The IRA Aggregation Rule

IRA Aggregation RuleEasing RMDs, Complicating Roth Conversions

When you own multiple IRAs and take an IRA distribution, the IRS treats all your non-Roth IRAs as one. This helps you when you reach age 70 ½ and must begin taking annual required minimum distribution (RMDs). Instead of taking a separate RMD from each IRA, you can take the total RMD for all of them from any one of the IRAs, or from across them in any way you wish.

How: The IRS requires you to compute your RMD from each traditional IRA, SEP IRA and SIMPLE IRA, and total them. You can then take the total RMD from any or all of those IRAs in any proportion you wish.

The resulting flexibility in taking RMDs may prove a big benefit.

  • If one IRA holds illiquid investments, such as real estate or large certificates of deposit, the RMD on its balance can be taken from another IRA.
  • If IRAs hold different kinds of investments, you can take RMDs from one over the other to rebalance investment holdings annually, or gradually liquidate one investment while keeping the other intact.
  • If multiple IRAs have different beneficiaries, you can allocate RMDs among them to adjust the amounts that will be left to different beneficiaries as their circumstances and your intentions change.

Knowing this, if you are younger than age 70 1/2, you can plan your IRA investment holdings now to take advantage of this flexibility in the future when RMDs begin.

More Aggregating

* Roth IRAs are aggregated as well, but since they are not subject to RMDs generally this doesn’t matter.

* 403(b) plan accounts are aggregated.

* Inherited IRAs may be aggregated, but only when they were received from the same owner and are being distributed using the same life expectancy. Moreover, Roth and non-Roth IRAs cannot be aggregated.

Aggregation does not apply to employer-sponsored plans such as 401(k) and Keogh plans. Each such plan must have its RMDs calculated separately. And the IRAs of spouses are not aggregated.

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The Roth Conversion Conversation

Roth ConversionAre you a good Roth conversion candidate?

When you do a Roth conversion, your pre-tax funds will be included in your income in the year of the conversion. This will increase your income for the year of the conversion, which may impact deductions, credits, exemptions, phase-outs AMT alternative minimum tax), the taxation of your Social Security benefits and more.

The trade-off is the big tax benefit down the road. But, a Roth conversion isn’t for everyone. Make an appointment to answer these questions together before going through with a conversion.

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Retirement Savings for the Self-Employed

retirement savings for the self-employedOne of the many issues facing self-employed individuals is how to save for retirement. One option is to open a traditional or Roth IRA. However, the annual maximum contribution is low in terms of retirement planning. In 2018, it’s $5,500 if you are under age 50 or $6,500 if you are age 50 and over. The self-employed often look to adopt employer-sponsored retirement plans. While there are a number of options, the Solo 401(k) is one of the most popular arrangements. Not only does the Solo 401(k) produce higher contribution levels than other arrangements, but employer contributions are tax deductible! There are pros and cons for retirement savings for the self-employed.

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Spousal IRAs

What are Spousal IRAs & Who Can Contribute to One?

Spousal IRASpousal IRAs are designed to allow a working spouse to make IRA contributions for a spouse who does not have enough earned income to make their own IRA contributions.

There are some key requirements that must be met:

  • The spouses must be legally married and file a joint federal tax return. This includes same-sex couples.
  • The spouse receiving the contribution must have less compensation, or no compensation, than the spouse making the contribution.
  • The IRA account must be held in the name of the spouse for whom the contribution is made. If Gina is the working spouse and the contribution is made for George, then the IRA account must be in George’s name. George has complete control over the IRA account. He can name his own beneficiaries, invest the funds as he wishes, and take withdrawals whenever he wants.

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5 Roth IRA Facts

Roth IRA FactsDo you think you understand all the rules that govern your Roth IRA? Not so fast! There are many misconceptions as to how these complicated accounts work. Here are 5 Roth IRA facts that might surprise you:

1.  You are never too old to contribute. If you have earned income and your modified adjusted gross income is below a certain level, you can contribute to a Roth IRA. Your age does not matter. This often comes as a surprise to taxpayers because you cannot contribute to a traditional IRA once you reach the year you turn 70 ½. Roth IRAs are different. Age is never a barrier to making tax year contributions.

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10 Things to Know About the Still-Working Exception

By Sarah Brenner, JD
IRA Analyst with Ed Slott

Still-Working Exception

Are you approaching retirement age and not looking forward to being forced to take unwanted required minimum distributions (RMDs) from your retirement account? You may be looking for a way to delay those distributions. You may have heard about the still-working exception, which can allow RMDs to be put off. Will this exception help you? Here are 10 things you need to know.

1.  The still-working exception does not apply to IRAs. It only applies to company plans. If you are still working, that can’t help you delay RMDs from your IRA.

2.  The exception will only apply to the plan of the company for which you are still working. If you have other funds in other company plans it won’t help you with those.

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Is Your IRA Haunted?

IRA HauntedIt’s Halloween! This is the time for ghosts, witches, and trick or treating. What does Halloween have to do with your IRA? You might be surprised to hear that your IRA may be haunted. How can that be? Believe it or not, actions you take, or don’t take, can haunt your beneficiaries for years down the road.

Many IRA owners think that naming their estate as their IRA beneficiary is a good way to go. They think that they have spent time and money consulting with an attorney to draft the perfect will. All the work has been done. Why not just name their estate as their IRA beneficiary? Wrong move! That can result in scary stuff that can haunt your IRA beneficiaries. If you name your estate as the beneficiary on your IRA beneficiary designation form, your beneficiaries will not be able to stretch distributions over their own life expectancy. They may even have to take a total distribution of the IRA assets in five years. That could be a serious tax hit. There is no way to fix this after your death. To have the maximum stretch options possible, living people or a qualified trust must be named on the beneficiary designation form.

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Contact the C&J Ghostbusters!

How Your Inherited IRA is Taxed

Couple inherited IRA Have you inherited an IRA? What type of IRA is it? Your answer will matter a lot when it comes to your tax bill. Inheriting a traditional IRA will have very different tax consequences than inheriting a Roth IRA.

Consider the following example. Let’s say Tom named his three children as beneficiaries of his three-million-dollar traditional IRA. He never made any nondeductible contributions. When his children take distributions from the traditional inherited IRA those distributions will be fully taxable, but not subject to penalty. What if Tom converted his traditional IRA to a Roth IRA more than five years ago? All distributions from the Roth IRA paid to his children would be tax and penalty free. That is a very different result.

Traditional IRA

If you were named the beneficiary of a traditional IRA, you will most likely face income tax consequences. This is because most funds in traditional IRAs are tax-deferred but not tax-free. Uncle Sam will eventually want his share. Distributions to beneficiaries will be taxable to the beneficiaries in the year taken. You can minimize the tax impact by using the stretch and taking distributions over the longest period of time the rules allow.

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5 Retirement Strategies for Younger Workers

retirement strategies for younger workersNo one can argue that the millennial generation faces big challenges when it comes to savings. Younger workers are dealing with record setting student loan debt, high housing costs and stagnant wage growth. It’s hard to save for retirement when you are worried about the next month’s rent. Here are five retirement strategies for younger workers.

1.  Start Small

If you are just getting a foot in the workplace then there is nothing wrong with starting small. Time is something that you have on your side. Starting early can make all the difference, even with a very small amount of money.

For twenty-somethings, just starting out in the work place and looking to pay the rent, enjoy life and still save for retirement, there are options out there. Even a small salary deferral to a 401(k) or contribution to an IRA is worth considering. It is a small step in the right direction and it gets you into the saving habit early!

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7 Things Your IRA Custodian Won’t Tell You

IRA custodianIt is important to know what your IRA custodian will tell you and what they will not or cannot tell you. The I in IRA stands for individual and many times it is up to the individual to know things or keep track of them.

  1. 60-Day Rollovers – An IRA custodian will not remind you that an individual can only do one 60-day IRA-to-IRA or Roth IRA-to-Roth IRA rollover in a 12-month period. They may not even tell you that you have 60 days to complete a rollover. IRS has ruled that while a custodian might be held liable for erroneous information, they have no obligation to give the individual any information on rollovers. A distribution that is eligible for rollover is one where the check from the IRA or Roth IRA custodian is made payable to the account owner who then has 60 days to recontribute the funds to either the same or a different IRA/Roth IRA. This type of transaction can only be done once in a 12-month period. IRAs and Roth IRAs are aggregated for the once-per-year rule.

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