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Friday, February 12, 2016
Equity Shares to IRA – LAA
The IRS has finally published the rules, and the Company has completed the review and preparation of the documents. This week, the Company mailed letters to LAA employees who received the Equity Payout. If you received any Equity Payout (paid to us as shares of stock into a Computershare account) you have an opportunity to make a deposit into a traditional IRA to be credited retroactively for the year in which you received each payout. You can deposit up to 90% of the gross (before tax) value of what you received into a traditional IRA. You can then file an amended tax return (1040-X) for that year, and reflecting that deposit into the IRA. That will reduce your taxable income for that year, which should result in a refund of taxes paid on that amount.
To the IRS we received “money” from AA, and the fact that it came in the form of stock is not relevant. So, for example, if you received $1,000 in December 2013 (in the form of stock), you can deposit 90% of that ($900) into a traditional IRA. You then file a 1040-X for 2013 which will show $900 less taxable income, which should result in a tax refund. The letter you will be receiving will tell you the amounts you received, and when those amounts were paid to you and when your opportunity to make these transfers expires (June 15, 2016).
Some important things about this process:
- You can transfer the stock* or cash into the IRA.
- The money can come from anywhere: your savings, sale of any remaining stock, a loan, etc. The IRS does not care where the money comes from. What is important is that the amount does not exceed 90% of the total amount you received.
- The fact that the value of the stock has changed since you received it, does not change the amount that can be rolled into an IRA. That gross value on the day you received it is what is used to determine the amount that is eligible to roll into your IRA, not the value it changed to at a later date.
- The capital gains or losses on the stock (profit/loss) does not matter for this transaction.
- The rollover can only go into a traditional IRA, it can not go directly into a Roth IRA, and can not go into your 401k.
- If you have sold your stock it does not disqualify you from making this contribution.
- If you have not sold your stock, it does not disqualify you from making this contribution.
- This will only effect about 60,000 people in the entire country, so many tax preparers will not be familiar with this process. Please direct them to https://www.irs.gov/publications/… and the January 2016 revision of Form 1040-X instructions, page 4 https://www.irs.gov/pub/irs-pdf/i1040x.pdf.
- You only have until June 15, 2016 to make this deposit into your IRA for prior year payments.
- You must have a traditional IRA in order to make this deposit. If you do not already have a traditional IRA, you should speak to your stock broker, credit union or bank about opening up a traditional IRA. (Don’t forget to ask about fees, they vary widely.)
- There are deadlines on how long you have to file a 1040-X, please ask your tax advisor.
- As we received each payout of stock, shares of that stock were immediately sold to pay the 25% federal income tax withholding. The amount that was left (net value) was what was deposited into our Computershare account. The 90% is taken on the gross (before tax) value.
- The traditional IRA is a “tax deferred” account. That means that when you do finally take that money out in retirement, you will at that time pay taxes on that amount.
- If we receive Equity Payments in the future, you will have 180 days from the date of the new payment to make another “rollover” deposit into your IRA of up to 90% of that new payment.
*While it appears possible for Flight Attendants to transfer the actual shares of stock originally received in the AAL stock equity distribution to a traditional IRA, doing so raises a number of complicated issues, particularly with respect to how the stock is valued. Flight Attendants interested in making such an in-kind stock transfer should consult with a qualified tax/financial advisor.
If you have questions about the amounts reported to you in the letter, such as if those amounts do not match your records, you can call the Equity Distribution Center, at 888-285-9438. For tax questions, please contact your tax advisor. For other questions, you can contact the APFA Retirement department, firstname.lastname@example.org or ext. 8490.
APFA Retirement Specialist
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