This week's Slott Report Mailbag looks at IRA trust beneficiary maneuvers and how to disclaim yourself as an IRA beneficiary. Click to read this week's Q&A with our IRA Technical Expert.
What happens to your IRA if you accidentally do two rollovers in one year? Nothing good. We explain why below.
An advisor had a client who had missed part of her required minimum distribution (RMD). No big deal. This happens – frequently. To fix it, you take the RMD that was missed and you file IRS Form 5329 with the tax return. Form 5329 has you calculate the penalty – 50% of what was not taken. However, IRS can waive this penalty for good cause. The instructions for the form tell you how to do this, although they are a bit confusing. Then you attach a letter explaining what happened and requesting the waiver of the penalty. Apparently the tax preparer did not read the instructions and the penalty was included in the tax due on the client’s return. She did not pay the penalty portion of the tax due because she requested a waiver of the penalty. Now comes the fun part.
This week's Slott Report Mailbag includes two great questions, including one that piggybacks off an answer in last week's mailbag referencing RMDs (required minimum distributions) at age 70 1/2 and still working. Click to read this week's Q&A with our IRA Technical Expert.
A taxpayer we will call "Andrea" received an IRA distribution on May 10, 2012. She used the distribution and failed to put the distribution back into her IRA within the 60-day limit.Andrea filed a PLR (Private Letter Ruling 201429033) asserting that her failure to accomplish a rollover within 60 days was due to the fact that she used the amount to pay for medical expenses stemming from car accidents which occurred prior to the distribution. She did not have the amount available to deposit into her IRA until several months after the 60-day IRA rollover period
I talked to two different advisors this week who had almost the exact same story involving inherited IRAs.
A client inherited a small IRA from a parent and the kind bank employee gave them a check. Wouldn’t this make most beneficiaries happy? Not necessarily. Click to find out why.
Most of the time we are telling you how important it is to check IRA beneficiary forms to be sure they reflect your current planning objectives – such as the stretch IRA. It is also important to check the IRA agreement or an employer’s summary plan description (SPD) for the plan. Click to find out why.
The question came up recently about combining inherited IRAs. The general rule is that you
can combine IRAs that you have inherited from the same person. So if you inherited two IRAs from your Mom, you could combine them into one inherited IRA. But if you inherited an IRA from your Mom and inherited an IRA from your Dad, you could not combine them. Sounds simple, right? Not quite.
In Private Letter Ruling (PLR) 201425023, released by IRS on June 20, 2014, the IRS ruled that a surviving spouse who received IRA proceeds through a trust, which was the beneficiary of her deceased husband’s IRA, could not roll over the IRA funds she received because more than 60 days had passed since she received the funds. The IRS denied her request for more time to do the rollover because she didn’t provide sufficient proof of financial institution error. More importantly, the PLR is a good example of what not to do when a trust is the beneficiary of an IRA.
Richard has an IRA and has named his wife Diane as the beneficiary. Richard dies unexpectedly at age 52. Diane is 50.
What should she do with Richard’s IRA?This is a case when the spouse should probably remain a beneficiary of the IRA. Here's why.
