What is a Backdoor Roth?
QUALIFIED CHARITABLE DISTRIBUTIONS:
How can take advantage of a QCD
Medicare rates based on income for 2026
New law (2019) for Real Estate property tax valuation.
What is a 529 plan?
Once a tax liability is assessed and a Notice and Demand for Payment is issued, the IRS has broad collection authority.
IRS penalties and interest can grow quickly, and missing deadlines can put refunds or your finances at risk.
Self Prepare your federal return and one state at 1040.com This software is produced by the Drake Software. I use the professional version.
QUALIFIED CHARITABLE DISTRIBUTIONS: QCD
A GIFTING ALTERNATIVE
For individuals that must take a required minimum distribution (RMD) from an IRA,
making a qualified charitable distribution (QCD) may be a desirable option that
avoids taxation of the distribution while supporting a charitable organization.
What is a QCD?
A QCD is a direct transfer from an IRA to a charitable organization. To be eligible for a
QCD, an individual must be at least age 70-½. The QCD generally counts toward an
individual’s RMD for the year. The maximum QCD amount is $100,000 per individual.
If a couple is filing their tax return jointly, each spouse can make a QCD of $100,000
or less.
Do all charitable organizations qualify as recipients of a QCD?
No. QCDs cannot be made to private foundations, donor advised funds, or
supporting organizations, which are entities that carry out their tax-exempt purposes
by supporting other public charities. Before making a QCD, an individual should
check with a tax advisor to ensure that the recipient organization is qualified to
receive the funds. Note that an individual can give to multiple charitable
organizations so long as the total of the QCDs does not exceed the limit of $100,000.
What are the tax effects of making a QCD?
Generally, the QCD amount is not taxable to the individual like a normal RMD is. The
IRA owner will still receive Form 1099-R from the IRA custodian which reports the
amount of the distribution. On Form 1040, the individual will show the distribution
amount on Line 4a and $0 on Line 4b for the taxable portion of the distribution. To
the left of Line 4b, the designation “QCD” must appear. The individual does not get a
charitable contribution deduction for the QCD because he/she has already obtained
the benefit of the IRA distribution being non-taxable. Although the charitable
deduction is not available, the donor should obtain a letter from the charity
acknowledging the gift, just as he/she would do for a tax-deductible donation.
The information on this page is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
Backdoor Roth
A backdoor Roth IRA is a strategy rather than an official type of individual retirement account. It is a technique used
by high-income earners—who exceed Roth IRA income limits—to contribute to a Traditional IRA then convert the Traditional IRA to a Roth IRA.
Pro-rata rule
If you contribute $7,000 to a Traditional IRA today and then later roll it over to a Roth IRA, and you have other Traditional IRAs that include tax-deferred income (pre-tax contributions), you will need to account for that in the Roth conversion process.
When you convert from a Traditional IRA to a Roth IRA, the IRS requires you to use the pro-rata rule to determine how much of your conversion will be taxable. This rule applies if you have both pre-tax contributions (tax-deferred) and after-tax contributions (nondeductible) in any of your Traditional IRAs.
Please refer to Retirement plans (401K’s, IRA’s) for more information.
Category Backdoor Roth IRA Rollover
Purpose To contribute to a Roth IRA indirectly by converting funds from a Traditional IRA.
Eligibility Anyone can use the Backdoor Roth strategy, even if they exceed the income limits for Roth IRA contributions.
Steps Involved
1. Contribute to a Traditional IRA (up to the contribution limit, typically $7,000 for under
50, $8,000 for 50+).
2. Convert the Traditional IRA to a Roth IRA, usually soon after contributing, to avoid any
significant taxable growth.
Contribution Limits (2024)
Under Age 50: $7,000 per year Age 50 or Older: $8,000 per year (catch-up contribution
allowed).
Income Limits for Roth IRA
There are no income limits for the Backdoor Roth IRA strategy, as it bypasses income
restrictions by converting funds from a Traditional IRA.
Traditional IRA Contributions
Contributions are subject to Traditional IRA contribution limits and can be either
deductible or non-deductible, depending on your income and whether you are covered by a
workplace retirement plan.
Step Transaction Doctrine
The IRS could challenge the Backdoor Roth strategy if it sees the steps as a "step
transaction", meaning they are too closely related to circumvent the rules. While no direct
prohibitions exist, it’s important to follow IRS guidelines and perform the transactions
correctly (e.g., waiting sometime between Traditional IRA contribution and conversion).
Tax Filing You must report the conversion on your tax return using Form 8606 to declare non-
deductible Traditional IRA contributions and the amount converted to a Roth IRA.
Required Minimum Distributions (RMDs)
Traditional IRA funds are subject to RMDs starting at age 73, while Roth IRAs are not
subject to RMDs during the account holder’s lifetime.
IRA Basis Tracking
You must track the basis (after-tax contributions) in your Traditional IRA and report it on
Form 8606. This ensures that you are not taxed again on the after-tax contributions when
converting them to a Roth IRA.
Early Withdrawal Penalty
Funds converted to a Roth IRA are not subject to an early withdrawal penalty if withdrawn
after the Roth IRA is open for 5 years and the account holder is 59½ or older. If the funds are
withdrawn before 5 years or before age 59½, they may be subject to taxes and penalties.
Make a Roth contribution for a Child or Grandchild
Consider an underutilized tax strategy for children, contributing to a Roth IRA for high income individuals. Your child/grandchild must have earned income to be eligible to open a Roth IRA, so you can encourage them to take on a part-time or summer job. A job will give them some extra spending money or savings for college. You will then open a Roth IRA custodial account t in their name.
Control of the Roth IRA is transferred to them once they become an
adult. The clock for 5 years of Roth opened starts with your contribution. Your contributions toward their Roth IRA are considered a gift and would count against your limit on tax-free gifts.
Retirement Contributions for 2024 & 2025:
married filing separate limited to than/equal to $10,000
New Super Catch-Up Contributions for Ages 60 to 63
New for 2025: 401(k) contribution limits for people ages 60 to 63 are super-sized. If you are 60, 61, 62 or 63 in 2025, you can contribute an additional $11,250 to an employer-based 401(k), 403(b), 457 or (most) governmental thrift programs for a total contribution of $34,750.
Contribution Limits and Income Limits for 401(k), IRA, and Roth IRA (2024 and 2025)
Year 2024 2025
401(k) Contribution Limit
$23,000 (under 50) $23,500 (under 50)
$30,500 (50+) $31,000 (50+)
Income Limits for 401(k) No income limits for contributions No income limits for contributions
IRA Contribution Limit $7,000 (under 50) $7,000 (under 50) $8,000 (50+) $8,000 (50+)
Income Limits for IRA No income limits for contributions No income limits for contributions.
Roth IRA Contribution Limit
$7,000 (under 50) $7,000 (under 50)
$8,000 (50+) $8,000 (50+)
Income Limits for Roth IRA
Single: $146,000 - $161,000
Single: $150,000 - $165,000
Married Filing Joint: $230,000 - $240,000
Married Filing Joint: $236,000 - $246,000
A Roth IRA conversion (sometimes called a backdoor Roth IRA when done
indirectly) allows you to move funds from a Traditional IRA
(or another pre-tax retirement account) into a Roth IRA,
paying income taxes on the converted amount in the year of conversion.
The information on this page is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
Requesting Adjustment: File a Form SSA-44
What is IRRMA?
Income-Related Monthly Adjustment Amount (IRMAA) Explanation
Each year, the Social Security Administration (SSA) reviews your income from two years ago (specifically, your Modified Adjusted Gross Income or MAGI) to determine if you need to pay an IRMAA. This applies to both Medicare Part B and Part D premiums.
For example:
How the Life Event Works
Medicare allows you to request a reduction in your IRMAA if your income drops due to a life event. This could potentially include a one-time increase in income, like a capital gain, that causes your premiums to go up, but you’re able to show that the increase was not typical or permanent.
Some of the life events that can allow you to request a recalculation of your IRMAA include:
Requesting the Adjustment:
If you’ve experienced one of these qualifying life events, you can file an appeal and request a “reconsideration” of your IRMAA calculation. Here’s how to go about it:
What Happens Next?
If your request is accepted:
However, keep in mind:
What If My Request is Denied?
If you’re denied, you can appeal the decision through the Medicare appeals process. But having clear documentation of your life event and the income change can make a significant difference in whether your request is accepted.
The information on this page is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
What a 529 Plan Is
A 529 plan is a tax-advantaged education savings account designed to help pay for qualified education expenses. Federally, earnings grow tax-deferred, and withdrawals used for qualifying education costs are tax-free.
California’s Plan
California’s state-sponsored plan is called the Scholar Share 529 College Savings Plan, but residents can choose any state’s 529 plan — the federal tax benefits attach regardless of the state sponsoring the plan.
2. Contributions (2025–2026)
State Tax Deduction
• California does not allow a state income tax deduction for 529 contributions made with after-tax dollars.
Contribution Limits
• There’s no annual federal or CA contribution limit set by the plan itself.
• However, there’s an aggregate lifetime balance limit for Scholar Share 529 — about $529,000 per beneficiary. Once reached, you generally can’t contribute more (though earnings may continue.
Gift Tax Rules
• Federal gift tax exclusion applies in 2025 & 2026, you can contribute up to $19,000 per person
($38,000 married) without triggering gift tax.
• You can “superfund” by contributing up to five years of gifts at once (e.g., up to $95,000 individual / $190,000 couples) and elect to prorate it over five years for gift tax purposes.
3. Qualified Education Expenses (Federal vs. CA)
Federal Qualified Expenses (2025–2026)
Federal law allows tax-free withdrawals for:
• Post-secondary costs: tuition, fees, books, supplies, room & board (if enrolled at least half-time).
• K-12 tuition & related expenses: Up to $10,000 per year, increasing to $20,000 per year starting January 1, 2026, under federal rules.
• Apprenticeships and certain credentialing programs.
• Student loan repayments up to a $10,000 lifetime limit per individual.
California’s Treatment
California does not conform to some of the new federal expansions, including K-12 and credentialing rules:
• CA still generally treats K-12 tuition and many newer federally qualified expenses as non-qualified for CA tax purposes — meaning the tax-free federal benefit doesn’t apply under state law.
• Therefore, when you use a 529 for what CA considers non-qualified (including expanded federal K-12 expenses), the earnings portion of the withdrawal is subject to:
o Federal income tax (if non-qualified), plus 10% federal penalty, and
o California ordinary income tax + an extra 2.5% CA penalty.
4. Tax Benefits & Penalties
Tax-Free Growth & Qualified Withdrawals
• Federal: Earnings grow tax-deferred and withdrawn tax-free if used for qualified education expenses.
• California: Also does not tax qualified withdrawals used for higher-education expenses.
Non-Qualified Withdrawals
• Federal: Earnings subject to income tax plus 10% penalty, unless exceptions (e.g., death, disability, scholarship).
• California: Earnings are taxed at CA ordinary income tax rates and subject to a 2.5% state penalty.
5. Strategy Updates & Special Situations
529 → Roth IRA Rollover
• New federal rule: After 15 years, you can transfer up to a $35,000 lifetime cap from a 529 to a Roth IRA for the beneficiary (subject to annual Roth limits and contribution conditions).
• California does not currently conform — state treats such rollovers as non-qualified, potentially taxable under state rules.
Use of Out-of-State Plan
• CA residents can use any 529 plan — tax treatment for qualified (or CA non-qualified) holds regardless of plan location.
The information on this page is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
What Is Proposition 19?
Proposition 19 is a California law that changed how property tax reassessment works when real estate is transferred — including transfers between family members. It went into effect February 16, 2021.
General Rule — Reassessment at Inheritance
Under Proposition 19, most inherited properties are reassessed at current market value when the owner dies.
This usually raises the property tax bill because the tax is based on the current market value instead of the original lower tax base
Exceptions for Family (Intergenerational Transfer Exclusion)
There are exceptions for certain family transfers where property does not immediately get reassessed — but only if strict conditions are met under the “intergenerational transfer exclusion”.
Who qualifies?
Transfers without reassessment can happen for:
✔ A family home (principal residence)
✔ A family farm
✔ Transfers “parent to child” or “grandparent to grandchild” (grandchild only if the child-generation parent is deceased)
Conditions that must be met
To keep the lower original tax base:
1. The property must have been the parent’s principal residence.
2. The child (or eligible transferee) must make it their primary residence within 1 year of inheriting or transferring.
3. The transferee must file a homeowner’s or disabled veterans’ exemption within 1 year.
4. The property can continue to qualify only as long as it is the child’s (or grandchild’s) primary residence. If they stop living there, the exclusion is lost and the property is reassessed If these tests are satisfied, the property will keep the low tax base (subject to a value limit — see below).
Value Limit on the Exclusion
Unlike the older Prop 58 rules, under Prop 19, the exclusion isn’t automatic for all values.
Instead:
The inherited home’s reassessed value you can keep is up to:
Your parent’s taxable value + $1,000,000 (adjusted for inflation).
If the current market value exceeds that amount, the excess is added to the taxable value.
Grandparents & Grandchildren Transfers grandfathered under these rules only work if:
✔ The property is a principal residence or family farm
✔ Both parents of the grandchild are deceased at the time of transfer
✔ The grandchild meets the residency and filing requirements (similar to parent-child rules)
Important Dates
• Transfers before February 16, 2021 are governed by the old rules (Propositions 58 and 193), which were more generous (no value limits on primary residence transfers and $1M on others).
• Transfers on or after February 16, 2021 follow the new Prop 19 intergenerational exclusion rules.
What Happens If You Don’t Meet the Conditions?
If the child (or grandchild) doesn’t move in, doesn’t file the exemption forms timely, or doesn’t make it a primary home, the property tax exclusion doesn’t apply — and the property will be reassessed at market value.
Also, rental homes, second homes, investment properties, or other real property do not qualify under the family home exclusion.
Quick Takeaways
✔ Prop 19 generally ends the old full inheritance tax break that kept parents’ low property tax for children.
(California State Board of Equalization)
✔ A family home or farm can avoid reassessment if the heir makes it their primary residence and meets filing and residency requirements.
✔ There’s a value cap — you can keep some of the old tax base, but not unlimited amounts)
✔ Grandchild exclusions require that the child-generation parent be deceased
The information on this page is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
Here's how collection action actually unfolds:
Step 1 – Assessment and Notice The IRS assesses the tax and sends a Notice and Demand for Payment. This is your first warning. Most people ignore it—which is the worst thing you can do.
Step 2 – Final Notice of Intent to Levy If you don't respond, the IRS sends a Final Notice of Intent to Levy. This is the last formal warning before collection action begins. You have 30 days to request a Collection Due Process hearing and stop the levy.
Step 3 – Levy If you miss that 30-day window, the IRS can freeze and seize funds directly from your bank account. They can take the entire balance—up to the amount owed—with no further warning. Also, will have negative consequences on your credit.
What makes it worse:
✅ Penalties compound daily from the original due date
✅ Interest accrues on both the unpaid tax and the penalties
✅ The IRS can file a federal tax lien that damages your credit and follows you for years
✅ Collection can come with personal liability—even if you operate through an LLC
What to do if you get an IRS notice:
✅ Open it immediately—every letter has a deadline
✅ Check your IRS transcripts to understand exactly what they have on file
✅ Respond within the deadline, even if you can't pay in full
✅ Don't ignore it hoping it will go away—it won't
The IRS has more collection tools than almost any other creditor. But they also have resolution programs—installment agreements, offers in compromise, currently-not-collectible status—that can stop collection action if you engage proactively.
The key word is proactively. By the time they've levied your account, your options get significantly narrower.
The information on this page is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
💰 Penalties compound daily – interest accrues every single day you don't respond, and it adds up fast
💰 Lost refund rights – file late while owed a refund, and that money can be gone permanently
💰 Collection action – the IRS can levy bank accounts, garnish wages, or even take a Social Security check for life
✅ Open every IRS letter immediately – time-sensitive deadlines are inside
✅ Check your IRS transcripts – they show exactly what the IRS has on file for you
✅ Respond within the deadline – even if you can't pay in full, responding stops automatic enforcement
✅ Report all income – even income you believe is wrong, with a statement explaining why; this protects your audit window
The bottom line: The IRS doesn't forget, and it doesn't stop. But a business owner who responds quickly almost always has more options than one who waits.
The information on this pag is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
Call / text @ 925.759.8339 - email- paul@lairdtax.net -Contact
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The information on this website is provided for general purposes only. For advice specific to your tax situation, please consult me directly.
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