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Yahoo
24 minutes ago
- Yahoo
Annual IRA audit: How to catch the costliest retirement account mistakes
Listen and subscribe to Decoding Retirement on Apple Podcasts, Spotify, or wherever you find your favorite podcasts. When it comes to individual retirement accounts (IRAs), the opportunities for errors are seemingly endless — and costly. With roughly 58 million US households owning IRAs, even one misstep with rollovers, account types, or required distributions could result in unexpected taxes or penalties. To help prevent that, retirement expert Denise Appleby, CEO of Appleby Retirement Consulting, shared common pitfalls and real-life examples on a recent episode of Decoding Retirement. Questo contenuto incorporato non è disponibile nella tua area geografica. Among the most frequent and overlooked mistakes? Ignoring IRS Form 5498, officially titled "IRA Contribution Information." This form reports IRA activity such as contributions, rollovers, conversions, fair market value (FMV), and required minimum distributions (RMDs). The form is so often overlooked because, in 2024, for instance, custodians weren't required to issue it until May 31 — well after most people file their returns. "So you have already done your tax return, you get this form and you're thinking, 'I'll just file it away because my accountant doesn't need it,'" Appleby said. "But you need it — and maybe you should share it with your accountant." Read more: What is a financial adviser, and what do they do? In one case Appleby highlighted, a woman opened what she believed was a traditional IRA. Years later, after a name change and a custodian update, the word "Roth" was removed from the account title, even though the account remained a Roth IRA. Assuming it was a traditional IRA, she made deductible contributions and even rolled over a 401(k) into it, thinking the rollover was tax-free. "Turned out that it was taxable because she processed a Roth conversion without knowing it," Appleby said. The resulting tax liability? Possibly up to $1 million. The mistake could have been caught earlier had she reviewed Box 7 of Form 5498, which identifies the account type (Traditional, SEP, SIMPLE, Roth). To avoid similar issues, Appleby suggested that every IRA owner conduct a yearly self-audit. With Form 5498, confirm your account type (Traditional, SEP, SIMPLE, Roth) in Box 7 and check your rollover contributions (Box 2) for accuracy. Form 1099-R lists distributions, which you'll also want to review. "If you took a distribution," Appleby said, "is it coming from the correct type of account? Is it reported as a direct rollover when it should be?" If you're 73 or older, you're required to take a required minimum distribution each year. RMDs are based on your account balance and IRS life expectancy tables. While the formula is straightforward, using the wrong table or a misstated balance can cause errors. And you are responsible for the accuracy — even if the custodian made the mistake. "If you took out a million dollars in December and rolled it over in January," Appleby said, "your custodian won't have that on record — and your RMD will be understated." To make sure your RMD is correct, you will need to refigure the amount by adding back the million dollars to your year-end fair market value. You can delay your first RMD until April 1 of the following year — but doing so means you'll need to take two distributions that year, potentially bumping you into a higher tax bracket. "Talk with your CPA about whether it makes sense to split the income across two years or take both RMDs in the same year," Appleby advised. If you fail to take an RMD, you could face a 25% excise tax. But there's good news: If you take the RMD during a correction window, the penalty drops to 10%. And in many cases, the IRS will waive the penalty altogether if the missed RMD was due to reasonable error. To request a waiver, file IRS Form 5329 and attach a letter explaining what went wrong. "They've never denied a request that I consulted on when the reason is reasonable," Appleby said. "Tell the IRS how much you took, how much you didn't take, and ask for a waiver. You attach a nice letter ... and you send it in." Even multiyear errors can be forgiven: Appleby said she's worked on cases where the IRS approved requests for cases with 10, 15, and even 18 years of missed RMDs. Appleby warned that when the IRS denies a request, it's typically because the form was filled out incorrectly, as many CPAs are tripped up by Form 5329's language. "In the spot where it says how much do you owe, you put zero," she said. "If you put any other amount, the IRS will take that as your acknowledgment that you owe them and come after you for that money." Rolling over a 401(k) to an IRA is common but still fraught with pitfalls. "Here's the No. 1 mistake that I see happening," Appleby said. "You tell your custodian, 'Do a direct rollover to my IRA' — and the account turns out to be a Roth IRA instead of a Traditional IRA. So here you have an unintentional Roth conversion." Always verify the destination account type before initiating a transfer. Also, check your 401(k) for after-tax contributions or employer securities — both of which can offer strategic planning opportunities if handled properly. Read more: What is a 401(k)? A guide to the rules and how it works. Many rollovers from retirement accounts must be completed within 60 days to avoid taxation. But if you miss that deadline, you may still have options. "Usually, you do a rollover because you want to have the amount excluded from income," Appleby said. If the error was due to something beyond your control, you can use the self-certification process — a no-fee, do-it-yourself fix — as long as you meet the requirements. The key: Act within 30 days of when the circumstance (e.g., illness, disaster) ends, and don't have a prior denied IRS waiver on record. Got questions about retirement? Email Robert Powell at yfpodcast@ and we'll do our best to answer it in a future episode of Decoding Retirement. Each Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan for your future on Decoding Retirement. You can find more episodes on our video hub or watch on your preferred streaming service. Sign up for the Mind Your Money newsletter Effettua l'accesso per consultare il tuo portafoglio
Gizmodo
28 minutes ago
- Gizmodo
Elon Musk Is Selling His Political Party Like a Tesla
Less than 24 hours after launching his political party, Elon Musk is already playing hype man for the movement he claims will disrupt America's broken political system. The richest man in the world took to X (formerly Twitter), the platform he owns, early Saturday morning to promote and to articulate the need for The American Party, his newly announced third party aimed at breaking what he calls the 'uniparty' stranglehold of Democrats and Republicans. The move has drawn sharp criticism from supporters of President Donald Trump and the core of the Make America Great Again (MAGA) movement. As of now, Trump has not responded. 'The people want change,' Musk wrote in response to a user who referenced Ross Perot's 1992 presidential run, which despite ending early, still earned nearly 19% of the vote. 'If you keep voting out of fear, we will keep seeing the result of that. Our government won't change if we don't change our thinking,' the user said. The people want change — Elon Musk (@elonmusk) July 6, 2025That's the sentiment Musk is banking on. He's now channeling that energy into his own populist rebellion, but with a billionaire's budget and a full social media machine behind it. Musk's posts made clear he's still fuming over what he sees as fiscal irresponsibility from both parties, but especially from President Donald Trump and the Republicans. That betrayal, he says, is what finally pushed him to walk away. 'The Republican Party has a clean sweep of the executive, legislative and judicial branches and STILL had the nerve to massively increase the size of government,' Musk posted, referencing Trump's recently signed 'One Big Beautiful Bill,' a sprawling budget and tax plan projected to balloon the national deficit. 'Expanding the national debt by a record FIVE TRILLION DOLLARS,' Musk added. The Republican Party has a clean sweep of the executive, legislative and judicial branches and STILL had the nerve to massively increase the size of government, expanding the national debt by a record FIVE TRILLION DOLLARS … — Elon Musk (@elonmusk) July 6, 2025When asked directly what triggered his break from Trump, Musk didn't mince words: 'Increasing the deficit from an already insane $2T under Biden to $2.5T. This will bankrupt the country.' Increasing the deficit from an already insane $2T under Biden to $2.5T. This will bankrupt the country. — Elon Musk (@elonmusk) July 5, 2025This marks a stunning reversal for Musk, who donated close to $290 million to support Trump's re-election campaign and served as head of the controversial Department of Government Efficiency, or DOGE. Once a star player in the MAGA orbit, Musk now positions himself as its biggest defector. Though most of the backlash to The American Party has come from MAGA loyalists, Musk says his movement isn't just for disaffected Republicans. Responding to a user who suggested that the party could 'soak up a lot of the existing Dem base that feels politically homeless / hate extremism,' Musk replied with a simple: '💯'. 💯 — Elon Musk (@elonmusk) July 6, 2025He's pitching the party as a safe haven for political moderates who've grown frustrated with both the far-right and the far-left. And he's doing it with all the energy of a product launch. In true Musk fashion, he didn't stop at political philosophy. He started planning the party's first big event. 'When and where should we hold the inaugural American Party congress?' he asked his 222 million followers. 'This will be super fun!' When & where should we hold the inaugural American Party congress? This will be super fun! — Elon Musk (@elonmusk) July 6, 2025His chatbot Grok, developed by his AI company xAI, suggested Austin, Texas—Musk's adopted hometown—as the ideal location. Musk responded, 'Good suggestion,' all but confirming that Austin may host the kickoff rally. Good suggestion — Elon Musk (@elonmusk) July 6, 2025Several pro-Musk accounts spread news that The American Party will run candidates in the 2026 midterms. While Musk hasn't confirmed names or races, he has hinted that the focus will be surgical: just a handful of high-impact congressional and Senate contests, enough to sway legislation and send a message. It's unclear who will carry The American Party's banner, or whether it will make any real impact on a deeply entrenched political system. But what is clear is this: Elon Musk has the platform, the followers, and the money—$361 billion, according to the latest Bloomberg Billionaires Index—to make noise. Whether it's political theater or the beginning of a real movement, Musk is once again putting himself at the center of America's biggest cultural flashpoints.
Yahoo
28 minutes ago
- Yahoo
Chevron Stock's 4.6% Dividend Yield and 1.67% One Month Short Put Yield Make CVX a Buy
Chevron Corp (CVX) stock boasts a handsome 4.6% yield, significantly higher than its historical average. As this article will show, CVX stock could be worth between 11% to 20% more. Moreover, selling short put options expiring in just over one month can provide investors a 1.67% monthly yield at out-of-the-money strike prices. The Saturday Spread: Using Markov Chains to Help Extract Profits From DPZ, AKAM and DOCU Our exclusive Barchart Brief newsletter is your FREE midday guide to what's moving stocks, sectors, and investor sentiment - delivered right when you need the info most. Subscribe today! With CVX's closing price on July 3 of $148.37, CVX is still well off its recent highs in mid-April. But it could still have room to rise further. This article will show how to play this. I discussed CVX stock's average yield in my last article on June 16 ("Chevron Stock Looks Cheap Based on Its Average Yield - Shorting Puts Works"). For example, with its annual dividend per share (DPS) of $6.84 (i.e., $1.71 quarterly x 4), the yield is 4.61%. But this is higher than its 5-year average. As a result, CVX is worth between $165 and $181. Let's see why. Over the next 12 months (NTM), an investor can likely expect Chevron will raise its quarterly dividend rate. Let's estimate that the next rate will be $1.78 per share, +4% YoY. That means the NTM DPS rate will be $6.98 per share, and so today's NTM yield is actually over 4.7%: $6.98 / $148.37 = 0.04704 = 4.704% (NTM Yield) That is well over its 5-year average yield: Yahoo! Finance.……4.36% Seeking Alpha …….4.21% Morningstar ……….4.17% Average 5-yr Yield 4.25% As a result, we can project CVX stock's value should it revert to its historical mean, using the NTM dividend per share (DPS): $6.98 NTM DPS / 0.0425 = $164.24 target price That is almost 11% higher than the July 3 closing price: $164.24/$148.37 = 1.1069 -1 = +10.7% upside This also coincides with analysts' target prices. Analysts surveyed by Yahoo! Finance (25) have an average price target of $163.23 per share, or +10% higher than today. Similarly, Barchart's mean price target is $161.73, and says the average from 15 analysts is $164.79 (close to my price target). However, which covers recent analyst write-ups, shows that 21 analysts have an average of $181.20 per share. That is +22% higher than today. The bottom line is that the median of these surveys is $164.01, very close to my dividend-yield-based target of $164.24. As a result, there seems to be +10-11% potential upside in CVX stock, and potentially up to 22% more. But there is no guarantee this will occur over the next 12 months. Therefore, one way to play this is to set a lower potential buy-in price. Investors can do this by selling short out-of-the-money (OTM) put options in a near-term expiry period (usually one month is ideal). The upside here is that investors can make a good one-month yield with this play. My last article on June 16 pointed out that the $140 strike price put option expiring July 18 had a midpoint premium of $2.07, a one-month yield of 1.48% ($2.07/$140.00). This strike price was 3.3% below the trading price (i.e., out-of-the-money or OTM). Today, the price is just 39 cents, so the short-put investor has made most of the yield. They can roll this over (i.e., 'Buy to Open') and do a new trade further out. For example, look at the August 8 expiration period, which is just over one month away. The $144.00 put option, 3% below the trading price, has a midpoint premium of $2.41. That gives the short put investor a one-month yield of 1.67% (i.e., $2.41/$144.00). Note that this trade has a low probability of being assigned, less than one-third chance, since the delta ratio is -32.7%. In addition, the annualized potential return is attractive at 16.7% (i.e., 365/36 days to expiry). Moreover, even after rolling the prior trade over, $2.41-$0.39 = $2.02/$144.00 = 0.014 = 1.40%. In other words, the investor can make the same yield as before. The beauty of this type of trade is that the investor does not have to wait for the full expiration period to make good money. For example, the net income since June 16 is: $2.07 - $0.39 +$2.41 = $4.09 or $409 per put contract (with 100 shares per put contract) But the average investment would have been $14,200 (i.e., $140 strike price in the first trade and $144 in the second). Therefore, the net yield has been 2.88%: $409/$14,200 = 0.0288 = 2.88% This is over 53 days between June 16 and August 8 (and potentially shorter if the investor covers before then). Let's assume that most of the yield is made over the next 21 days. The investment period would be 40 days. So the annualized expected return (ER) is as follows: 365/40 = 11 periods x 2.88% = 31.68% That is a very high expected return, assuming that the investor can repeat this play every 40 days. The point is that these out-of-the-money puts are a very attractive way to play CVX stock. Moreover, the investor's breakeven point, should CVX stock fall 3% to the $144.00 strike price, makes this a good investment: $144.00-$2.41 = $141.59 $164.24 / $141.59 = 1.16 -1 = +16% The bottom line is that by shorting puts expiring in one month, the short-put CVX investor can make a potential +16% upside. Even if CVX doesn't fall, the short-put yield is 1.67% for slightly over one month. That works out to 16.7% annualized, and potentially up to almost 32% if these trades are duplicated every 40 days. On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Sign in to access your portfolio
