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SIMPLE IRAs are not so simple. One factor that makes SIMPLE IRAs tricky is that they are subject to unique rules, found nowhere else in the tax code, such as the two-year holding period.Two-Year Holding PeriodWhen does the two-year holding period begin? This is a question that often creates confusion. The two-year holding period begins with the date the employee’s first contribution is deposited to the SIMPLE IRA. It is not the date employment begins or even the date you become eligible to participate in the SIMPLE IRA plan.25% Early Distribution PenaltyDistributions taken from a SIMPLE IRA before age 59 ½ are subject to an early withdrawal penalty of 25% when withdrawn during the two-year holding period.

Question:IRA HELP,I’ve got a client who is retiring early. He has roughly $1,000,000 in an IRA now which he could initiate a 72(t) with. That will not generate enough cash flow to support their needs.He also has an additional $3 million in his employer’s ESOP which, under the terms of the ESOP, will not be available for an IRA rollover until August of the year after he retires.Can he do a 72(t) with his current IRA and then when he rolls out the funds from the ESOP can he do a 2nd 72(t) with that? In other words, can you have two IRA’s both with 72(t)s at the same time?JasonAnswer:Jason,Yes, a person can have two different 72(t) payment schedules from two different IRAs, but tread lightly. You did not mention your client’s age in your email, which has a significant impact on 72(t) distributions. For the uninitiated, a 72(t) payment schedule allows a person under age 59 ½ to tap their IRA accounts penalty free. However, the payments must continue for the LONGER of five years or until you reach age 59½. If your client is only 45, he is looking at a minimum 15 years’ worth of payments. A lot can happen in that time period, and 72(t) schedules cannot be changed. The payments are ineligible to be rolled over, and any missteps along the way could wreck the entire 72(t) schedule, potentially resulting in a 10% early distribution penalty on all previous distributions.Question:Dear Mr. Slott and team:I hope you can help me. Despite reading much of the IRS web information, and many other websites on RMDs from IRAs, I have some remaining confusion on taking my first RMD. Here's the situation I have questions about:

Employer-sponsored retirement plans, like 401(k) and 403(b) plans, have some definitive benefits vs. IRA accounts. For example, company plans provide an unlimited amount of protection from bankruptcy, while IRA contributions and earnings maintain a current bankruptcy protection cap of $1,362,800. In addition, employer-sponsor plans can allow loans – IRAs cannot - and retirees of certain plans (state and local public safety employees) can gain penalty-free access to plan dollars as early as age 50. Barring an exception, IRA owners must wait until age 59 ½ before they can access their funds penalty free.Another feature that employer-sponsored retirement plans offer that IRAs do not is the ability to delay required minimum distributions (RMDs).

After a recent Ed Slott conference in Dallas, Texas, I found myself sitting in a hotel café, surrounded by travel bags, having pizza with a few meeting attendees with later flights. “Anyone want to share an Uber to the airport?” asked a lunch guest.“Sure,” I said. “I’ll join you.” After all, the Uber was already ordered, and I am always more comfortable at my gate. Never know how long it will take to get through security.The ride to the airport was pleasant, and the conversation enjoyable. I was headed to the East Coast, and she was headed west. Upon arrival, she jumped out at the Southwest terminal, and I told the Uber driver, “I am American Airlines.”

Question:I recently inherited a traditional IRA from my mother. I mistakenly asked for a lump sum to be paid to me by the custodian. I realized after the fact that I wanted to set up a stretch IRA. I haven’t cashed the check yet. Can I just return it or have them stop payment on the check and change my option to an inherited beneficiary IRA?Thank You,PaulAnswer:Paul,Once the distribution is paid to you, you cannot roll it over to an inherited IRA. Since the custodian properly followed your original instructions for a lump-sum payout and the check was already issued, you will probably be locked into the result.

Roth IRAs are extremely popular, and why wouldn’t they be? Tax-free earnings over a lifetime can add up to a serious chunk of change. However, in order to receive those tax-free earnings, rules must be followed and timeframes must be met. Despite the ubiquity of Roth IRAs, there is confusion around what those rules and timeframes are. In order to maximize Roth benefits, it is imperative to understand the central guidelines around the ever-present 5-year windows. In fact, there are two primary Roth IRA clocks to consider.

To discourage early access to amounts invested in IRAs and company retirement plans, the IRS imposes a 10% early distribution penalty on withdrawals before age 59 ½. Even though Roth IRAs consist of after-tax contributions, the penalty could also apply to converted amounts or earnings. There are several exceptions to the 10% early distribution penalty, which means taxpayers should be familiar with these before electing a distribution. Doing so will help them possibly avoid this penalty.

et Unrealized Appreciation (“NUA”) is a powerful tool that people with employer stock in company plans should be aware of. Under this tax concept, the gains on the employer stock that are distributed according to the NUA rules are subject to long term capital gains rates when sold. That could be a huge tax break for some people. Normally, distributions from a company plan are subject to ordinary income tax rates, which while dependent on income are generally going to be higher than long-term capital gains rates.Of course, there’s a catch: the basis in that stock is taxed at ordinary income tax rates in the year of the distribution. Because of this, the first step in any NUA analysis is to determine whether the company stock is highly appreciated enough to justify accelerating the taxes.

Question:My sister is 72 years old and quite philanthropic. Much of her traditional IRA RMD she donates to various charities.Is it possible for her to instruct the IRA trustee to send the money directly from her IRA account to the charities?How will the charities acknowledge receipt from my sister so she can deduct the donations on her taxes? Is she still taxable on the RMD directed to the charity?Keep up the great work and thank you.EdwardAnswer:Hi Edward,It is great that your sister is charitably inclined. If she is already donating funds distributed from her IRA to charity, she may be a good candidate for Qualified Charitable Distributions (QCD). With a QCD the funds would be transferred directly from her IRA to the public charity of her choice.

First, thank you for the educational opportunity via the mailbag services.I'm 70 years old (will be 70 1/2 in July this year). I retired in 2014. I have a 401K account (consisting of highly appreciated stocks and cash) with my former employer. Although the majority of the money is pre-taxed, I do have a small portion of the money in in-plan Roth which was established in 2016.Not knowing the NUA advantage, I made several withdrawals and Roth conversions between 2015 - 2017. From reading the NUA rules, I thought I had lost the NUA privilege for good. However, when I call the saving account administrator, they said that since I have not made any withdrawals in 2018, I still qualify for the NUA treatment this year. This is conflicting information to my understanding.