STA Wealth Management, LLC
Partner and Executive VP of Financial Planning
Scott Bishop is a Partner and is Exec. Vice President of Financial Planning at STA Wealth, a Houston based RIA Firm. In this role, Scott guides clients through the process of identifying and realizing their personal financial planning goals while working with them to help develop, implement and monitor strategies to help assure the long-term coordination of their overall financial, retirement, business planning.
Scott is also the host of STA's radio show, "Financial Planning Fridays" on The STA Money Hour, on 950AM KPRC Radio in Houston at 12pm Central where he frequently discusses tax and financial planning topics and hosts interviews of industry experts.
Scott graduated from the University of Texas at Austin with a Bachelor of Business Administration in Accounting and received his Master of Business Administration from the University of St. Thomas.
Currently, Scott is a CFP® and a CPA and also holds a PFS® designation. Scott has been active as a member of the American Institute of Certified Public Accountants (AICPA), the Texas Society of Certified Public Accountants (TSCPA) and its Houston CPA Society as a member of its Board of Directors. He has also been recognized for excellence by being named the Young CPA of the Year for 2002-2003 by the Houston CPA Society, one of the largest and most prominent CPA chapters in the United States.
In addition, Scott has both authored and has been interviewed for numerous articles in financial related publications and websites such as the Wall Street Journal, MarketWatch, CNBC, USA Today, Washington Post, The New York Times, Investopedia, Houston Chronicle, Investment News, Kiplinger, The AICPA Tax Section, BankRate.com, the Houston Business Journal and the CPA Forum. Scott is also a member of the Houston Business and Estate Planning Council.
BBA - Accounting, University of Texas at Austin
MBA - Finance, University of St. Thomas
Assets Under Management:
AUM information provide is for the firm STA Wealth Management, LLC of which Scott Bishop is a partner/shareholder. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC (“STA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. STA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the STA’s current written disclosure Brochure discussing our advisory services and fees is available upon request.
IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment 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.
STA Wealth Planning Process - Scott Bishop
I am assuming that by “Company Shares”, you mean that you have company stock in your 401(k) and that is what you are talking about. If that is the case, and if you are worried about the tax and/or loss in value in those shares, here are your options:
- Sell the shares while still in your 401(k) - that addresses risk and there will be no tax on the sale.
- Roll the shares over to your IRA...depending on what you want to do (and which company it is, you can sell, put in stop/limit orders or use some options (put options and collars) to hedge the position.
- Know the rules on Net Unrealized Appreciation (NUA) before doing either #1 or #2 above. If you sell the shares or roll them over, you lose the ability to get the special tax break of having a capital gains treatment under the NUA rules.
To help in this decision, check out two of my articles:
I also talk about this in my Retirement Survival Guide.
The only time you owe RMDs on your 401(k) after you are age 70.5 is after you stop working. If you do not own more than 5% of the compnay, you never have to take RMD’s from your 401(k), whether Roth or Traditional.
You do NOT have to take RMDs out of Roth IRAs (ever) during your lifetime.
Therefore, if you have retired and/or left your employer, you can roll your Roth 401(k) into your Roth IRA and then you will NOT need to take any RMDs...after Retirement, Roth 401(k)’s require RMDs, but not Roth IRAs.
Hope this helps!
Making investment changes based on “fear” or “greed” will typically end in failure...unless you have a very disciplined investment plan. If you lock in the gains now and move to something defensive, how will you know how and when to re-engage your portfolio allocation. Moving to a money market or fixed account will make you feel good in the short term, but most that do that (without a discipline) will end in faluure...by staying in cash and missing the next market upturn.
That being said, if you want to be able to quickly make a change, I sometimes suggest to a client to pick one of the “lifestyle https://www.investopedia.com/terms/l/lifestylefund.aspfunds” or “age-based” funds in your 401k. This will keep you diversified and allow you to move more conservative or aggressive with less mistakes...as these funds have a good compbination of stocks and bonds. You can move to a more conservative option now (and then be in one fund) and when you feel that the correction is over, you can move back to your current allocation or to a more aggressive fund with just one trade (easier)...but the real question is when and how to do it...as by the time it feels “good”, you will have most likely already missed the move.
If you are not sure what to do...and don’t have a strategy, check out some of my articles:
The good news is that you will owe no captial gains taxes in your situation. As the amount you realized (received), will generally includes any cash or other property you received less your selling expenses ($10k in your case). As your net proceeds are not more than your adjusted basis (see below) in your home, you will not have a capital gain on the sale.
Therefore when you own a home it is VERY GOOD PRACTICE to keep good redcords on all improvements and to keep all the closing records from the purchase of your home. Good examples of adjustments to your cost basis would be the orignal cost/purchase price:
- purchase expenses, commissions, closing costs etc.
- permanent home improvements
- nondeductible assessments for improvements (sidewalks, utilities, etc.)
- depreciation claimed or allowable (if you had an office in your home or rented the home) - this is "recapture of depreciation"
- casualty and theft losses deducted
For those that do have gains, IRS Rules state that If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.
In general, to qualify for the exclusion, you must meet both the ownership test and the use test. You're eligible for the Section 121 exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.
Reporting the Sale to the IRS:
Whenever you sell your home, you will report it to the IRS on Form 1040, Schedule D (PDF), Capital Gains and Losses, and Form 8949.
The bottom line answer is that NO you cannot leave the excess contribution in your IRA (or a Roth IRA for that matter) without incurring more penalties. Also, there is NO statute of limitations on this unless you “fess up” and file IRS Form 5329....and for a 2016 contribution (for those that have not yet filed), you have to fix it before October 16, 2017 to avoid the 6% penalty.
These excess contributions are subject to a 6% excess contribution penalty for EACH year that they remain in your IRA. The 6% excess contribution penalty is reported on IRS Form 5329, which can be filed with your tax return or can be filed as a stand-alone return. If not filed, the statute of limitations never begins to run adding more penalties plus interest. The bottom line here is that you will want to see a tax advisor to be sure that any penalties owed are paid and that the excess contributions are properly corrected.
I checked with IRA Guru Ed Slott to get some more information:
What is an excess IRA contribution?
Excess contributions to IRAs can happen for a wide variety of reasons. No one can contribute more than $5,500 if under age 50 in 2016. Those who are 50 or over in 2016 cannot exceed $6,500. If you contributed to an IRA for 2016 and you or your spouse did not have taxable compensation from an employer or self-employment income, you have made an excess IRA contribution.
For Roth IRAs, there are income limits. For 2016, the income phase-out range for contributions if you are a single filer is between $117,000 and $132,000. If you are married filing jointly, it is between $184,000 and $194,000. Making a Roth IRA contribution when your income is too high will result in you having an excess contribution. There are no income limits for traditional IRA contributions, but there are age limits. You may not contribute to a traditional IRA in a year when you are age 70 ½ or older.
If an excess contribution is not corrected in a timely manner, a 6% excess contribution penalty will apply. This penalty is not a once and done thing. It will apply each year the excess remains in the IRA. That is why it is important to correct your excess contribution as soon as possible. It is not a problem that will necessarily go away on its own.
Correcting an Excess without Penalty
How can you avoid the 6% penalty? Well, you must correct the excess contribution by the deadline. The deadline for correcting a 2016 excess IRA contribution without penalty is October 16, 2017. You will have two potential strategies for how you do the correction.
You may choose to withdraw the contribution and the earnings or loss attributable from the IRA. The contribution amount is not taxable or subject to penalty. However, any earnings would be taxable and may also be subject to the 10% early distribution penalty if you are under age 59 ½.
Your other option would be to recharacterize your contribution. When you recharacterize your contribution, plus the earnings or loss attributable the funds would be directly transferred from a traditional IRA to a Roth IRA or vice versa. Recharacterizations are not taxable or subject to penalty.
Which method of correction should you use? Well, it will depend on the facts of your situation. For example, if you have an excess traditional IRA contribution because you were age 72 in 2016, you may consider recharacterizing that contribution to a Roth IRA where there are no age limits. However, if you made a traditional IRA contribution and you have an excess contribution because you have no taxable compensation, recharacterizing will not help you. You will need to correct your excess by withdrawal.
While you still have some time before the October 16, 2017 deadline to correct your excess 2016 IRA contribution and avoid a penalty, it makes sense to take care of it now during tax season. By doing so, you can be sure that you don’t miss the deadline and you may be able to avoid the hassle of having to file an amended tax return. The excess IRA contribution rules are complicated. You may want to seek the advice of a knowledgeable tax or financial advisor.