The goal of the net unrealized appreciation (NUA) tax strategy is to enable a person to pay taxes on the appreciation of company stock formerly in a work plan at long term capital gain rates as opposed to ordinary income rates. The spread between long term capital gains vs. ordinary income could result in a sizable tax savings for those eligible for the strategy. However, not everyone can participate, and for those who are candidates for NUA, there are potential stumbling blocks along the way.
We are constantly bombarded with requests to update our information. “Password needs updating.” “Software update for your mobile device.” “Please update your email so our marketing team can continue to fill your inbox with spam.” It is never ending. Most of these update requests are trash. An automatic delete. However, some updates are vitally important and demand our attention. Regarding retirement accounts and IRAs, here is a countdown of five critical items that should be considered, reviewed and updated immediately:
The 72(t) rules (”series of substantially equal periodic payments”) allow a person to tap retirement dollars before 59½ without a 10% early distribution penalty. However, to gain this early access, you must commit to a plan of withdrawals according to the strict guidelines set forth in the Tax Code. For example, some basic requirements dictate that:
72(t) payments have suddenly become a better deal for IRA owners and company plan participants.Also known as “substantially equal periodic payments,” 72(t) payments are advantageous because they are exempt from the 10% early distribution penalty that usually applies to withdrawals before age 59 ½. You can take them from an IRA at any time, but only from a workplace plan after leaving your job.
Question:My situation is as follows: I am 56 years old and have an IRA which I have been taking SEPP/72(t) payments since 2008.
The end of 2020 is almost here. With the end of the year come certain retirement account deadlines. Here are 5 items you should have on your 2020 year-end retirement plan to-do list:1. Do a 2020 conversionIf you are considering converting an IRA to a Roth IRA in 2020, time is quickly running out. The deadline for 2020 conversion is the end of the calendar year. There is a common misconception that a conversion can be done up until your tax-filing deadline.
Times are tough. Unemployment is high and bills are piling up for many. These realities have forced a lot of people to look for sources of extra cash. For many Americans, their IRA is their biggest, or maybe only, savings available. It may be tempting to consider tapping into it in these challenging times. Distributions taken before age 59 ½ are subject to a 10% early distribution penalty.
Do you want to access your IRA funds penalty-free, even though you are under age 59 ½ and no exception fits your situation? It can be done. Starting a new business and need capital from your IRA, but don’t want to pay the 10% early withdrawal penalty? There is a workaround. Lost your job and require funds to cover your mortgage and cell phone bill, but the only bucket of cash you have is your IRA? There is a pathway to the gold, but it is fraught with danger.Like Indiana Jones sprinting through spiderwebs and dodging poison-tipped darts while leaping bottomless pits, the giant 72(t) boulder will roll fast at your heels. One misstep could result in crushing disaster. However, if it is the golden idol in the rear of the IRA cave you seek, there is a way.The general idea of a 72(t) schedule (or a “series of substantially equal periodic payments”) is to open the door to an IRA before 59½ without a 10% penalty.
Question:I am a financial advisor and want to be clear on something. If a client has a SIMPLE IRA that they are contributing to and have an IRA and are 70.5, can they aggregate the distributions for both and remove from the IRA?WandaAnswer:Aggregation of RMDs is a tricky area and we see lots of mistakes. SIMPLE IRAs can be confusing as well because sometimes these accounts follow the IRA rules, and sometimes they follow plan rules.
This week's Slott Report Mailbag answers readers' questions about the tax consequences of substantially equal period payments and rolling a 401(k) into a single premium immediate annuity IRA.
