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News Items, by Subject

Distributions - req. minimums

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Delaying Qualified Plan RMDs with the 'Still Working' Exception
"[D]efining precisely what it means to be 'still working' (e.g., 1 hour per week, 10 hours, 20 hours?) is not something that the IRS has done. However, the general interpretation based on a plain reading of the law is that, as long as the employer still considers an individual employed, that person is 'still employed' for the purpose of the still-working exception (even if the ongoing work is of a relatively limited nature).... Another complication with determining whether an individual is 'still working' is the exclusion of the rule for 5% owners of a business.... Fortunately, this complexity does create planning opportunities which individuals can use to reduce (or at least delay) their tax bill." (Nerd's Eye View)
Most Retirees Only Withdrawing Required Minimum Distribution
"Sixty-eight percent of retirees are only taking the required minimum distributions (RMDs) from their retirement accounts, [according to] a survey of more than 1,000 retirees with at least $100,000 in investable assets. Only 21% feel confident about taking money out of these accounts.... The survey also found that the median savings these retirees have is $839,000.... 25% said they were not sure if their retirement savings will last throughout their lifetime.... 25% fell short of their retirement savings goal by $250,000 or more." (planadviser)
'Reasonable Cause' for a Missed Required Minimum Distribution
"When a participant is actually retired can be a 'facts and circumstances' determination. Has the participant been laid-off, or completely severed from employment? Is the participant on an unpaid leave of absence or on a medical or disability leave? Is the participant completely retired or still working two days a week? ... A missed RMD resulting from an employer's misunderstanding of the employee's retirement status could be a good case for a reasonable cause to have the 50% penalty waived." (PenChecks)
The Elusive Search: Considerations for Locating Missing Retirement Plan Participants (PDF)
"[R]ecent government focus and audit activity on the failure of retirement plans to make required distributions such as RMDs increases the risk of IRS penalties and excise taxes, and of claims that a breach of fiduciary duty may have occurred.... [P]lan administrators should take a fresh look at the processes they have in place for locating missing or nonresponsive plan participants." (Isler Dare)
Protect Your Qualified Plan from RMD Failures
"To help protect a plan from RMD failures and the administrative cost and hassle that follows, a plan sponsor should adopt an internal system to [1] monitor ages of participants (including former employee participants), [2] contact those who are approaching Normal Retirement Age (and at the latest age 70-1/2) to start the benefit payment process, and [3] document efforts made to locate missing participants, following the IRS guidelines." (Watkins Ross)
What to Do with Missing Participants and Required Minimum Distributions
"[T]he IRS website states that employers and plan administrators of ongoing plans may want to consider periodically using one or more of the search methods described in [DOL FAB 2014-01], as this can provide evidence of making a reasonable effort to locate RMD-eligible missing participants." (PenChecks)
[Official Guidance] Text of IRS EP Examination Memo TE/GE-04-0218-0011: Missing Participants and Beneficiaries and Required Minimum Distributions -- 403(b) Plans (PDF)
"For purposes of IRC Section 403(b)(10), EP examiners shall not challenge a 403(b) contract for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due, if the plan has taken the following steps: [1] searched plan and related plan, sponsor, and publicly-available records or directories for alternative contact information; [2] used any of [three listed] search methods ... and [3] attempted contact via [USPS] certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers)." (Internal Revenue Service [IRS])
[Guidance Overview] IRS Extends RMD Audit Guidelines for Missing Participants to 403(b) Programs
"In the last year or two, it has been increasingly common for both the IRS and the DOL on audit to demand 'scorch the earth' search methods for missing participants that frequently seem to lack a realistic cost/benefit balance or due sensitivity to privacy considerations.... The guidelines do not address how plans should handle situations in which a participant address has been identified but the participant is unresponsive or will not request distribution, nor do the guidelines address circumstances in which participants fail to cash checks." (Eversheds Sutherland)
Clean Up This April with Required Minimum Distributions (PDF)
"[P]lans that allow participants to defer receipt of payment past the normal retirement date should carefully monitor participants approaching age 70.... Track any returned mail from required compliance mailings such as annual funding notices, summary material modifications, and summary plan descriptions. Then follow up with an address search.... Use one or more address search vendors that offer to continuously monitor a pension plan's vested terminated population for unreported deaths ... Automatically mail normal retirement packets 90 to 180 days prior to the participant's NRA." (Milliman)
Stanford Center for Longevity Proposes New Strategy for Retirement Income
"For the solutions they analyzed, the solutions using the [IRS] required minimum distribution and fixed index annuities did the best job of keeping up with inflation. The analyses also show retirement income solutions with a high withdrawal percentage -- 7% -- naturally spend down savings more quickly than a 3% withdrawal rate." (planadviser)
Recreate the Certainty of a Pension in a 401(k) World
"[R]etirees that crave certainty may want to consider a fixed return portfolio combined with a variable withdrawal, rather than a fixed annual withdrawal.... The benefit in choosing a variable annual withdrawal (based on a percentage of the portfolio's value at the end of each year) is that you will still have money remaining after 40 years.... The real key is, how much money do you need each year? If withdrawing 4% of the portfolio balance will be sufficient, then a diversified, multi-asset variable return portfolio is very compelling." (Financial Planning)
Why it's Dangerous to Ignore Undeliverable Mail Sent by Your Retirement Plan
"The DOL's position is that it is a breach of fiduciary duty for a plan sponsor not to take reasonable steps to locate missing participants that are due a benefit. The DOL has not issued official guidance on what steps would be considered reasonable, but hopefully if the IRS guidelines are followed, the DOL would find that a plan sponsor acted in good faith to find missing participants. While the IRS is addressing RMDs in all retirement plan audits, the DOL's focus appears to be more on large pension plans." (Graydon)
Strategies to Reduce Required Minimum Distributions from Retirement Accounts
"Ultimately, it's impossible to completely and indefinitely avoid the requirement to distribute retirement accounts -- if only because, even to the extent the account isn't liquidated during life, the beneficiaries will be subject to additional RMD obligations after the death of the original account owner. Nonetheless, the potential exists to at least partially manage and minimize RMDs, and mitigate some of their tax bite!" (Nerd's Eye View)
Required Minimum Distributions (RMDs): The Out-of-Sight, Out-of Mind-Problem
"Do you understand all of the shorthand references in your plan documents? Are your plan administration systems and capabilities consistent with the design and needs of your plan? Have you properly attempted to contact participants you have not heard from? Should you consider adding some form of the IRS guidelines to you plan?" (Best Best & Krieger LLP)
Delaying the Inevitable: Required Minimum Distributions for Defined Contribution Plans
"A plan sponsor may want to let account holders know that they can avoid receiving two RMDs in the initial year by taking their initial distribution in the year they attain 70-1/2. All subsequent RMDs must be paid by December 31. This includes the year in which the initial RMD is paid; ergo, account holders who receive their initial distribution using the April 1 grace period will receive a second distribution in December of the same year.... A plan sponsor should establish a policy to address how non-five-percent owners will be handled upon rehire.... There is no RMD aggregation for most qualified plans, and each qualified plan must separately calculate and pay (at least) the RMD amount.... The RMD calculations are further complicated if there are multiple beneficiaries or a death." (Findley)
[Guidance Overview] Missing Participants: IRS Memo Addresses RMD and Search Aspects
"While the [IRS Memo for EP examiners] appears to create a 'safe harbor' for purposes of IRS audits, plans need to keep in mind that the DOL may require additional steps.... [P]lans should take into account a missing participant's account balance and the cost of search methods in deciding what additional steps are appropriate. For example, the DOL could insist on using multiple commercial locator services in some circumstances." (Kilpatrick Townsend)
Missing Participants with Unpaid Required Minimum Distributions: IRS Provides New Audit Guidance
"[A]uditors are instructed not to challenge a plan as violating the RMD rules for failing to commence or make an RMD to a missing participant or beneficiary if the plan has taken [specific] steps ... This guidance, which applies to audits of cases that were already open on October 19, 2017, and to cases opened after that date, will be helpful for plans that have unpaid RMDs and are undergoing IRS audits now or in the future." (Segal Consulting)
[Official Guidance] Text of IRS Memo for EP Employees on Missing Participants and Beneficiaries and Required Minimum Distributions (PDF)
"This memorandum directs EP examiners not to challenge a qualified plan as failing to satisfy the required minimum distribution (RMD) standards under Internal Revenue Code Section 401(a)(9) in [specified] circumstances ... This memo addresses only the application of IRC Section 401(a)(9) to certain circumstances involving a plan's action related to a benefit of a participant or beneficiary whom the plan is unable to locate and does not address the application of any other qualification requirements or other applicable law, including Title I of ERISA." [TE/GE-04-1017-0033, Oct. 19, 2017] (Internal Revenue Service [IRS])
Spousal Rollover Rules for Inherited Roth and Traditional IRAs
"Ultimately, the good news is that spousal beneficiaries have the option to make either choice, and even have flexibility about the timing -- allowing a decision to maintain an inherited stretch IRA for the spouse initially, and completing a spousal rollover later (after he/she turns age 59-1/2). Nonetheless, it's important to carefully consider the choices and trade-offs... especially since a spousal rollover, once completed, is irrevocable and cannot be undone after the fact!" (Nerd's Eye View)
Five Important Ages for Retirement Planning
"At age 50, your employees will become eligible to save more the standard amount in their 401(k) and IRA accounts ... By waiting until the age of 59-1/2 to take a withdrawal, your employees will get to keep an additional 10% of their money.... Your employees will be able to sign up for Medicare during a seven-month period starting three months prior to their 65th birthday.... Baby boomers born between 1943 and 1954 will be eligible to begin claiming the full Social Security benefit they've earned at age 66.... Whether it's needed or not, they'll be required to take distributions from their traditional IRAs, traditional 401(k)s and Roth 401(k)s after age 70-1/2." (Voya)
Rules for Calculating Required Minimum Distributions
"In reality, retirees who are actually using their retirement accounts for retirement spending may well be withdrawing more than enough to satisfy their RMD obligations anyway. However, given the substantial penalties involved for failing to take the full amount of an RMD -- a 50% excise tax for any RMD shortfall -- it is crucial to ensure that the RMD is calculated correctly (and withdrawn in a timely manner)!" (Nerd's Eye View)
Better Budgeting with the IRS RMD Table?
"[W]hile the IRS RMD [strategic withdrawal plan (SWP) may be a tad simpler than the Actuarial Approach, ... the more exact actuarial calculations is definitely worthwhile and can improve retirement outcomes even more.... [1] The IRS RMD SWP is quite conservative; [2] SWPs frequently do not coordinate well with other sources of retirement income; [3] SWPs generally do not adequately recognize non-recurring expenses in retirement and do not anticipate different rates of increase in future recurring expenses; [4] SWPs generally don't permit 'budget shaping' to meet individual retirement goals, and [5] SWPs generally don't do a particularly good job of helping you with pre-retirement planning." (Ken Steiner, FSA Retired)
An 'Exception' That Can Delay RMDs from 401(k)s
"The still-working exception does not apply to IRAs. It also doesn't apply to employer plans if an employee isn't currently working for that company.... The IRS has no official position on what exactly constitutes staying on the job. Presumably, an individual could work one hour a year and still be considered employed for this exception to the RMD rules to work.... If the worker owns more than 5% of the company the year he or she turns 70-1/2, he or she will never be able to use the still-working exception.... [F]amily aggregation rules apply in determining the percentage of ownership." (Ed Slott, via Financial Planning)
[Discussion] Treat Required Minimum Distribution as a Qualified Charitable Distribution?
"A 401(k) participant wants to treat her RMD for the year as a qualified charitable distribution. She is eligible for an in-service distribution, so since these rules apply only to IRA's we could transfer her money to an IRA first and she could make the charitable distribution from there. However, isn't the RMD required before the rollover to the IRA? Is there any way around this hiccup?" (BenefitsLink Message Boards)
Key Rules for Non-Spouse Beneficiaries
"It is very important to check the terms of the agreement that governs the inherited retirement account to determine if the beneficiary is subject to the five-year rule or the life expectancy rule. In some cases, the beneficiary might be required to make an election by certain deadlines in order to be subject to the rule that he wants to use." (Appleby Retirement Dictionary)
Is Your Retirement Plan Overlooking Required Beginning Dates? (PDF)
"Each retirement plan document defines [required beginning date (RBD)], and is not required to adopt [the] broad regulatory definition.... A plan designed to permit the delay of RBD for non-5% owners (until retirement after age 70-1/2) will find there are non-5% owner participants who work beyond age 70-1/2 that anticipated starting RMDs at age 70-1/2 to supplement their income.... Therefore, a plan designed to delay RBD should include an in-service distribution provision to allow the plan to calculate what a participant's RMD would have been and distribute it when requested, but as an in-service distribution rather than an RMD." (William Grossman, via PenChecks)
So You're the New Owner of an Existing Inherited IRA
"The IRS has some complicated rules for titling inherited IRAs when there are successor beneficiaries.... The RMD calculation cannot be reset when a successor beneficiary inherits an inherited IRA.... A beneficiary can combine inherited IRA accounts that are inherited from the same individual as long as the RMDs are calculated using the same life expectancy factor." (Slott Report)
Six Things to Know About the Year-End Account Balance Used for RMDs
"[I]f you are calculating [a required minimum distribution (RMD)] for 2017 you would use the 2016 year-end account balance. If you are calculating a missed RMD for 2014, you would use the 2013 year-end account balance.... As usual with retirement distribution rules, there are some exceptions to the general rule.... Rollovers or transfers ... Recharacterizations ... Excess QLAC contributions ... Prior-year RMDs ... Still-working exception to RMDs." (Slott Report)
[Opinion] It's Harder Than You Think to Spend Down Your 401(k) Account in Retirement
"[P]eople seem to have a psychological attachment to their pile; they have spent a lifetime building it up and may be reluctant to draw it down. Second, people are fearful about end-of-life health care needs and want to be sure they have enough money to cover their expenses. Finally, people seem to have a desire to leave a bequest ... So, without some guidance, chances are high that retirees will deprive themselves of necessities. One way to help may be to put more emphasis on the Required Minimum Distributions[.]" (Alicia Munnell, in MarketWatch)
Interesting Use of the QCD Strategy: Making Up Missed RMDs
"The tax code and regulations simply say that a QCD can satisfy [a Required Minimum Distribution (RMD) requirement]. They do not specify that it can only satisfy the current year's RMD. And, if you miss an RMD the rules are that it gets added to the next year's RMD." (Slott Report)
[Opinion] Should the Required Minimum Distribution Age Be Raised?
"The oldest of the 75 million baby boomers in the U.S. turned 70-1/2 on July 1, 2016, which means they must take their first required withdrawal ... by April 1 of this year. That represents the start of a lot of money being pulled out of retirement accounts over the next few decades. Couple that with higher life-expectancy rates, and many have started to wonder if the age for those required minimum distributions, or RMDs, should be raised -- or even eliminated[.]" (MarketWatch)
How Skillful RMD Planning Can Sustain Retirement Portfolios
"[T]he mathematics of the RMD virtually guarantee that a portfolio cannot be liquidated within 45 years. The required minimum withdrawal may be inadequate to meet the needs of the retiree in the later years, but that is a different matter. On the other hand, the stipulated RMD may be more than the retiree needs to spend that year, so the excess above their needs can be reinvested into a taxable investment account -- or simply stuffed in a mattress!" (Financial Planning)
[Guidance Overview] IRS Reminds Taxpayers of April 1 Deadline to Take Required Retirement Plan Distributions
"[The IRS] reminded taxpayers who turned age 70-1/2 during 2016 that, in most cases, they must start receiving required minimum distributions (RMDs) from [IRAs] and workplace retirement plans by Saturday, April 1, 2017. The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. It also typically applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans." (Internal Revenue Service [IRS])
Planning to Keep Your 401(k)? Be Careful When You Reach Age 70-1/2
"With IRAs, RMDs must be calculated separately for each account, but the amounts can then be added together and distributed by any one of the IRAs.... In the case of an employer-sponsored plan such as a 401(k), the RMD must be calculated separately and distributed separately from each plan.... Employer-sponsored Roth accounts are subject to RMDs.... If you're still contributing to your employer-sponsored plan, you may be able to delay taking RMDs." (Vanguard)
IRA Annuities: Beware of Death Benefit Taxation
"When an immediate annuity is purchased inside an IRA, the contract and the account step out of the regular minimum distribution rules ... Instead, the IRA becomes subject to the special separate RMD regime that applies to defined benefit pension plans and 'annuitized' defined contribution plans." (Morningstar Advisor)
Business Group Seeks End to Required Minimum Distributions from 401(k) Plans
"The U.S. Chamber of Commerce will be urging Congress this year to end minimum payout requirements from 401(k)s and IRAs ... The effort, along with an effort to spur multiple employer retirement plans, is part of a legislative roadmap for retirement benefits the chamber will roll out February 3 ... [T]he roadmap will be based on a retirement policy white paper prepared for President-elect Donald Trump's transition team." (Financial Advisor)
[Opinion] Comments of American Benefits Council on Draft of the Retirement Improvements and Savings Enhancements (RISE) Act
10 pages. "[A]n employer would be permitted to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to 'qualified student loan repayments,' which are broadly defined as repayments of any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee (emphasis added) (expenses of a dependent would not be covered).... We applaud the innovation ... [Another] proposal would eliminate the ability of many plan and IRA beneficiaries to receive benefits over a period longer than five years.... [This] will in many instances reduce retirement savings for beneficiaries." (American Benefits Council)
RMDs When You Move Money from an Employer Plan to an IRA
"There are only three instances when you have to adjust an IRA balance before calculating an RMD. [1] Outstanding rollovers or transfers ... [2] Roth recharacterizations done the year after the conversion ... [3] Return of an excess QLAC contribution." (Slott Report)
Who Doesn't Need to Take a 2016 RMD by December 31?
"You just reached 70-1/2 in 2016.... You are 'still-working' ... You have 'old money' ... You have invested in a QLAC.... You have a Roth IRA." (Slott Report)
As You Approach 70, Tips Like These Can Help Trim Your Required Minimum Distributions
"[1] Move some of your IRA funds into a Roth IRA.... [2] Purchase a deferred income annuity known as a [QLAC].... [3] Maximize withdrawals from your IRA prior to age 70-1/2 to the level of peak earnings allowable within your tax bracket.... [4] Consider withdrawing even more money from IRAs for living expenses and leisure pursuits.... [5] Make tax-free donations ... of up to $100,000 directly from your IRA to a charity, sent by your custodian." (MarketWatch)
Tricks and Traps Involving Required Minimum Distributions
"Generally, an individual's RMD is determined by dividing the adjusted market value of their IRA or employer sponsored retirement account as of December 31 of the prior year by an applicable life expectancy factor taken from the Uniform Lifetime Table. There are special rules for participants in traditional retirement plans and those whose spouses are more than 10 years younger." (Harvey M. Katz, Fox Rothschild LLP)
SEC Provides Free Online Financial Planning Tools
Tools at the SEC's web site include: 401(k) and IRA Minimum Distribution Calculator; Compound Interest Calculator and Savings Goal Calculator; Social Security Retirement Estimator; Retirement Ballpark Estimator; Mutual Fund Analyzer; 529 Expense Analyzer; and a link to a searchable database of investment advisers who have filed Form ADV. (U.S. Securities and Exchange Commission)
[Guidance Overview] IRS Finds Charity Is Exception to 'Contingent Right', Making Trust a 'Qualified Beneficiary'
"When there are multiple beneficiaries of a trust, the beneficiary with the shortest life expectancy is used for purposes of calculating RMDs. Only a primary or contingent beneficiary is considered ... In [a recent Private Letter Ruling], the IRS determined that [the named] charitable organizations fall under that exception, because they could become beneficiaries only if all the other beneficiaries in the other classes died before the assets were fully distributed. As such, the charitable organizations ... are 'mere successor beneficiaries'[.]" (Appleby Retirement Dictionary)
[Guidance Overview] DOL Commences Retirement Plan Audits for Compliance with Section 401(a)(9)
"Recently, the [DOL] has begun an expansion of its audit initiative directed at large defined benefit and defined contribution retirement plans, examining plans that the DOL suspects have not made reasonable attempts to locate terminated vested participants who have reached their 'required beginning dates' under Internal Revenue Code Section 401(a)(9). This initiative draws attention to the importance of maintaining updated records regarding retirement plan participants and the consequences of not doing so under both the Code and [ERISA]." (Dickinson Wright PLLC)
[Official Guidance] Text of PLR 201628006: Required Minimum Distribution Rules Apply to Designated Beneficiary Despite State Court's Post-Mortem Reformation (PDF)
"After Decedent's death, the trustees of the trusts petitioned the Court for a declaratory judgment that would modify the beneficiary designation for IRA X to carry out the original estate plan. Based on its finding of Decedent's intent, the Court ordered that the beneficiaries of IRA X are Trust C as a 50% beneficiary and Trusts D an d E as 25% beneficiaries, consistent with Decedent's prior beneficiary designation. The order was retroactively effective as if such designation were made on the date Decedent signed the beneficiary designation form for IRA X.... [A]lthough the Court order changed the beneficiary of IRA X under State law, the order cannot create a 'designated beneficiary' for purposes of section 401(a)(9)." (Internal Revenue Service [IRS])
Understanding the Nuances of Your ESOP Plan Language: Forced or Involuntary Distributions
"Many plan sponsors do not realize that retired participants can also be forced out of the ESOP if they do not elect to receive a distribution when eligible. This is true regardless of their account balance and regardless of the plan document language. This provision is found in IRC 411(a)(11). Though many plan documents do not state this directly, it may be inferred[.]" (Principal Financial Group)
These Roth Accounts Have Required Minimum Distributions
"Designated Roth accounts, or DRAs for short, are Roth accounts held inside an employer-sponsored retirement plan, like a Roth 401(k) or Roth 403(b).... Although Roth IRAs have no RMDs during your lifetime, designated Roth accounts are subject to RMDs.... Roth IRAs have no RMDs during your lifetime, but if there is any money left in your Roth IRA when you die, your heirs -- other than (possibly) your spouse -- will have to take RMDs from the inherited Roth IRA." (Slott Report)
RMD Dilemma: Death in the Age 70-1/2 Year
"One of the most confusing situations in the complex world of required minimum distributions (RMDs) is what happens when an individual dies on or after Jan. 1 of the year in which he or she turns 70-1/2 but before his or her actual 'required beginning date.' " (Morningstar)
Required Minimum Distributions: FINRA Answers Ten Common Questions About IRA Accounts
"[1] What are required minimum distributions? ... [2] How do I calculate the RMD? ... [3] What if I don't take any distributions, or if the distributions I take do not meet the RMD amount? ... [4] Can I withdraw more than the minimum required amount? ... [5] If I do take more than the minimum amount, can a distribution in excess of the RMD for one year be applied to the RMD for a future year? ... [6] Can I just take the RMD from one account instead of separately from each account? ... [7] What happens if a retirement plan account owner or IRA owner dies before RMDs have begun? ... [8] Do I have to take an RMD if I own an annuity? ... [9] What reporting obligations does my brokerage firm have with respect to RMDs? ... [10] What if a mistake is made?" (Financial Industry Regulatory Authority [FINRA])
Affluent Households and the Retirement Tax Cliff
"Leveraging the unused space within an individual's top tax bracket may provide an opportunity to take a proactive distribution from a retirement account and convert those funds to a Roth IRA.... For affluent and high net worth (HNW) households, the major building blocks that could make a successful Roth conversion strategy include the individual's top marginal tax bracket, time before RMDs begin and having the right mix of account types. Among the risks to consider: longevity, portfolio returns and legacy concerns." (J.P. Morgan Asset Management)
An Employee Benefits Expert Navigates Her First RMD
"In honor of turning age 70-1/2 this year, I am calculating my first required minimum distribution (RMD). This turns out to be more complicated than I expected. I have nine IRAs. Which ones do and do not require me to take a distribution for this year? What is the prior year-end balance I'm supposed to divide my 'applicable distribution period' into? I'm beginning to have more sympathy for the clients." (Natalie Choate, in Morningstar Advisor)
How Are IRA Annuity RMDs Calculated After Life Annuitization?
"There is some debate over whether or not such a distribution from an annuitized annuity can be used to satisfy RMDs for other IRAs in the year of annuitization. On the one hand, once annuitized, IRA annuities generally follow defined benefit plan rules instead of the defined contribution rules. That would lead you to believe the answer is no. On the other hand, RMDs are based on prior year-end balances. Since the annuitized annuity had a prior year-end balance and wasn't annuitized at the time, that might lead you to believe yes[.]" (Slott Report)
Missed Your 2015 RMD? Keep Calm and Take These Three Steps
"The IRS can waive the 50% penalty for good cause.... [To] have the penalty waived. [1] Take the RMD.... You must take the RMD amount that was not taken in 2015. [2] File the 2015 IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.... [3] Attach a letter of explanation to Form 5329." (Slott Report)
Why Retirees Need To Stop Writing Checks To Charities
"[The qualified charitable contribution] can actually represent a valuable tax strategy for many retirees.... The charitable contribution generally -- but not always -- results in a charitable tax deduction. Individuals who do not itemize their deductions ... do not benefit from the charitable contribution. In addition, charitable deductions are limited to a percentage of the adjusted gross income ... When an IRA owner takes a distribution from the IRA and then later makes a charitable contribution, the distribution counts in the calculation of adjusted gross income (AGI). If a QCD is elected, the distribution is excluded from income and it does not count as part of AGI." (Forbes)
Eight Things to Know About a Special Spousal Rule That Allows Smaller RMDs
"If your spouse is your sole beneficiary for 2015 and is more than 10 years younger than you, you may use the Joint Life Expectancy Table to calculate your RMD for 2015, instead of the Uniform Lifetime Table.... If you have more than one primary beneficiary listed on your IRA, you must use the Uniform Table and not the Joint Life Expectancy Table.... If you change beneficiaries during the year, you may not use the Joint Life Expectancy Table.... Your IRA custodian ... is permitted to use the Uniform Lifetime Table for all reporting of RMDs to IRA owners. Be aware that an amount reported to you may, therefore, be more than your actual 2015 RMD." (Slott Report)
[Guidance Overview] IRS Employee Plans News No. 2015-14, Dec. 21, 2015
Topics: [1] 2015 Cumulative List explains the changes in plan qualification requirements for retirement plans (Notice 2015-84); [2] Year-end IRA reminders; [3] FAQs on new IRS compliance questions on the 2015 Form 5500-series returns, explaining the optional questions; and [4] Form 5500 automatic extension to file has been changed back to 2-1/2 months." (Internal Revenue Service [IRS])
[Guidance Overview] IRS Tax Preparedness Series: Most Retirees Need to Take Required Retirement Plan Distributions by Dec. 31
"The [IRS] today reminded taxpayers born before July 1, 1945, that they generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by Dec. 31.... An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2015 RMD, this amount is on the 2014 Form 5498 normally issued to the owner during January 2015." (Internal Revenue Service [IRS])
Whose Trust Should Be Named as Your IRA Beneficiary?
"One of the tax code requirements to allow a trust to use stretch distributions is that the trust be irrevocable or become irrevocable at death. If Peggy is the first to die, her trust will become irrevocable but Tom is still alive. His trust remains revocable. His trust will not be able to utilize stretch provisions. The reverse situation works out the same way.... Tom should name his trust as the beneficiary of his retirement accounts and Peggy should name her trust as the beneficiary of her retirement accounts." (Slott Report)
Required Minimum Distributions and the Roth Recharacterization Issue
"When you have an IRA required minimum distribution (RMD) for the year, you generally use the prior year-end IRA account balance to calculate the RMD. There are a couple of exceptions to this rule and Roth recharacterizations are one of them." (Slott Report)
The Right Way to Take IRA Withdrawals
"There is no tax advantage to taking your required minimum distribution (RMD) in one lump sum annually vs. installments throughout the year. But the timing of your distribution is important[.]" (Money)
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