Matt Smith

Question: I attended the two-day event in Washington DC. Is there any news on the attempts in Congress to change the stretch-out? Jim Answer: Hi Jim, It sounds like you are asking about the status of the Setting Every Community Up For Retirement Enhancement Act of 2019 (SECURE Act). This proposed legislation would do away with the stretch IRA for most beneficiaries and replace it with a ten-year payout period. The SECURE Act overwhelmingly passed the House this spring. It is currently being held up in the Senate. There were some reports that it would be passed by the Senate last month, but that turned out not to be the case. We are watching this bill carefully to see if Senators can all come to agreement on it or if it will be brought to the Senate floor. Currently, the holding pattern continues, but there are some who believe action could be taken later this year. Stay tuned.

October is upon us. This means fall is in full swing. Along with football, pumpkin-spice everything and stocking up on candy for trick-or-treat come four important October 15 deadlines you will not want to miss! 1. Did you contribute too much to your traditional or Roth IRA for 2018? Maybe you were 70 ½ or over in 2018 and made a contribution to a traditional IRA. Or, maybe your income ended up being higher than you expected and it turned out you were ineligible for the Roth IRA contribution you made. If you made an excess contribution to your traditional or Roth IRA for 2018, you will want to fix that mistake by withdrawing the contribution, plus net income or loss attributable.

Knowing your limits is important when you’re sitting in a bar and realize that you have to drive home. It’s also important to know the dollar limits that apply when you participate in more than one company retirement savings plan or you change jobs during the year. Deferral limit. There are actually two limits at play. One is a limit on the amount of elective deferrals you are allowed to make in any calendar year. With one exception, the deferral limit is based on the total deferrals to all of your plans. So, this limit is usually a per person limit. The limit is indexed periodically and for 2019 is generally $19,000, or $25,000 if you’re age 50 or older as of the end of the calendar year.

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).

My son is 14. I make every effort to expose him to a wide array of cultural elements. A variety of music. Plays. History. Food. Movies from the 80’s and 90’s are a significant slice of the “Understanding Social References” pie chart. Ferris Bueller’s Day Off, Breakfast Club, Shawshank Redemption, Terminator, Sixteen Candles. Currently queued up on the DVR is Top Gun. Goose and Maverick pushing the limits in their F-14 Tomcat fighter jet. Iceman. Jester. “Never leave your wingman.” Kenny Loggins singing “Highway to the Danger Zone.” If a person wants to recklessly fly through the jet wash of the 60-day rollover window and use their IRA funds for some risky pursuit, they better stick close to their advisor wingman. Peril lurks. Engines could flameout.

Retirement accounts are supposed to be for saving for retirement. If you tap your retirement savings before reaching age 59 ½, you run the risk of being hit with the 10% early distribution penalty. However, there are exceptions to this penalty. Some apply just to IRAs and some apply just to employer plans. However, the following six exceptions apply to BOTH distributions from IRAs and employer plans. 1. Death A distribution taken from an inherited retirement account after the death of the owner is never subject to the 10% penalty. It does not matter what the age of the owner was or what the age of the beneficiary is.

Question: Here is the situation. The mother is deceased and the father is in jail. He has two minor kids that need the money out of his traditional IRA. Could all of the money be taken out and considered a hardship distribution to avoid the 10% penalty on the entire account? Answer: Unfortunately, no. There is no such thing as a “hardship distribution” with IRA accounts. A 10% early withdrawal penalty generally applies to IRA withdrawals taken before age 59 ½. But the tax code includes several exceptions to the 10% penalty for withdrawals taken for certain specific reasons. For example, taking a withdrawal to cover the costs of higher education expenses, first time home buying, and health insurance if you are unemployed all qualify for the penalty exception.

Like cassette tapes and slide rules, defined benefit (DB) plans are becoming relics of the past. It’s estimated that 88% of private sector employees with a company plan in 1975 were covered by a DB plan. Today, that number is less than 20%. One reason is the advent of 401(k) plans and other defined contribution plans. Another reason is the decline of the unionized workforce, since DB plans have traditionally been collectively-bargained. Most importantly, DB plans have become increasingly expensive. Congress has tightened the plan funding rules, which has led to higher employer contribution requirements. Also, plan sponsors must employ an actuary and pay premiums to the Pension Benefit Guaranty Corporation (PBGC), a quasi-governmental agency that insures DB plan benefits up to a certain level.

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.

Question: Hello, I’ve been a follower of Ed’s expertise for over 10 years. The information has always been helpful and clearly explained. At this time, I’m looking to help a client minimize her taxes. She recently inherited an IRA from her father. She has taken the “Stretch IRA” option and is now receiving her required distributions. Can she utilize a Qualified Charitable Distribution to her church (verified 501c3) to reduce her tax liability and still maintain the stretch IRA? Answer: Yes. Qualified Charitable Distributions (QCDs) are available to beneficiaries.