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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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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Calculating the Pro-Rata Rule in 5 Easy Steps

What is the pro-rata rule?

Calculating the Pro-Rata Rule The pro-rata rule is the formula used to determine how much of a distribution is taxable when the account owner holds both after-tax and pre-tax dollars in their IRA(s). For the purposes of the pro-rata rule, the IRS looks at all your SEP, SIMPLE, and Traditional IRAs as if they were one. Even if you have been making after-tax contributions to a separate account for years, and there have been no earnings, you cannot isolate your after-tax amounts and must take your other IRAs into consideration.

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2016 Tax Planning for Investment Income

What Will Be Considered Investment Income?

Investment IncomeInvestment Income

  • Interest, Dividends, Capital Gains (long and short) including the gain on the sale of investment real estate and second homes)
  • Annuities (but not annuities in IRAs or company plans)
  • Royalty Income
  • Passive Rental Income and Other Passive Activity Income
  • Above items from a child’s tax return that are reported on a parent’s return (the “Kiddie Tax”)

NOT Investment Income

  • Wages and Self-Employment Income
  • Active Trade or Business Income (including interest, dividends capital gains)
  • Distributions from IRAs, Roth IRAs, and Company Plans
  • Including Net Unrealized Appreciation
  • Excluded Gain from the Sale of a Principal Residence
  • Municipal Bond Interest
  • Proceeds of Life Insurance Policies
  • Social Security and Veterans’ Benefits
  • Gains on the Sale of an Active Interest in a Partnership or S Corporation
  • Taxable income from items that are NOT investment income can push taxpayers over the income threshold and cause investment income to be subject to the 3.8% surtax.

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3 Roth IRA Five-Year Rules

By Sarah Brenner, IRA Analyst
Ed Slott and Company, LLC

Understand these 3 Roth IRA Five-Year Rules to maximize your benefits

Roth IRA Five-Year RulesDo you have a Roth IRA or are you thinking about starting one? You may have heard that a “five-year” rule is important for these accounts. Well, that’s just the beginning of the story. There are actually 3 Roth IRA Five-Year Rules. You need to understand each of them to maximize the benefits of your Roth IRA.

• Five-Year Rule for Penalty-Free Distributions of Converted Funds

If you convert your traditional IRA to a Roth IRA, any pre-tax funds in the traditional IRA that you convert are taxable to you in the year of the conversion. No matter what age you are when you convert, the 10% early distribution penalty does not apply. If you then take a distribution of the converted funds from your Roth IRA, that distribution will always be tax-free. This makes sense because you already paid taxes when you converted your Traditional IRA. However, if you are under age 59 ½ and take a distribution within five years of your conversion, your distribution will be subject to the 10% early distribution penalty, unless an exception such as disability applies. This rule was put in place to close a loophole in the rules, where traditional IRA owners, under age 59 ½, would have been able to convert to Roth IRA and then take a Roth IRA distribution to evade the early distribution penalty that would have applied if they took the distribution directly from their traditional IRA.

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What is Your IRA Required Beginning Date?

What You Need to Know About Your Required Beginning Date (RBD)

Required Beginning DateYour Required Beginning Date (RBD) is the date for beginning to take required minimum distributions (RMDs) from your retirement account if you have an IRA or employer plan.

The rules differ depending on the type of retirement account you have or if you are the account owner or the beneficiary.

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6 Options for an IRA Distribution from a Company Plan

It’s Time to Move Assets Out of Your Company Plan.
What are Your IRA Distribution Options?

IRA DistributionThere has been a lot of talk, and some new regulations, regarding advice given to plan participants when they have the opportunity to move funds out of their employer plan. Here’s an example to illustrate the IRA distribution options available.

Ron has retired from his job. He has participated in his 401(k) plan at work for a number of years and has a substantial balance in the plan. What are Ron’s options for that money?

There are six options that are allowed by the tax code. An employer plan can limit these options. A plan participant will only be able to use the options available to him in his plan. All of them have pros and cons and careful evaluation of a plan participants finances and goals is necessary in order to determine the best option for that individual.

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Top IRA Rulings of 2015

Here are two of last year’s top rulings

Top IRA Rulings of 20152015 produced numerous new laws, IRS actions, and court decisions that affected IRAs and other retirement accounts. Here are two of the top rulings of 2015: The New Age 50 Exception & Social Security Strategies Eliminated

Distributions from retirement plans before age 59½ typically trigger a 10% penalty, but there are some exceptions to that age requirement. For instance, participants in employer-sponsored qualified plans avoid this penalty if they separate from service during or after the year in which they reach age 55.

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3 Required Minimum Distribution Mistakes

Required Minimum DistributionIt’s that time of year if you are an IRA owner age 70 ½ or older. You must take your required minimum distribution (RMD) before the end of the year. Not taking your RMD or the correct amount can result in crippling penalties, which is why we cover this topic in great detail at The Slott Report.

Here are three RMD mistakes you must avoid. Remember, it’s not too late to take your RMD, just make sure you do it correctly with the assistance of a competent, educated financial advisor like those who train in this specialized area.

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4 Facts You Must Know about IRA Distribution Rollovers

IRA Rollover2015 IRA Distribution Being Rolled Over in 2016?

The rules for rolling over IRA distributions can be complicated. These rules can become especially challenging at the end of the calendar year. If you are taking an IRA distribution at the end of 2015 and considering a roll over that may not be completed until 2016, here are four facts you will want to know.

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