employees in the United States still do not contribute to any type of retirement plan. Another third participates in an employer sponsored plan, and roughly the other third has an employer sponsored plan and some type of IRA as well. In a survey conducted by the Employee Benefit Research Institute, 57 percent of Americans say they have less than $25,000 in total savings (excluding the value of their house or defined benefit plans).
The point of the myRA is to help make it more accessible for the bottom third of savers to work on saving for retirement. My analysis is that in its current form, it may mildly assist in this manner, but could be used by more savvy investors as a way to access, to a limited extent, the G-Fund, a solid short-term investment option only available to people with government sponsored TSP programs.
The problem with myRAs is that they do not automatically enroll employees upon initial employment. This has been a desire of the President, but would require Congressional action. The goal of automatic enrollment would be to make it the default option, unless the employee deliberately opts out of the program. Without automatic enrollment there is very little reason to believe employees would be more likely to join these plans than ones already offered by employers. That said, many small employers currently do not offer plans to employees due to the added expense of operating and/or contributing to the plan, and most of them exclude a lot of short-term or part-time employees.
The myRA would have a very low entry point – with only a $25 opening contribution by an employee, no fees or requirements for the employer to contribute, and a $5 per paycheck minimum contribution, it is theoretically much more accessible, especially for short-term and part-time employees. The plan would also be portable from one employer to the next, helping to reduce “retirement plan trinkets” – my term when people carry around a half dozen retirement plans from all their former employers. The program would be administered by the federal government, and since it would have only one investment option, there should be a lot less questions and hassles to set up. The employer would simply direct a portion of the employee’s direct deposit to the government, instead of the employee’s bank account.
The lone investment option is the Thrift Savings Plan offered G-Fund – Government Securities Investment Fund. This fund invests in United States government securities and its goal is to outstrip inflation but is also guaranteed by the full faith and credit of the United States government. Its guaranteed return is the weighted average of all outstanding Treasury notes and bonds with a four year or longer maturity. So effectively you get a long-term rate, even though your investment could be short-term. Since 1987 its average return has been 5.4 percent per year. In 2013 it returned 1.89 percent – not fantastic, but much better than most short-term investments available today, and with no risk.
One of the key characteristics of a myRA is that it is effectively a Roth IRA. This means you get no tax benefit for putting money into the account, but it grows tax-free forever, has no required minimum distribution when you turn 70 1/2, and there is no tax on the principal or earnings when you withdraw it in retirement. Like a Roth IRA, f you need to take money out sooner, you can take out your original contributions with no penalties (but not earnings). The same income phaseouts for Roths apply to myRAs as well – you must have adjusted gross income less than $129,000 filing Single, and $191,000 Married Filing Joint ton contribute. In addition, the same aggregate IRA contribution limits ($5,500 for people under 50 and $6,500 for people over 50) will apply for all IRAs, including your myRA.
A key provision with a myRA is that once the account balance hits $15,000 (or 30 years) it is automatically converted to a regular Roth IRA. However, people can rollover funds from a myRA to a regular Roth IRA at any time to keep their balance below $15,000. I could see this used by people who like access to the G-Fund as a safe, possibly, short-term investment that provides a decent rate of return.
Personally, I think we need to consolidate and simply our retirement plan options, and not create more animals to supervise. But for now, the tax code continues to grow more complex – benefitting some, and making things more confusing for most.
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Property Taxes on Equipment, Furniture, Tools, Etc. Due April 1
Filed under: General | Tags: assessed, assessor, audit, Board of Equalization, BOE-571-A, BOE-571-L, Business property tax, California Constitution, computers, construction in progress, depreciation, due date, equipment, furniture, improvements, intangible, land improvements, leased equipment, leasehold improvements, machinery, Monterey County Assessor's office, property, Revenue and Taxation Code, structural improvements, supplies, tangible, tax, tools, vehicles
Leave a comment Originally published in the Cedar Street Times
March 7, 2014
Many people starting up a small business for the first time are surprised to learn that there are business personal property taxes due each year on the value of everything from the chair they sit in, to their computer, to the pads of paper in the supply closet. Most people are familiar with property taxes assessed on their home each year, but a business is also taxed on all of its personal property. When I say personal property, I mean anything that is tangible, but is not real property (real estate). Intangible assets like copyrights, patents, goodwill, or even software are generally not subject to tax.
This business property tax is established in the California Constitution and the Revenue and Taxation Code. It falls under the jurisdiction of the California Board of Equalization (the same group that handles sales tax), but it is administered by and filed with the assessor’s office of each county. For most businesses, the form to file is BOE-571-L (BOE-571-A for agricultural businesses), and it is due on April 1st of each year. Even though the form is due on April 1st, there is a grace period, and you technically have until May 7th to postmark the form so it will not be delinquent. (This is much appreciated by CPAs that are working to get income tax returns completed by April 15!) It is also important to note that the reporting covers your property that existed as of January 1st, and not as of the date you fill out the form.
Maybe you have been in a business for a few years, or maybe 20 years in unusual cases and have never seen a request for this form. Are you in trouble? There is an interesting rule that states if the total cost of your business personal property is under $100,000, you do not have to voluntarily start filing the form. That would cover a lot of small businesses. However, if you receive a request from the assessor’s office to file the form, you must file every year going forward. As information sharing has become more mainstream among various government agencies, it is fairly common to get a request in the first year or two you operate, even as a tiny sole proprietor.
The BOE-571-L asks you to break down your property into various categories and by year of purchase. As the property gets older, it is assessed less each year. (Tip: retain a copy of your submitted form for reference when filing for the next year.) Each form is processed by hand. The assessors appreciate having attached lists that identify more specifically the property you list in the various categories and years. As you will see on the form, it is not always clear which category to put things in. For instance, the word equipment is used in four different categories, and you might not be sure where it should be included. Categories are assessed and depreciated at different rates, so the assessor has a better chance of assessing you the correct tax if you provide more information. If you have questions, you can call the Monterey County Assessor’s office at 831-755-5035 and ask for the business property tax department. They are generally available to answer any questions you may have.
It is probably fairly obvious that computers, printers, copiers, furniture, equipment, machinery, and tools are assessed. In addition, the supplies you have on hand for your business are assessed. If you do not have a good idea of this value, one approach, or instance, may be to take your office supplies account in your accounting records and divide by 12 if you think you keep about a month of supplies on hand.
Leased property such as a copy machine, is an area that people sometimes overlook. Your lease agreement will indicate whether you, or the company you lease from is responsible for the property taxes. If you are responsible, you need to report it on your BOE-571-L. Licensed vehicles through the Department of Motor Vehicles (DMV) do not need to be reported here whether owned or leased, as they are being taxed through the DMV.
Structural improvements, fixtures, land improvements, construction in progress, and land development are required on the form as well. Generally, however, structural improvements, land improvements, and land development information is not assessed by the business property tax division and is passed along to the real property division for them to decide whether or not to assess it, or wait for the next time the property as a whole is assessed. Construction in progress would be assessed by the business property tax department: i.e. – you have spent $200,000 in construction on a building that is not complete at the end of the year. Once the building was completed, the business property tax department would stop assessing it, and the real property department would start assessing it.
Fixtures such as counters, sinks, lights, bolted down equipment, etc. would generally be assessed by the business property tax department. If you are a tenant and pay for any leasehold improvements, you should report and will be assessed on those as well. Most leases are written that the property becomes the landlord’s after the tenant moves out of the space.
One final issue that often comes up in an audit is whether or not the business has property that was purchased and immediately expensed on its books and tax returns, and therefore do not show up on depreciation schedules, which is often the main source for reportable property. In the code, there is no immateriality exclusion for something as small as a stapler, but in practice the auditor is not going to assess you on those items. You should look for more significant items, however, such as the $400 in books you bought for your business library.
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Travis H. Long, CPA, Inc. Blog 