What are Pershing and National Financial Services, LLC (NFS) tax mailing dates? |
Your advisor/financial professional can assist you with tax document mailing dates, and they can be reviewed at www.joincambridge.com > Investors > Investor Resources & Tools > Tax Resources. |
What is a Roth IRA conversion? |
A Roth IRA conversion refers to the transition of cash and investment assets from a pre-tax Traditional IRA to a Roth IRA. This conversion results in a distribution that is considered taxable income to the owner of the IRAs but does not subject them to the 10% early withdrawal penalty as part of the process. |
When would it be useful? |
Most commonly done as a “back-door Roth” transaction, when the investor earns too much money to make an annual contribution to a Roth IRA directly. Also, it is often done as a tax planning strategy, to move pre-tax IRA assets to a (potentially) tax-free Roth IRA, in years when a client’s income is low, or is in a temporarily low-income tax bracket for the year. |
What does it do? |
This strategy is designed to reduce Required Minimum Distributions (RMDs) that the client will have to take, starting at age 73 or at age 75, starting in 2033. |
Important deadline |
Conversion deadlines are always the last business day of December. |
Important change |
Before the Tax Cuts and Jobs Act of 2017, clients could convert a Roth IRA conversion back to a traditional IRA. This is no longer allowed. Roth IRA conversions are now irrevocable. Once you convert Traditional IRA assets to a Roth, there’s no turning back. |
What is a recharacterization? |
A recharacterization refers to a change in how a contribution is reported in a certain type of retirement account. This transaction can be processed as a recharacterization from a Roth IRA to a Traditional IRA or a Traditional IRA to a Roth IRA. |
When would this be useful? |
Most frequently done when there has been an error in where the contribution was supposed to go, or when a client’s income exceeds the limits for being eligible to contribute to a Roth IRA for the year and needs to recharacterize the contribution from a Roth IRA to a Traditional IRA; or vice versa. This can be done for a contribution made in the current year, or for the previous tax year. An IRA contribution can be recharacterized as a contribution to a different IRA (or different Roth IRA account), or to a different type of IRA (Roth versus Traditional). |
Important deadline |
Recharacterization deadlines are the same as federal income tax returns, including extensions; normally October 15 of every year. |
Important notes |
Any earnings on the mis-contributed funds must be calculated and accounted for as part of the recharacterization from one account to the other. Once you convert Traditional IRA assets to a Roth, there’s no turning back. However, you can always recharacterize a contribution, any time before the deadline for filing your income tax return, including extensions (typically October 15 of each year). |
What is a 1099? |
1099's are tax documents mailed by the clearing firms, e.g. Pershing or NFS, to the client and used when filing annual income taxes. 1099’s are a record that an entity or person, other than an employer, distributed or paid money to an investor during the year. This money can be related to employment, business, or investment transactions, or to one or more retirement account distributions. There are several different types of payors, therefore there are different types of 1099 forms. |
Common 1099 forms and how they are generated |
Examples of the most common 1099 forms: 1099D include sale proceeds in a retail account plus income from dividends or capital gains, generated by the assets in the account. It includes 1099B information for proceeds from sales of capital assets such as stocks and bonds. 1099R include distributions from a retirement account that produce income to the client that may (or may not) be taxable. 1099INT is an IRS tax form used by taxpayers to report interest income. 1099DIV i an IRS tax form used by taxpayers to report dividends and other distributions. |
Where do you see a Pershing 1099? |
These can be found by following the paths below: NetX360+ Accounts > Documents > Document Center > Tax Documents NetXInvestor > Communications tab then either All Communications or All Documents then Tax Documents Pershing will automatically generate a 1099 when there is a distribution of $10 or more. |
Where do you see a FCCS/NFS 1099? |
These can be found in Wealthscape > Documents > Tax Forms Wealthscape Investor > Accounts > Details (hyperlink within the tile for each account) > Documents > Tax Forms Only the prior year’s form will be viewable until the end of December, then it’s taken down in preparation for the current form. |
Why wasn’t a 1099 generated? |
Retail Accounts: No interest/dividends/capital gains or the amount value is less than $10. Retirement Accounts: No distributions from the account. Retail qualified retirement plans are generally exempt and as a qualified account, the only reason for a 1099 being produced would be one or more distributions during the year. Exempt entities do not receive a 1099 from the clearing firm but will receive an informational 1099 which is not filed with the IRS. |
What do Distribution Codes on a 1099R mean? |
Key of codes in box 7 on a 1099R for retirement accounts 1 - Early, no known exceptions 2 - Early, exception applies 3 - Disability 4 - Death 5 - Prohibited transaction 6 - 1035 exchange 7 - Normal 8 - Return of excess contribution |
What are the Contribution Limits for an IRA account? |
Access the IRS IRA Contribution Limits website here. |
What is a 5498 form? |
Generated most often to report contributions to a retirement account, including rollovers and recharacterizations. The information on Form 5498 is submitted to the IRS by the trustee, custodian, or issuer of your IRA to report contributions, including any catch-up contributions, RMDs, and the fair market value (FMV) of the account. |
What generates a 5498 form? |
Contributions or Rollovers to IRAs, Roth IRAs, and retirement accounts of almost all other types, except for 401k, 403b, 457, and other employer-sponsored retirement plan accounts. NOTE: Retirement 401k plans will not generate a 5498. The client will file a 5500 form with their tax advisor in place of the 5498. See the IRS Website here for more information regarding the 5498 form. |
What is a year-end tax withholding adjustment? |
Year-end tax withholding adjustments are often requested due to processing errors in client retirement accounts. Requests should be received before the final business day of December. Anything received after that will be denied and the withheld amount will be reported to the IRS and appropriate state tax authority. After the December deadline, taxpayers are responsible for submitting any tax withholding adjustment claims directly to the IRS or appropriate state tax authority. |
60-day rollovers |
Clients can do multiple deposits to satisfy a 60-day rollover, however, the clearing firms may treat only the first rollover deposit as a 60-day rollover. They will code additional deposits as contributions. When this occurs the client’s tax professional will need to reconcile. |
SIMPLE IRA reminders |
New SIMPLE IRAs must have been established by October 1 to qualify for current year contributions. SIMPLE IRA plans can be set up/effective on any date between January 1 and October 1, provided the tax payer (or any predecessor employer) didn't previously maintain a SIMPLE IRA plan. Employer contributions must be made annually by the employer's tax-filing deadline, including extensions. Employee contributions are deducted from employees' salaries and must be deposited at least monthly. |
Solo-401(k) reminders |
Establishment: Deadline depends on plan type. Solo-401(k) plans establishment deadline is December 31. The contribution deadline is your tax filing deadline—April 15 or October 15 with extensions. A contribution made after April 15 cannot be coded as a prior year contribution. Client’s need to work with a tax advisor to resolve. |
*As of December 2023
For public use only.