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IRA & Retirement Planning Topics

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Calculating your RMD (Required Minimum Distribution)

One of the greatest advantages of retirement savings accounts are the opportunities for tax-deferred or tax-free growth; however, the government sets a time limit on how long these benefits can last by way of establishing required minimum distributions (RMDs). An RMD is the minimum amount that must be taken out of your retirement accounts each year, typically beginning in the year that you turn 70½.

Taking your first RMD can be a daunting endeavor as you attempt to navigate the complex rules and regulations surrounding your retirement account and, unfortunately, one wrong move could leave you facing a 50% penalty. Taking the right steps to calculate your RMD correctly can help ensure you avoid any costly mistakes. 

To avoid unnecessary tax penalties, click here to download “Calculating your RMD in 5 Easy Steps.”

For professional assistance with your RMD calculations and distribution requirements, click here to contact the office nearest you.

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Avoiding Charitable IRA Beneficiary Mistakes in 5 Easy Steps

Can IRAs be used to benefit a charity?

IRAs can be a great source of funds to provide a benefit for a favorite charity, but using these funds can create a number of traps that must be avoided in order to maximize benefits to both the charity and other IRA beneficiaries.

Are you considering donating your retirement assets to a charity? Naming a non-profit organization as an IRA beneficiary may be something you’ve yet to consider, but doing so can benefit both you and your charity, as neither of you will pay income tax on the account. However, using a retirement account for charitable gifting can also create a number of traps for both the charity and other IRA beneficiaries.

From determining how to properly name your charity as an IRA beneficiary to separating accounts for each intended heir, there are certain steps that should be taken when naming a charitable beneficiary.

Here's how you can avoid charitable IRA beneficiary mistakes in five steps:

#1 - Name the charity directly on your beneficiary form.  The money will go directly to the charity, avoiding both the time and expense of probate.  Additionally, the distribution to the charity will not be considered income to the estate of the deceased IRA owner.

#2 - Set up separate accounts.  Consider transferring the portion you intend to leave to charity into a separate IRA account.  If other beneficiaries inherit the same IRA as a charity and the charity’s portion is not “cashed out” or split within the IRS prescribed time frames, the stretch IRA for the living beneficiaries will be lost.

#3 - Reverse your bequests.  If you have made provisions for certain charities under your will and also have retirement plans, an effective tax strategy would be to reverse the bequests with non-retirement assets.  This way, the charity receives the same amount that you were going to leave them in your will, but your heirs will end up with more, because the money they will inherit will not be subject to income tax, as the retirement plan would be.

#4 - Don’t convert assets you plan to leave to a charity.  Many charitable organizations and religious groups are structured tax-exempt organizations.  When an IRA is left to one of these charities, the charity does not have to pay income tax on the distribution as other beneficiaries would.  As a result, if you intend to leave your IRA to charity, converting it to a Roth IRA is generally not a wise move.  Why pay income tax on the conversion when the money will be going to the charity tax free anyway?

#5 - Beware of naming a charity as a trust beneficiary.  A charity is known as a “non-designated beneficiary,” because it does not have a life expectancy.  In general, trusts are also non-designated beneficiaries.  Certain trusts, known as see-through (or look-through) trusts allow for post-death distributions to be stretched based on the trust beneficiary with the shortest remaining life expectancy.  Since a charity has no life expectancy, if it is named as a beneficiary of a trust that is also inheriting an IRA, it can eliminate the stretch for the remaining trust beneficiaries.

Interested in learning more about IRA planning strategies? Make sure to contact us so that we can share more with you. Click here to contact our office nearest you.

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Fixing a Missed RMD in 5 Easy Steps

Once you reach age 70½ , the government requires that a specific minimum amount be withdrawn from your retirement account each year. If you miss the deadline or don’t take enough, Uncle Sam could hit you with a 50% penalty!

Did you forget to take a required minimum distribution (RMD) from your retirement account?

Unsure of how to fix the error? Make sure to consult your adviser as soon as possible. Click here to contact us. Fortunately, you’re not the first person to forget to take a distribution. There are steps you can take to fix the problem and possibly even get the penalty waived. We are here to help you do that. 

What is a missed RMD (required minimum distribution)?

RMDs must be taken by IRA owners beginning in the year they turn age 70 ½ and by IRA and non-spouse Roth beneficiaries beginning in the year after the death of the account owner.  RMDs not taken are subject to a penalty of 50% of the amount not taken each year.

When should you look for a missed RMD?

You should look for a missed RMD every year after an account owner turns age 70 ½ and when an IRA or non-spouse Roth beneficiary inherits an IRA.  Ask your advisor to double check any calculations to be sure they are correct.

#1 - Look at the balance sheet.  Determine the prior year-end IRA balance for the year that an RMD was not fully satisfied.  (Note: There were no IRA RMDs for 2009.)

#2 - Determine the life expectancy factor for all missed years.  IRA owners use their age each year and look up the corresponding factor on the Uniform Lifetime Table.  Non-spouse IRA beneficiaries use their age only in the year after the account owner’s death and look up the corresponding factor on the Single Life Expectancy Table.  In each subsequent year, a beneficiary will subtract one from the previous year’s factor.  (Remember: These are the general rules for determining life expectancy factors.  There are many exceptions to these rules.)

#3 - Do some simple math.  Divide the account balance by the life expectancy factor for each missed year’s RMD and withdraw that amount from the IRA.

#4 - Important forms to file.  File IRS Form 5329 for each missed RMD to report the missed distribution and penalty.  The penalty can be waived for good cause.  Attach a letter to the form requesting a waiver.  It is helpful to include language in your letter explaining to the IRS why the distributions were missed, that the problem has been corrected and that procedures are in place to avoid future problems.

#5 - It will never happen again.  Set up procedures to ensure you take future RMDs.  Many custodians offer an option to distribute RMDs automatically each year.  If you struggle to remember to take your RMD, setting up an automatic distribution may be beneficial.


Remember, we are here to guide you through protecting your hard earned assets. Click here to contact us. 

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