Calculating an IRD Deduction in 5 Easy Steps

IRD DeductionWhat is an IRD (Income in Respect of a Decedent) deduction?
An IRD deduction is a way of offsetting the impact of double taxation (federal estate tax and income tax) on certain inherited assets. It’s an income tax deduction for the beneficiary (miscellaneous itemized deduction, not subject to limitations).

When should you look for an IRD deduction?
When an individual receives a 1099-R for a distribution that has code 4 (the death code) in Box 7. Don’t expect the CPA to pick up on this. In the tax time crunch it is easily overlooked.

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Minimizing Financial Risks

Knowledge is priceless

Financial RisksIf you work with a financial advisor, a CPA, and an estate attorney, then your finances and assets are being looked after; right? It’s their responsibility to know everything to protect your money and reduce financial risks; right?

You hired these professionals to consult with you on the best strategies to grow, manage, and protect your assets. This makes you their ‘boss.’ Just like running a business, you need to know what your management team is doing. Regular meetings and frequent communicate keeps everyone up-to-date and refines the processes to protect your interests to achieve your financial goals and retirement funds.

Risks to your IRA

Planning and managing your IRA is essentially about maximizing the opportunities of reaching your financial goals and reducing the risks that can be a life-changer. Risks can appear in all shapes and sizes such as job loss, costly health crises, an unexpected death, and even living longer than expected.

Here are ways to reduce your risks.

Portfolio Threats – Help offset market and economic risks to your IRA portfolio through proper asset allocation, diversification and hedging.

Job Threats – Many people experienced job loss during the last recession. IRA funds are often needed to cover living expenses. Help offset costs and withdrawing from your IRA by setting aside enough emergency cash to cover expenses until employment is secured. There are financial consequences to withdrawing from an IRA if you have not reached the age of 59 ½.

Health Threats – By having health care disability and long-term care insurance in place, you can dramatically reduce your risk of having to use your IRA assets.

Legacy Threats – Offset the risk that your death will leave your family without adequate income or that your heirs will not inherit what you intended by planning with sufficient life insurance.

Tax Threats – The risk that your estate will owe more than necessary when you die in estate and income taxes is offset through strategic estate and tax planning.

As you can see, there are a lot of factors to consider as you determine your long-term financial goals. What are the best ways to achieve your financial goals, manage your assets, and how to protect them? You owe it to yourself and your loved ones to seek the advice of financial experts. Remember; just keep your finger on the pulse and keep communication lines open for regular reviews of your accounts.

How Much Do You Need to Save for Retirement?

Save for RetirementTips on financially preparing for your retirement

How much you need to save for retirement depends on your estimated yearly living expenses once you stop working full-time. Here are tips on how to estimate future financial needs.

  • Gather a month’s worth of bills, ATM slips, and credit card receipts. Total the amounts omitting expenses that you don’t anticipate having after retirement such as college tuitions, mortgage payments, credit card debt, disability insurance premiums, etc.

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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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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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Fixing a Missed RMD in 5 Easy Steps

Required Minimum DistributionWhen should you look for a missed RMD (required minimum distribution)?

RMDs must be taken by IRA owners beginning in the year they turn age 70 ½ and by IRA and non-spouse Roth beneficiaries beginning in the year after the death of the account owner. RMDs not taken are subject to a penalty of 50% of the amount not taken each year.

When should you looked for a missed RMD?

You should look for a missed RMD every year after an account owner turns age 70 ½ and when an IRA or non-spouse Roth beneficiary inherits an IRA. Ask your advisor to double check any calculations to be sure they are correct.

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5 Points to Know About Qualified Charitable Distributions

You Must Be Age 70 ½

Photo by photostock familyIRA owners who are age 70 ½ and over are eligible to do a Qualifiied Charitable Distribution (QCD). This is more complicated than it might sound. A QCD is only allowed if the distribution is made on or after the date you actually attain age 70 ½. It is not sufficient that you will attain that age later in the year.

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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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Do you have a 5/10/20 Year Retirement Plan?

Think your expenses will drop in retirement? Don’t count on it!

Tips for a planning ahead on your retirement plan

5-10-20 year retirement plan“In the first two years of retirement, 28.0 percent of households spent more than 120 percent of their pre-retirement spending. By the sixth year of retirement 23.4 percent of households still did so.”1 

If you’re 5 years away from retirement:

  • Make a list of retirement “needs” and “wants.” If you do not have enough savings for all your “needs,” make a five-year plan to increase your funds.

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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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