Whether you’re a long-term retiree or are on the glide slope, it’s that time of year again to collect all of your various documents and prepare to file your taxes.
Where your income is coming from, how it’s reported, what forms you use, what has been withheld — these are all things that need to be gathered and accounted for. It can be confusing and it seems that so much continues to change with respect to filing your tax returns.
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Insights from Today’s Podcast on Taxes and the 1099
Many people receive a 1099 form when they retire. But there are many varieties of the 1099 form and it’s important to understand what they mean so you can appropriately file your tax return.
1. Which 1099?
Sixteen. That’s how many different kinds of 1099 forms there are. The most common ones our clients work with are the 1099-R, which reports distribution from retirement accounts, and the 1099-B, which accounts for non-IRA taxable accounts. Dividends from your stocks are reported on a 1099-DIV. Interest on your savings go on 1099-INTs. Income from…I think you get the picture.
The important point is: the IRS looks at various sources of income in different ways. Whether you file your own taxes or use a CPA, don’t keep one 1099 and throw the rest away. They’re not duplicates, they’re different forms that account for different sources of income.
The good news is that as tax forms go, 1099s are pretty easy to work with if you’re doing your own taxes. Qualified and non-qualified dividends, what’s exempt, what isn’t — your custodians will have everything broken down for you to fill into the appropriate box.
However, if you’re the kind of person who likes to get a jump on taxes, be mindful of what kinds of investments you have and how they are reported. If you have accounts that generate income reported on 1099-DIV or B forms, it is best to wait until mid-March to file. That way, if any of your 1099s are amended, you’ll receive the amendments before you file, not after.
2. Owning gold can get expensive
This time of year a lot of retirees reassess their various investments, which is something we encourage. The Roth IRA comes up for discussion a lot, both for its popularity and because it might be facing some changes. Many of our clients ask us if a Gold IRA or owning gold outright is a good alternative, or something they should add to their plan. While we do offer precious metals in our portfolio at Keen Wealth Advisors, we haven’t found owning gold outright to be a particularly effective investment over time. Buying gold can be a lot like buying a car — the second you drive it off the lot, it depreciates in value due to the high bid / ask spread. Then you have to pay to transport it. Then you have to pay to store it. Then you have to pay to insure it. When you want to sell it, you have to appraise it. All those little costs can add up to losses on your investment.
3. That Form 5498 is not late
Every year we get calls from confused clients asking why they’re receiving a Form 5498 for the previous tax year. That form isn’t late, it’s just how the IRS handles contributions to IRA accounts. By law, 5498s are not required to go out until May 31st of the year following the event. This form is just your proof of contributions to your IRA, which you should have reported on your taxes anyway. You might end up with similar questions if you receive a 1099-R on your rollovers. No, that’s not a distribution, it’s a trustee to trustee transfer that the IRS is not going to tax.
4. Don’t go it alone
Retirement taxes can get complicated really fast. Even if you prefer doing your taxes yourself, it’s never a bad idea to ask an advisor or a CPA to check your work. Also, while the odds may be low, we have had clients use consumer grade, online tax preparation services and have their Social Security numbers and bank information compromised by hackers. This can lead to delayed, and even stolen, tax refunds, in addition to all the other headaches you can imagine.
However you choose to prepare your taxes, it’s always a good idea to at least talk to professionals. At Keen Wealth we tell our clients that learning everything you can about your financial plan is the best way to take charge of your retirement and keep surprises to a minimum — especially when the IRS is involved.
Bill Keen on paying your taxes in retirement …
“We don’t expect our clients to be tax experts, but talking to a professional and being engaged can go a long way towards providing peace of mind about your finances.”
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Bill Keen is a Chartered Retirement Planning Consultant® and independent financial advisor with more than 24 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.