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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Happy Anniversary to the Roth IRA!

Happy Birthday Roth IRAHappy Anniversary to the Roth IRA! Celebrating 20 years in 2018.

IRAs started small. The first IRAs created in 1974 had two purposes:

1.  As a retirement savings vehicle for employees not covered by employer retirement plans; and
2.  As an account to hold distributions from employer plans on separation from service

These first IRAs could accept annual contributions not exceeding the lesser of $1,500 or 15% of earned income, only from employees who were not covered by an employer’s qualified retirement plan. Distributions from them were subject to still familiar rules — being taxable income at ordinary rates, with required minimum distributions (RMDs) starting at age 70½, and distributions before age 59½ subject to 10% penalty. They could accept rollovers from company plans.

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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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6 Key Tips to Follow As You Juggle Your Own Retirement Planning

Juggling retirement planningContributions for Retirement Planning: If you are working, have an employer plan available, and there is an employer match, make sure you are contributing enough to the plan to reach that maximum match level. Don’t forget to make your own IRA or Roth IRA contributions as well. Your participation in the employer plan has no effect on your ability to make those contributions. It could, however, affect the deductibility of your IRA contributions.

Roth IRA Planning: You really want to contribute to a Roth IRA, but (and it’s a big BUT) you exceed the income limits to qualify. You can utilize a strategy called the Back-Door Roth IRA to move funds into a Roth IRA, where they can grow tax-free into retirement.

Don’t forget about Roth conversions for yourself. You can use a strategy called “filling the brackets.” You convert smaller amounts each year to keep yourself from going into a higher tax bracket. When it comes time to do the tax return, maybe some numbers have changed and you converted too much. No problem! You have until October 15 to recharacterize all or part of your Roth conversion. You “undo” it and do not owe income tax on the amount you recharacterize.

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13 Retirement Planning Mistakes

Retirement planning mistakes can be costly. Seek the help of a financial planner Retirement Planning Mistakesor tax attorney to achieve the goals for a comfortable and stress free retirement.

1. Not Having a Plan

Do you know how to achieve the retirement lifestyle you want? Consider these three things.

  • When do you want to retire?
  • How much income will you need?
  • What steps can you take not to help you achieve your goals?

When you have defined your goals, we can develop a financial plan to reach them.

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Use Your Tax Refund to Fund an IRA

What does the basic process entail?

Tax refundAn income tax refund can be directly deposited to an IRA up to the annual contribution limit. The contribution limit is $5,500 ($6,500 for individuals age 50 or older) for 2016 and 2017. It can also be split among multiple accounts.

— Determine the tax refund amount.  Once you know how big your refund will be, decide how much, if any, you would like to contribute to your IRA or Roth IRA up to the maximum annual contribution allowed.

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Avoiding the 50% RMD Penalty

Ask these 10 questions to avoid the 50% RMD penalty

questions to avoid the RMD penalty•  Do I have an accurate inventory of all my retirement accounts? – This may seem rather simple, but it’s absolutely crucial to maintain a record of all your retirement accounts. And that may be easier said than done. According to a 2012 Department of Labor study, Baby Boomers born between 1957 and 1964 held, on average, a staggering 11.3 jobs between the ages of 18 and 46. So it’s entirely possible you have more than one 401(k) or similar plan. Oftentimes, when people leave an old employer, they forget about their plan money, especially if it was only a small amount.

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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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Life Insurance vs. Roth IRAs

3 BIG Differences Between Life Insurance & Roth IRAs

insurance vs Roth IRAsLife insurance and Roth IRAs have a basic structure in common. They are both wealth transfer tools that help facilitate an efficient transfer of assets from one generation to the next, and they both can provide a tax-free legacy. Despite their many similarities, Roth IRAs and life insurance are very different, and the rules that apply to one don’t always apply to the other. In fact, more often than not, that’s the case. Below, we discuss the differences between the two retirement planning vehicles.

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Six 2015 Retirement Tax Rules You Must Know

2015 Retirement Tax Rules

Tax laws affecting your retirement savings are constantly changing, and 2015 has been no exception. Here are six 2015 retirement tax rules to be aware of.

1.  Once-per-year IRA rollover rules. The tax court ruled in the Bobrow case (January 28, 2014) that the once-per-year IRA rollover limit applies to ALL of a person’s IRAs and not to each IRA separately, as was the case in the past. IRS Announcement 2014-32 (effective January 1, 2015) stated that Traditional and Roth IRAs are combined for purposes of the once-per-year rule. Checks made directly to receiving IRAs qualify as trustee-to-trustee transfers.

— The fallout: Clients could lose their IRAs. IRS has no authority to give relief.

— The action plan: IRA-to-IRA direct transfers are not affected and are strongly recommended. Be careful with every new client rollover.

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