As of the writing of this Slott Report submission, it is Monday, December 23, 2019. T-minus 8 days before the end of the year, which means IRA owners have a tight window to complete any year-end transactions. Once the calendar turns, if not finalized in time, some items will be forever lost. Here are six transactions that absolutely must be completed within the next 8 days to avoid penalty and/or a lost opportunity:
Over 70 ½ RMDs. While the first RMD for the year a person turns 70 ½ can be delayed until April 1 of the next year, all future RMDs must be taken before the end of the calendar year. There is no wiggle room.
Question:
As year-end approaches, I have just exceeded my 2019 RMD, combining total QCD's during the year and my regular monthly IRA withdrawals.
If I make additional charitable contributions from my IRA this month, are they still considered tax-advantaged QCD's, or has my QCD opportunity ended because I've already exceeded the annual RMD?
Answer:
This is an area where there is a lot of confusion! While you can use a qualified charitable distribution (QCD) to count toward your required minimum distribution (RMD), your QCDs for the year are not limited to the amount of your RMD.
Question:
I am over 71 and have 2 IRAs, one in my name, the other is inherited.
Can I take one RMD from the inherited IRA to satisfy both?
Or must I treat them separately and do 2 separate RMDs?
Thank you!
Tyler
Answer:
Hi Tyler,
You must treat the IRAs separately and take two separate RMDs.
If you own more than one IRA (not inherited), you can aggregate them and take the RMD from any one (or more) of them.
Question:
I am still working at age 71 and don't really need the required minimum distributions (RMDs) from my rollover IRA. The IRA was funded largely with distributions from a tax-qualified pension plan and a tax-qualified 401(k) plan. Some deductible contributions were made many years ago as well. I would like to transfer some of the IRA into my current employer's 401(k) so as to reduce RMDs until I terminate my employment with my current employer. I am not a 5% owner of the company, so I don't currently have to take RMDs from the 401(k).
People stumble over themselves all the time. Bad advice is provided, misinformation gets freely disseminated, and sometimes normally smart individuals do less-than-smart things. Stories of good folks fouling up their required minimum distribution are rife. After all, the RMD rules contain a veritable minefield of traps and potential tripping hazards. Based on nothing more than personal experience, anecdotal evidence and conversations with industry insiders, here is a Top 10 list of RMD Goofs, Gaffes and Blunders:
10. Rolling over an RMD. RMDs are not eligible to be rolled over. This happens most frequently when company plan assets are rolled over to an IRA. If the RMD is not taken first, you now have an excess contribution in the IRA that needs to be corrected.
Many company retirement plans – like a 401(k) – offer company stock as an investment option. Under special tax rules, a plan participant can withdraw the stock and pay regular (ordinary) income tax on it, but only on the original cost and not on the market value, i.e., what the shares are worth on the date of the distribution. The difference (the appreciation) is called the net unrealized appreciation (NUA). NUA is the increase in the value of the employer stock from the time it was acquired to the date of the distribution to the plan participant.
The plan participant can elect to defer the tax on the NUA until he sells the stock. When he does sell, he will only pay tax at his current long-term capital gains rate – even if the stock is held for less than one year. To qualify for the tax deferral on NUA, the distribution must be a lump-sum distribution. This means the entire plan must be emptied in one calendar year, including all non-company stock within the plan.
Prior to 2002, a default option for paying out required minimum distributions from an inherited IRA to a beneficiary was the 5-year rule. If the IRA owner died before their required beginning date and an election was not made in a timely manner, the account had to be closed by December 31 of the 5th year following the year of death. In 2002, new regulations issued by the IRS changed the default payout to the life expectancy of the designated beneficiary. The 5-year requirement for most beneficiaries was eliminated.
Every single month since January of 2014, Billy Joel has headlined a sold-out show at Madison Square Garden. Demand for tickets to see the Piano Man has not waned. Ticket sell out quickly. Millions of fans will attest that Billy Joel, who’s music career spans decades, still puts on an incredible show.
It’s hard to believe that Billy Joel just recently celebrated his 70th birthday on May 9, 2019. We don’t know for sure that Billy has an IRA, but if like millions of Americans he does, then 2019 is an important year for him.
When it comes time to calculate your required minimum distribution (RMD) from your IRA, you may wonder which life expectancy table to use. Last updated by the IRS back in 2002, there are three possible tables for IRA owners and beneficiaries, and they can all be found in IRS Publication 590-B.
The three tables are the Uniform Lifetime Table, the Joint Life Expectancy Table, and the Single Life Expectancy Table.
Uniform Lifetime Table
If you are taking RMDs from your IRA during your lifetime, this is most likely going to be your table. This table is used by most IRA owners for figuring lifetime RMDs from their IRAs. The only IRA owners who will not use this table are those whose spouse is their sole beneficiary for the entire year and is more than 10 years younger.
One of the greatest benefits of an IRA is its ability to provide tax-favored wealth for heirs. An IRA left to a beneficiary can be "stretched" to provide pre-tax compound investment returns for the rest of the beneficiary's life -- or even longer. And these can be distributed totally tax free if it is a Roth IRA.
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