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required minimum distribution

Calculating your Required Minimum Distribution

Learn how to calculate your required minimum distribution for your IRA, 401k, 403b or other qualified retirement plan.

6 Year End Tips for a Financially Productive 2017

As 2016 comes to a close in a few weeks and we start into 2017, here are some good tips to consider to start 2017 off with some good strategies that will hopefully become habits. If you’re not doing so already, set up your payroll deductions to save the maximum to your 401k. There’s plenty of time to your payroll allocated so your deductions start coming out on the first paycheck in January. The 2017 maximum contributions are $18,000 for those under age 50 and $24,000 for those age 50 or older. To deduct the max, simply take the number of pay periods you have annually and divide it into your maximum contribution amount. This will allow you to save the maximum amount over 2017. Consider doing the same to maximize your IRA contribution. Those limits are $5,500 (under 50) and $6,500 (over 50) respectively. Check your allowances on your […]

Remember Your 2016 RMD

It’s hard to believe that 2016 is coming closer to an end. For some individuals that are required to take required minimum distributions (RMDs) from their retirement plans, it may be a good idea to double check to make sure that happens. If it doesn’t the penalties are harsh. According to the IRS the penalty for not taking and RMD or not taking the full RMD is 50% of the amount not withdrawn.  This can lead to significant losses to a retiree that must take RMDs.  Generally, most financial planners and or custodians we’ll be able to help the individual and remind them that they have and RMD and how much that amount needs to be. If an individual finds themselves in the precarious position of having forgotten to take the RMD or did not take out enough, there is a remedy.  The IRS allows an individual to file form […]

RMD from an Inherited IRA

If you have inherited an IRA you are required to begin taking distributions from the account according to a set schedule. If you are the sole beneficiary of the IRA, how you handle your distributions is up to you. If there are two or more beneficiaries of the IRA, the process becomes more complicated – see the article at the link for more on multiple beneficiary arrangements. There are actually two different schedules that you can use, lifetime distributions and a distribution over 5 years. 5-year distribution The 5-year distribution method is the default period for distribution of an inherited IRA. As the name of the method suggests, in this method the inherited IRA must be completely withdrawn within 5 years of the death of the original owner. There is no specific amount that must be withdrawn in any particular year, as long as the entire account is withdrawn within […]

Qualified Charitable Distributions for 2016

Individuals needing to take their required minimum distributions (RMD) for 2016 may consider having all or part of their RMD distributed as a Qualified Charitable Contribution (QCD). In order to qualify, the following rules must be met. The individual taking the QCD must be age 70 ½. The maximum allowed QCD is $100,000 per individual, annually. The QCD must come from an IRA. QCDs from 401(k)s, 403(b)s, 457(b)s, SEPs, SIMPLEs are not permitted. An individual may roll over an amount to their IRA and then made the QCD. The QCD is counted toward the individual’s RMD for the tax year. If the RMD was already taken, the QCD cannot be retroactively made. The QCD must be made directly to the charitable organization. Generally, the charity must be a public charity. The Protecting Americans from Tax Hikes (PATH) Act of 2015 made allowing QCDs from IRAs permanent. The tax benefit from […]

Charitable Contributions from Your IRA

Once the PATH Act (Protecting Americans Against Tax Hikes) is signed into law, at long last the ability to make a direct contribution from an IRA to a qualified charity will be permanent. For background – a Qualified Charitable Distribution (QCD) is when an individual (age 70 1/2 or older and subject to Required Minimum Distributions from his or her IRA) makes a distribution from his IRA directly to a qualified charity. This distribution can be used to satisfy the Required Minimum Distribution for the year. The distribution is limited to $100,000 for each year per individual. The real advantage of this option is that the owner of the IRA doesn’t have to claim the distribution as taxable income on his or her tax return. Any other distribution of pre-tax dollars typically must be claimed as ordinary income, increasing taxes because of the additional income. In addition, having the increased […]

Forget to Take Your RMD?

In case you forgot to take your required minimum distribution (RMD) for 2014 there’s still hope in order to avoid the 50% (yes, that’s FIFTY percent) penalty of the amount not withdrawn. If you missed taking the RMD for 2014 here’s what you can do. According to the IRS the penalty may be waived if you can establish that it was due to reasonable error that you didn’t take the RMD and that reasonable steps are being taken to remedy the error. That is, take the 2014 RMD right away (or as soon as you can let your custodian know) and it might not be a bad idea to take the RMD for 2015 as well (just to be on the safe side). Once that’s done you or your tax professional need to fill out Form 5329 as well as a letter explaining the reason for not taking the RMD. […]

Using First Year RMD Delay to Your Advantage

When you are first subject to RMD (Required Minimum Distributions), which for most folks* is the year that you reach age 70½, you are allowed until April 1 of the following year to receive that first minimum distribution.  For all other years you must take your RMD by December 31 of that year.  For many folks, it makes the most sense to take that first year RMD during the first tax year (by December 31 of the year that you’re age 70½), because otherwise you’ll have two RMDs hitting your tax return in that year.  However, in some cases, it might work to your advantage to delay that first distribution until at least the beginning of the following year – as long as you make it by April 1, you’re golden. There may be many circumstances that could make this delay work to your advantage – maybe you’re still working […]

How to Deal With Missed Required Minimum Distributions

What happens when a beneficiary doesn’t act in a timely fashion with regard to taking Required Minimum Distributions from the inherited IRA?  In other words, what are your options if you’ve missed Required Minimum Distributions (RMDs) in prior years? The Inheritance So, let’s say you inherited an IRA from your mother – this was her own IRA that she had contributed to or rolled over funds from a qualified plan at some point, and had designated you as the sole primary beneficiary.  Things get really hectic and confusing after the death of a parent, and sometimes we don’t cover all of the bases properly… and in this example, you didn’t realize that you needed to begin taking Required Minimum Distributions (RMD) from your inherited IRA as of December 31 of the year following the year of your mother’s death.  As of now, for example’s sake, let’s say we’re in the […]

Annuity in an IRA? Maybe, now

Forever and a day, the rule of thumb has been that you should not use IRA funds to purchase an annuity – primarily because traditional annuities had the primary feature of tax deferral. Since an IRA is already tax-deferred, it’s duplication of effort plus a not insignificant additional cost to include an annuity in an IRA.  This hasn’t stopped enthusiastic sales approaches by annuity companies – plus new features may make it a more realistic approach. Changes in the annuity landscape have made some inroads against this rule of thumb – including guaranteed living benefit riders, death benefits, and other options.  Recently the IRS made a change to its rules regarding IRAs and annuities that will likely make the use of annuities even more popular in IRAs: The use of the lesser of 25% or $125,000 of the IRA balance (also applies to 401(k) and other qualified retirement plans) for […]

Stretching an IRA When There Are Non-Individual Beneficiaries

As we’ve discussed here previously, one of the requirements to enable an inherited IRA to be “stretched” over the lives of the beneficiaries is that all of the beneficiaries must be individuals.  That is to say, none of the beneficiaries can be something other than a person, such as a trust (specifically a trust that is not a see-through trust), a charity, or an estate.  If even one beneficiary is not a person, then all of the beneficiaries must take distribution within five years. But there’s a way around this, and it has to do with the timing of distributions. When an IRA owner dies, there is a key date to know: September 30 of the year following the year of death of the owner.  On that date, the beneficiaries are “set” for the IRA, and if available, the Designated Beneficiary is named.  It is on this date that the […]

When is a RMD a RMD?

I receive quite a few questions from folks looking for clarification on the rules around Required Minimum Distributions upon reaching age 70½, so I thought I’d jot down a couple of facts about them that you may find interesting. When can I take the distribution? Looking through some notes from readers I found one where it was asked (this is paraphrased for clarity): My birthdate is April 10, 1943, so I will reach age 70½ on October 10, 2013.  Do I need to wait until October 10 or after to take a distribution so that it is counted as my RMD? I responded to this question by saying that, to be safe, I suggest the reader wait until after October 10 to take the distribution. However. (there’s always a however in life, isn’t there?) I subsequently received a message from a reader (thanks, TAM!) with the following updated information: It […]

Special Treatment for an Older Spouse/Beneficiary of an IRA

Note: the situation described in this post was originally brought to my attention by Mr. Barry Picker, of Picker, Weinberg, & Auerback, CPAs, P.C.  Mr. Picker is another of those “rock stars” in the world of retirement plan knowledge, up there with the best of them.  Many thanks to Mr. Picker for sharing his wealth of knowledge. There is a special set of circumstances regarding inherited IRAs that only fits a few cases – but for those cases the rules can work out favorably and it is important to understand how this operates.  The circumstances are that a younger spouse has died and left an IRA to the older, surviving spouse.  In this case, if the decedent-spouse had already begun receiving Required Minimum Distributions (RMDs) from the IRA, the survivor-spouse, if sole beneficiary of the IRA, can make the distribution rules work in his or her favor. In any case, […]

Take Your RMDs From Your Smallest IRA

Here’s a strategy that you could use to simplify your life: when you’re subject to Required Minimum Distributions (RMDs) after age 70½, you have the option of taking separate RMDs from each IRA that you own OR you could take all of your RMDs from one account if you like. As long as you calculate your RMD based upon all of the IRAs that you own, you are free to take the full amount of all of your RMDs from one single account (or several accounts) if you wish.  And keep in mind that the “I” in IRA stands for Individual – so you can’t aggregate your IRAs with your husband’s, for example. By doing so, you could eliminate the smaller account(s) if you wish, thereby reducing paperwork (fewer accounts and statements).  As well, you don’t have to keep track of as many accounts for estate planning. But then again, […]

Guidance on Qualified Charitable Contributions From Your IRA For 2012

January 1, 2013 update: Passage of the American Taxpayer Relief Act of 2012 has extended the QCD through the end of 2013.  See this article for more details. In past tax years (through the end of 2011) there was a provision available that allowed taxpayers who were at least age 70½ years of age to make distributions from their IRAs directly to a qualified charity, bypassing the need to include the distribution as income.  The law allowed the taxpayer to use a distribution of this nature to satisfy Required Minimum Distributions (RMDs) where applicable. This law expired at the end of 2011, but in years past Congress has acted very late in the year and retroactively reinstated this provision.  For more detail on how this provision (if not reinstated) can impact your taxes, see the article Charitable Contributions From Your IRA – 2012 and Beyond. Guidance For 2012 If you […]

IRS Cracking Down on IRA Rules

It seems that some of the rules the IRS has put in place with regard to IRAs have not always been watched very closely – and the IRS is stepping up efforts to resolve some of this.  According to the article in the WSJ, IRA Rules Get Trickier, an estimated $286 million in penalties and fees were uncollected for 2006 and 2007 tax years’ missed distributions, over-contributions, and the like. The title of the article is a bit misleading, because the rules are not changing or getting “trickier”, the IRS is just going to be paying closer attention to what you’re doing with your account.  This is set to begin by the end of this year, after the IRS delivers their report to the Treasury on how to go about enforcing the rules more closely. The first rule being monitored more closely is the contribution rule – for 2012, you’re […]

RMDs Don’t Have to Be Taken in Cash

But… It’s a little-known fact that distributions from an IRA  or a Qualified Retirement Plan can be taken in kind, rather than in cash.  You can in any circumstance take distribution from the account of stocks, bonds, or any investment that you own, just the same as if it were cash. The downside to this is determining valuation for the distribution.  You could value the distribution on the day of the distribution by opening price, closing price, average price, or mean between the day’s high and low prices.  Where you really get into trouble is when the security that you own is very thinly-traded, such as a small company or very infrequently-traded bonds.  These can be very hard to value on the date of distribution, and as you might recall, the value of a distribution for Required Minimum Distributions (RMDs) must be valued appropriately in order to ensure that the […]

Which Account to Take your RMDs From

Image via Wikipedia When you’re subject to the Required Minimum Distributions (RMDs) and you have more than one IRA account to take the distributions from, you have a choice to make.  Even though you have to calculate the RMD amount from all of your IRA accounts combined, the IRS provides that you could take the total of all your RMDs from a single account if you wish. With this provision in mind, you could take all of your RMDs from the smallest account, which would provide you the opportunity to eliminate one of the accounts in your list, thereby simplifying things.  By reducing the number of accounts that you have, you could simplify the calculation of RMDs, estate planning, and just general paperwork. However, it might not always work to your best interests to reduce the number of accounts that you have.  You may have multiple accounts in order to […]

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