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News Items, by Subject


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[Official Guidance] Text of 2018 IRS Form 8606: Nondeductible IRAs (PDF)
"Complete this part only if one or more of the following apply. [1] You made nondeductible contributions to a traditional IRA for 2018. [2] You took distributions from a traditional, SEP, or SIMPLE IRA in 2018 and you made nondeductible contributions to a traditional IRA in 2018 or an earlier year.... [3] You converted part, but not all, of your traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2018 and you made nondeductible contributions to a traditional IRA in 2018 or an earlier year." (Internal Revenue Service [IRS])
[Official Guidance] Text of 2018 Instructions for IRS Form 8915A: Qualified 2016 Disaster Retirement Plan Distributions and Repayments (PDF)
"Use 2018 Form 8915A if you were adversely affected by a 2016 disaster listed in Table 1 ... and you received a distribution that qualifies for favorable tax treatment.... Qualified 2016 disaster distributions can't be made in 2018. Only repayments of qualified 2016 disaster distributions can be made in 2018. You will use 2018 Form 8915A only if you are making the repayments over 3 years." (Internal Revenue Service [IRS])
What to Do if You Missed Your RMD
"There is no effect on the prior year other than you have a potential 50% penalty.... [As] soon as you discover it, you should figure out the amount you were short or whatever the RMD that was missed, and take the makeup distribution immediately. Then, of course, take you regular distribution for the year so you stay on track. And then you report that on ... Form 5329.... [Y]ou must attach a statement saying two things: number one, that I made up the shortfall, you have to show good faith that whatever I missed, I took immediately upon discovery. Then give a short explanation of why, and IRS waives the penalty in almost every case." (Morningstar Advisor)
Restoring Lawsuit Winnings to an IRA
"An IRA owner sometimes has a claim against an investment advisor or a company for losses in connection with products or services provided to the IRA.... In the context of qualified plans, a recovery on a claim like this is allowed to be paid into the plan as a 'restorative payment' ... and as such the IRS does not consider it a contribution to the plan. Therefore, it is not subject to the rules and limits applicable to plan contributions. The IRS similarly has allowed IRA owners to contribute this type of recovery to their IRAs." (Morningstar Advisor)
[Official Guidance] Text of 2018 IRS Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs) (PDF)
61 pages; Dec. 21, 2018. "For distributions made in tax years beginning after December 31, 2017, you have until the due date (including extensions) for your tax return for the tax year in which the offset occurs to roll over a qualified plan loan offset amount ... A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made after December 31, 2017, cannot be re-characterized as having been made to a traditional IRA." (Internal Revenue Service [IRS])
The Role of IRAs in US Households' Saving for Retirement, 2018 (PDF)
"One-third of US households owned individual retirement accounts (IRAs) in 2018.... More than one-quarter of US households owned traditional IRAs in 2018 ... Rollovers from employer-sponsored retirement plans have fueled the growth in IRAs.... Traditional IRA-owning households with rollovers cite multiple reasons for rolling over their retirement plan assets into traditional IRAs.... Although most US households were eligible to make IRA contributions, few did so." (Investment Company Institute [ICI])
Pros and Cons of Completing a Rollover Before Year-End
"[A]ny money that leaves one account must be out before December 31st, but beyond the common timeframes for rollovers, it's okay if the money doesn't transfer into the receiving account until after January 1st. One thing that's important to keep in mind for clients subject to RMDs, however, is that the custodian likely will not track that last minute change, and it will be up to the advisor to make sure to account for any year-end balance increases for the following year's RMD." (Nerd's Eye View)
What to Do with Retirement Plan Accounts After You've Left Your Employer
"Generally you cannot keep contributing to an employer-sponsored plan, such as a 401(k) or 403(b), if you have left that employer, but you do have several options when it comes to managing those savings going forward -- and they can all impact the size of your future nest egg.... [1] Do nothing ... [2] Roll into your current employer's plan ... [3] Roll into an annuity ... [4] Roll into an IRA ... [5] Cash out your retirement balance." (MassMutual)
Year-End Required Minimum Distribution Considerations
"If you have a RMD from a 401(k) plan, the RMD amount must be calculated separately. You cannot lump the amount together with another plan account or IRA.... RMD's are not eligible for a rollover.... If the account holder died during the year, the RMD must still be made." (Watkins Ross)
End-of-Year Tax Planning for IRAs, QCDs, FSAs, and 529As
"[W]hile it often takes consistent planning through the year to make the most of [tax-advantaged] accounts, the end of the year provides the opportunity to make a number of last-minute changes, not only in order optimize contributions and distributions, but potentially to avoid any unnecessary and preventable costs as well." (Nerd's Eye View)
Making Charitable Donations of Stock Instead of Cash After Tax Reform
"If you're charitably inclined and hold meaningful amounts of appreciated stock, such as shares acquired from a stock option exercise, restricted stock/RSU vesting, or ESPP purchase, donating stock instead of cash can be a smart tax-planning move.... [S]tock donations can reduce your taxes by giving you total deductions that exceed your new increased standard deduction amount." (Forbes)
House Tax Bill Would Make Several Changes to IRAs and Retirement Plans
"A tax bill has emerged from the House Ways and Means Committee, extending certain expiring tax provisions, addressing provisions of 2017 tax reform legislation and several recent disaster events (hurricanes and California wildfires), and proposing additional provisions that would affect tax-advantaged retirement savings arrangements. H.R. 88, titled the 'Retirement, Savings, and Other Tax Relief Act of 2018,' is being reported as having bipartisan support.... The following provisions of this legislation would in some manner impact retirement savings arrangements." (Ascensus)
Tips to Maximize the Tax Savings of Your QCDs and RMDs
"This year, [qualified charitable distributions (QCDs)] are more valuable than ever before. So valuable in fact, that everyone who qualifies should be making their donations through QCDs, which allow you to make charitable gifts of up to $100,000 per year directly from your IRA. An IRA check made payable to the charity will also qualify." (The Wall Street Journal; subscription may be required)
[Official Guidance] Text of IRS Notice 2018-90: Extension of Transition Relief on Withholding and Reporting with Respect to Payments from IRAs to State Unclaimed Property Funds (PDF)
"The purpose of this notice is to extend the withholding and reporting transition relief described in Rev. Rul. 2018‑17 ... that applies with respect to payments made before the earlier of January 1, 2019, or the date it becomes reasonably practicable to comply with those requirements. Relief is extended to payments made before the earlier of January 1, 2020, or the date it becomes reasonably practicable to comply with the withholding and reporting requirements described in Rev. Rul. 2018‑17." (Internal Revenue Service [IRS])
[Guidance Overview] DOL RCH Advisory Opinion Illustrates the Difficulties Inherent to Bulk IRA/Auto Portability Programs
"IRAs are individually owned investment contracts, which are under the control of the former participant -- even though they are set up by the former employer.... [T]he DOL made it clear that negative consent will not suffice to relieve the program's sponsor from the fiduciary obligations related to the decision to move the money from the IRA to the new plan.... Then there is that nasty problem of securities laws and other state laws ... The question ... is how a fiduciary which is not appointed by the individual IRA holder has any legal authority to do ANYTHING with a registered security (or even any other investment) after it is set up by the original employer, as the investments are legally owned by the former participant." (Business of Benefits)
[Guidance Overview] DOL Guidance on Auto Portability
"Concerning the ERISA implications of a plan sponsor for electing to participate in the RCH Program, the DOL indicated that choosing to have a plan participant in the RCH Program is a fiduciary decision. The decision must, therefore, be prudent and solely in the interest of plan participants and beneficiaries. The relevant plan fiduciaries must also determine that the RCH Program is a necessary service, a reasonable arrangement, and that the compensation paid to RCH is reasonable.... The DOL further concluded that neither the plan sponsor of the former employer nor the new employer would be acting as a fiduciary in connection with a decision to transfer the individual's default IRA into the new employer's plan." (The Wagner Law Group)
[Official Guidance] Text of DOL Advisory Opinion 2018-01: Retirement Clearinghouse Auto-Portability Program (PDF)
"[The] portability services related to your request involve: [1] automatic rollovers of mandatory distributions ... and account balances from terminated defined contribution plans into default IRAs ... and [2] the subsequent automatic roll-in of funds in such default IRAs to an individual account plan maintained by a new employer when the IRA owner changes jobs.... [It] is the view of the Department that the plan sponsors of the former and new plans would not be acting as a fiduciary with respect to the decision to transfer the individual's default IRA into the new employer's plan.... Absent affirmative consent of the IRA owner/participant, RCH acts as a fiduciary... in deciding to transfer the individual's RCH default IRA to the individual's new employer plan.... Similarly, absent affirmative consent of the IRA owner/participant, in situations where a default IRA maintained by a third party record keeper is transferred to an RCH default IRA acting as a conduit to facilitate the transfer to a new employer's plan, RCH acts as a fiduciary ... in directing the transfer of the individual's default IRA to the RCH default IRA and subsequently to the new employer's plan." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])
[Official Guidance] EBSA Invites Comments on Proposal Related to Retirement Asset Auto Portability
"[EBSA] today invited public comment on a proposed exemption related to the consolidation of small retirement savings accounts in 401(k) plans and IRAs when workers change jobs.... [ERISA] and the Internal Revenue Code of 1986 prohibit a plan or IRA fiduciary from using its discretion to cause the plan or IRA to pay the fiduciary a fee. The Department has the authority, however, to grant exemptions that are protective of and in the interests of plan participants and IRA owners. The Department looks forward to receiving input from the public, including any data or factors that it should consider as part of the exemption, including protective conditions for participants and beneficiaries.... Any such comments or requests should be sent either by e-mail ... or by FAX ... within 45 days." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])
[Guidance Overview] 401(k) Deferral Limit Increases to $19,000 for 2019; IRA Limit Increases to $6,000
"The IRS today issued technical guidance detailing these items in Notice 2018‑83.... The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver's credit all increased for 2019." (Internal Revenue Service [IRS])
Important Facts About IRAs (PDF)
16 pages. "[1] IRAs are the largest pool of assets in the US retirement market.... [2] IRAs are predominantly held by moderate-income households.... [3] Although few traditional IRA investors make contributions, those who do display persistence.... [4] Rollovers from employer-sponsored retirement plans have fueled growth in IRAs.... [5] IRA withdrawals are infrequent and mostly retirement related, and most households consult a financial professional when taking withdrawals." (Investment Company Institute [ICI])
How to Prioritize IRA and 401(k) Accounts
"[T]here are some scenarios where placing contributions in a traditional or Roth IRA ahead of your 401(k) could make sense. If you're able to save in multiple tax-advantaged accounts, getting the order of operations right matters.... Check the match.... Compare investment options and fees.... Think about timing.... Don't forget about your HSA.... It's not either/or." (U.S. News & World Report)
How U.S. Households Steward Their IRA Assets to and Through Retirement (PDF)
"Nearly 60% of households with traditional IRAs rolled over funds from employer-sponsored retirement plans into the accounts.... More than two-thirds (69%) of traditional IRA-owning households in mid-2017 said they have a strategy for managing income and assets in retirement.... More than seven in ten (71%) households owning traditional IRAs in mid-2017 and making withdrawals in tax year 2016 calculated their withdrawal amount based on the RMD rule." (Benefits Quarterly, published by the International Society of Certified Employee Benefit Specialists [ISCEBS])
Tracking Basis with IRS Form 8606
"While it's easier for IRA owners to track their basis, it becomes much more difficult for beneficiaries of inherited IRAs. That's because basis is carried over, but without adequate records, a beneficiary will have no clue whether a contribution was made before or after-tax." (Slott Report)
Recommending Rollovers in the Evolving Regulatory Environment, Part 3
"[R]egardless of which rule is being applied, to satisfy the best interest and loyalty standards, an advisor (of a broker-dealer or an RIA) must use and document a process of gathering and carefully and professionally considering the relevant information.... What are the relevant factors? ... [T]he two best sources are Regulatory Notice 13‑45 and the DOL's Best Interest Contract Exemption (BICE)." (Drinker Biddle)
How to Effectively Take Early IRA Distributions Without Penalty
"If IRA owners design their 'series' of payments in accordance with strict IRS rules, and keep taking their series payments regularly without any 'modification' until they are over age 59‑1/2 (and for at least five years), the SOSEPP payments are penalty-free.... Your clients need to get the largest possible payments allowed by IRS rules. This means they should use a single life expectancy ... the highest permitted interest rate ... [and] the amortization method[.]" (Natalie Choate, in Morningstar Advisor)
Tax-Efficient Charitable Giving of Savings or Retirement Benefits
"This article discusses how savings or retirement lifetime and survivor benefits may be used to fund charitable contributions in a tax-efficient manner. These tax advantages may be offset by other considerations, tax and otherwise.... The most favorable tax consequences arise from special or demonstrative (pecuniary) bequests, which are treated like plan designations. General (pecuniary) bequests, unlike residuary bequests, may cause a mismatch between income and charitable deductions." (Albert Feuer, via SSRN)
Assessing the Recent Proposals to Reduce RMD Obligations
"[L]ife expectancy increases have not been terribly dramatic -- no more than about 2 years of joint life expectancy for a 70-something retiree.... [T]he first RMD would actually decrease only about 25 basis points -- from 3.65% of the account balance to just 3.4% instead -- or a whopping $250 of reduced RMDs per year on an account with a $100,000 balance.... [W]hat hasn't received much attention at all is a ... proposal buried in the Retirement Enhancement and Savings Act of 2018 (RESA) ... which would eliminate the stretch IRA for most non-spouse beneficiaries, who would then be subject to the far-harsher 5‑year rule instead!" (Nerd's Eye View)
Traditional IRA Investors' Activity, 2007-2016 (PDF)
88 pages. "[T]raditional IRA investors with accounts from year-end 2007 through year-end 2016 showed little reaction to the financial events. Contribution and rollover activity declined only a bit in the wake of the financial crisis.... Although account balances fell considerably following the stock market decline in 2008, the average traditional IRA balance for traditional IRA investors in all age groups with account balances in all years between 2007 and 2016 was higher at year-end 2016 than at year-end 2007." (Investment Company Institute [ICI])
Roth IRA Investors' Activity, 2007-2016 (PDF)
96 pages. "Consistent Roth IRA investors showed little reaction to the steep declines in stock values between October 2007 and March 2009, a recession (December 2007 to June 2009), and rising unemployment rates, though contribution activity did decline a bit in the wake of the financial crisis.... From 2007 to 2016, Roth IRA investors' allocation to equity holdings ... edged down.... Although account balances fell considerably following the stock market decline in 2008, the average Roth IRA balance for consistent Roth IRA investors aged 27 to 69 in 2016 was higher at year-end 2009 than at year-end 2007." (Investment Company Institute [ICI])
Managing a Year-of-Death RMD in an Inherited IRA
"The minute Mother died Junior owned her account. It was transferred to him automatically. But the IRA provider's records still showed only Mother's name on the account. The IRA provider's paperwork had to catch up with what had already happened: It had to change its records to show that Junior now owns this money.... An IRA-to-IRA transfer is not a rollover. An IRA-to-IRA transfer is a nonevent for minimum distribution purposes or any other purpose. It's not reportable to the IRS, either as a distribution from the old IRA or as a contribution to the new IRA." (Morningstar Advisor)
October 15 Deadline to Recharacterize 2017 IRA Contributions and Conversions
"A recharacterization is a tax-free transfer of funds from one kind of IRA to another.... The Tax Cuts and Jobs Act does away with recharacterization for conversions done in 2018 and later, but the IRS has made it clear that 2017 conversions can still be recharacterized." (Slott Report)
How an Indirect Retirement Account Rollover Can Go Wrong and How to Avoid It
"[An individual received] a full distribution from her traditional IRA because the mutual fund it was invested in had been closed by the fund company.... [T]he fund company withheld 10% for federal income taxes.... To avoid taxes and penalties on the amount withheld, she will need to come up with that 10% amount to make the indirect rollover a complete rollover. Otherwise, she will incur taxes and penalties for the amount withheld that won't get into the new IRA within the 60 day deadline." (Financial Finesse)
IRS Issues Guidance on New UBTI Calculation with Potential IRA Effects
"The change in effect for 2018 and future taxable years requires that UBTI be reported when taxable business earnings reach $1,000, but is not offset by net losses of one or more UBTI-generating lines of business -- in this case, UBTI-generating business interests held within an IRA. Note however, that only IRAs that hold interests in multiple businesses generating UBTI would potentially be affected. Such business interests are among the less common IRA investments, and generally are held in IRAs administered by nonbank trustees or by trust departments." (Ascensus)
IRA Balances, Contributions, Rollovers, Withdrawals, and Asset Allocation, 2016 Update (PDF)
48 pages. "Just under 11 percent of all accounts in the database received a contribution in 2016 ... Rollovers to IRAs in 2016, regardless of the source, amounted to over 16 times more than the total contributions in the database.... The overall IRA withdrawal percentage was largely driven by activity among individuals ages 70-1/2 or older owning a Traditional IRA -- the group required to make withdrawals under the required minimum distribution rules.... [A]mong owners under age 60, fewer than 12 percent of any age group had a withdrawal." (Employee Benefit Research Institute [EBRI])
[Guidance Overview] States May Escheat IRAs, But Who Gets the Tax Bill? (PDF)
"[Rev. Rul. 2018-17 states] that the escheat of a traditional individual retirement account or annuity over to a state unclaimed property fund will now be subject to federal tax withholding and reporting. Escheat will be treated as a 'designated distribution' to the IRA owner subject to withholding as a nonperiodic distribution at a 10 percent rate absent a withholding election by the IRA owner, and reporting on Form 1099-R." (Eversheds Sutherland, via Law360)
Changes to State Mandatory IRAs Help Employers Comply (PDF)
"Oregon recently indicated plans to integrate employer Form 5500 filings with its own registration program starting in December 2018.... [T]he governor of Illinois amended its Secure Choice program, changing the retirement law from saying employers 'shall' offer Secure Choice to 'may.' This seems to take away the mandate entirely." (Lockton)
Am I Too Old to Convert My IRA to a Roth IRA?
"Given your life expectancy as you get older, say, after 70-1/2, the benefit you'll reap in your life expectancy won't be worth the upfront cost, probably.... But the real benefit if you are doing it as an older person is for the next generation, for you children or grandchildren, because the power of the Roth IRA can grow over their life expectancy." (Morningstar Advisor)
Whose Life Expectancy Is Used, When a Second-Generation (Successor) Beneficiary Inherits an IRA?
"Q: An individual inherited an IRA from her father, and had been taking distributions over her single life expectancy.... She (the original beneficiary) subsequently died, and her son now has to take distributions from the IRA which he has inherited. Should he take distributions over his life expectancy or over his mother's life expectancy? A: [H]is mother's life expectancy. The mother's life expectancy is determined in the year after the grandfather died, and 1 (one) is subtracted for each year that has passed. A second generation beneficiary's (or successor beneficiary's) life expectancy is never used to determine distributions from an [inherited IRA]." (Appleby Retirement Dictionary)
[Guidance Overview] Text of IRS Publication 4285: SEP Checklist (PDF)
Rev. Aug. 2018. "Every year it's important that you review the requirements for operating your Simplified Employee Pension (SEP) plan. Use this checklist to help you keep your plan in compliance with many of the important rules." (Internal Revenue Service [IRS])
Puerto Rico Treasury Extends to November 30 Period for Eligible Distributions from PR Qualified Retirement Plans and PR IRAs to Hurricane Maria Victims
"AD 18-13 further provides that ... distributions received between July 1, 2018 and July 31, 2018 can be treated as Hurricane Maria eligible distributions subject to favorable income tax treatment to the extent certain requirements are satisfied." (McConnell Valdes)
IRA Investors Are Concentrated in Lower-Cost Mutual Funds
"IRA equity mutual fund assets represented 56 percent of IRA mutual fund assets in 2017, and 2017 marks the eighth consecutive year that average expense ratios have fallen for equity mutual funds held by IRA investors.... The average expense ratio paid by equity mutual fund investors in IRAs fell to 0.61 percent, down from 0.65 percent in 2016 and 0.98 percent in 2000." (Investment Company Institute [ICI])
[Official Guidance] Text of 2018 IRS Form 5498: IRA Contribution Information (PDF)
"The information on Form 5498 is submitted to the IRS by the trustee or issuer of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account." (Internal Revenue Service [IRS])
The Pro Rata Formula and Inherited IRAs
"The pro-rata rule is a rule that almost always determines the taxation of an IRA distribution when the IRA owner has any IRA containing after-tax amounts.... If you have any Roth IRAs, they will not be included for purposes of the pro-rata formula.... [Y]our 401(k) with your employer is not part of the pro-rata formula used to determine the taxation of an IRA distribution.... Any inherited IRAs you may have are NOT included when you are determining the taxation of one of the IRAs in your name." (Slott Report)
IRS Allows Rollover Despite Deceased Spouse's Failure to Designate a Beneficiary
"The decedent was a participant in an eligible 457 retirement plan[,] ... died before reaching the age of distribution [and] did not designate a beneficiary under the retirement plan, making the decedent's estate the beneficiary of the account.... The IRS concluded [in PLR 201821008] that the taxpayer can be treated as having received the distribution from the plan which was eligible to be rolled over into a personal IRA account." (Butterfield Schechter LLP)
NYC Employers: Required Payroll Contributions to IRAs May Be Coming
"The New York City Council has proposed to establish a 'Savings Access New York Retirement Program' that would require New York City private-sector employers with at least 10 employees to offer a new savings program to employees who are not eligible to participate in an employer-provided savings plan (such as a 401(k) or 403(b) plan).... Although passage of the NYC Retirement Program is far from certain, this proposal is consistent with other state and local government legislative efforts to increase the retirement savings of employees." (Epstein Becker Green)
IRA Aggregation Rules Every Advisor Must Know
"[1] Return of excess IRA contribution: aggregation does not apply ... [2] Application of basis for traditional IRAs: mandatory aggregation applies ... [3] Application of basis for inherited traditional IRAs: limited aggregation applies ... [4] Qualified Roth IRA distributions: mandatory aggregation applies ... [5] Required minimum distributions: optional aggregation applies ... [6] Inherited IRAs: limited aggregation applies ... [7] One per year limit on IRA to IRA rollovers: mandatory extended aggregation applies among Roth and traditional IRAs ... Proper record keeping is essential." (Appleby Retirement Dictionary)
[Official Guidance] Text of IRS Instructions for 2018 Forms 1099-R and 5498: Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (PDF)
25 pages. "What's New: ... [1] A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA.... [2] Special rules apply to retirement plan distributions made to employees affected by certain natural disasters that occurred in 2016 and 2017." (Internal Revenue Service [IRS])
How to Deal with Improper Roth Contributions
"Option 1: Make a corrective distribution.... Option 2: Recharacterize.... Although the Tax Cuts and Jobs Act of 2017 eliminated the ability to recharacterize Roth conversions, the recharacterization option still exists for regular contributions to traditional or Roth IRAs ... Option 3: Accept the excess contributions penalty for one year and move on." (Natalie Choate, in Morningstar Advisor)
Why You Should Be Especially Careful with Future Roth Conversions
"In the past, you would have been able to 'test' the Roth waters with conversions, with the assurance that you could recharacterize those conversions by the applicable deadline, if you changed you mind.... Under the Tax Cuts and Jobs Act ... any Roth conversion that you perform on January 1, 2018 and after must remain as Roth conversions, and included in your income for the year in which the assets leave your traditional retirement account." (Appleby Retirement Dictionary)
How to Use Income Tax Withholding on IRA Distributions, and When Not To
"Using withholding saves the trouble of sending a payment to the IRS yourself.... Withheld tax is treated as if it is paid at an even rate over the year even if in fact it is all paid just before year-end. This means that withholding on an IRA distribution taken just before year-end can be used to retroactively escape underpayment penalties on earlier missed quarterly estimated payments.... Quarterly payments and withholding can be used together." (Slott Report)
The IRA Aggregation Rule: Easing RMDs, Complicating Roth Conversions
"Instead of taking a separate RMD from each IRA, you can take the total RMD for all of them from any one of the IRAs, or from across them in any way you wish.... Because total IRA balances are aggregated, it is not possible to withdraw just nondeductible contributions, ... no matter which IRA you withdraw funds from.... [A]ny distribution will be taxable in proportion to the ratio of pre-tax to post-tax funds in your aggregated IRAs." (Slott Report)
My Husband Made Me Do It: IRS Approves Reason for Waiving 60-Day IRA Rollover Deadline
"In PLR 201822033, the fact that the funds were sitting in the account uninvested and never used is a plus. But, the excuse of missing the deadline because she relied on her husband and had a 'misinformed belief' about the rules is not typical for approval." (Appleby Retirement Dictionary)
Three Misleading IRS Forms
"Form 5498 for inherited IRA ... [N]obody has the responsibility to tell the beneficiary about this [RMD] obligation.... Form 5329: Missed RMD 'shortfall' ... if you want a waiver of the penalty, you must ignore the instructions on Form 5329 itself ... file the form along with your explanation of reasonable cause and how you remedied the shortfall and you have a chance at getting an IRS waiver.... Form 1099-R: Where's my QCD? ... [T]he Form 1099-R ... will show a total ... IRA distribution ... with no mention whatsoever that any of it went to a charity, or that there even was a QCD at all." (Natalie Choate, in Morningstar Advisor)
[Guidance Overview] IRS Clarifies Federal Tax Reporting and Withholding for Escheated Funds from IRAs
"The IRA owner's ability to reclaim these monies from the state unclaimed property fund is noted in the ruling but does not figure in the analysis. For Form 1099-R reporting, the ruling does not prescribe a unique reporting code or other designation that the IRA has been escheated to the state. The ruling by its terms is inapplicable to simplified employee pensions (SEPs), SIMPLE-IRAs and deemed IRAs." (Eversheds Sutherland)
[Official Guidance] Text of IRS Rev. Rul. 2018-17: Withholding and Reporting with Respect to Payments from IRAs to State Unclaimed Property Funds (PDF)
"The payment of Individual C's interest in IRA O, a traditional IRA, to the State J unclaimed property fund, as required by State J law, is a payment from an IRA that is treated as includible in gross income ... Because Individual C has not made a withholding election with respect to the payment, a 10 percent withholding rate applies to the payment ... and Trustee Y must withhold federal income tax of $100 (10% of Individual C's $1,000 interest in IRA O).... Trustee Y must report the $1,000 distribution from IRA O ... on a 2018 Form 1099-R identifying Individual C as the recipient.... A person will not be treated as failing to comply with the withholding and reporting requirements described in this revenue ruling with respect to payments made before the earlier of January 1, 2019, or the date it becomes reasonably practicable for the person to comply with those requirements." (Internal Revenue Service [IRS])
Using Deferred Income to Fund Your Startup Business Could 'ROB' Your Future
"[T]his process is complicated and fraught with peril. If the plan is found to be discriminatory or the IRS concludes that a prohibited transaction took place, the entire arrangement will be invalidated. The result is a bill for taxes and penalties going back to the date of the initial ROBS transaction!" (Slott Report)
DOL's Fiduciary Rule is Finally Dead, or Is It?
"Plan sponsors who signed new service agreements proposed by plan service providers in response to the fiduciary rule may have more choices available to them now.... If a plan sponsor did not sign one of the proposed updated service agreements, it may still want to consider if it wants to investigate whether other terms may now be available as part of periodic due diligence to determine if its service providers continue to be prudent selections[.]" (Winstead PC)
Prohibited Transaction Rules Can Spell Trouble for Self-Directed IRAs
"[W]ith the rise of self-directed IRAs buying real estate over the past decade, and more generally the popularity of using self-directed IRAs for 'alternative' investments ... there is a growing risk that the IRS will soon increase its enforcement on IRA prohibited transactions.... [E]ven if a self-directed IRA provider affirms that it can hold a particular alternative investment, it's still the legal responsibility of the IRA owner themselves to determine if it is permissible, and avoid triggering prohibited transactions!" (Nerd's Eye View)
First Circuit Agrees That Roth IRA Can Own DISC
"The IRS argued, and previously the Tax Court had agreed, that while both the DISC and the Roth IRA were enacted for the purpose of providing tax benefits to their owners and beneficiaries, the taxpayers used these provisions to improperly sidestep the Roth IRA contribution limitations.... In a majority opinion, the First Circuit concluded that the application of the substance over form doctrine to reclassify the dividends as excess contributions was inappropriate." [Benenson v. Commissioner, No. 16-2067 (1st Cir. Apr. 6, 2018)] (RSM US)
Roth Conversion Cost Averaging and Roth 'Barbell' Strategies
"Although many popular Roth conversion strategies are no longer viable after the elimination of the recharacterization of Roth conversions, the attractiveness of recently reduced tax rates arguably makes Roth conversions even more appealing... with the caveat that it's more important than ever to consider the timing!" (Nerd's Eye View)
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