IRA holders and beneficiaries need to plan for required minimum distributions

Laws regulating tax-deferred retirement plans including traditional Individual Retirement Accounts (IRAs), 401(k), SEP, Keough, and SIMPLE plans require holders of these plans to take minimum distributions the year following the year the holder turns 70 and one-half or face a tax liability for 50 percent of the amount they should have taken out. Few owners of tax-deferred assets who will be taking those distributions are prepared to manage the impact of the additional income on their taxes. Heirs to these assets must also take minimum distributions within a defined period of time or face the 50 percent penalty, and must plan for a sharp increase in ordinary income.

Because the rules about the timing and amounts of the distributions are complicated, tax professionals need to inform their clients about the possible consequences of their actions and assist them in planning the distributions.

Two exceptions include Roth IRA owners, who have already paid tax on their contributions, and individuals enrolled in a company pension or 401(k) plan who can wait until they actually retire to collect.

Most experts emphasize the importance of consulting a tax professional about the required distributions, because there is little help available from either the plan custodians or the Internal Revenue Service, even though the most recent data show that, as of 2006, assets held in IRAs and defined contribution plans, such as 401(k) plans, increased to $7.5 trillion up from about $4.8 trillion in 2000, according to CCH.

IRA custodians are now required to send the IRA owner a Form 5498, which notifies the owner (and the IRS) that an RMD is due the following year, according to IRS spokeswoman Dianne Besunder, Julie Jason writing in the Stamford Advocate reports, but there is no comparable form for 401(k) plans.

Custodians are not required to calculate the RMDs, but customers of Fidelity Investments can set up a "Personal Withdrawal Service Plan" that will calculate the required distributions, the Wall Street Journal says. Clients of Vanguard can use kits available on its site to calculate their minimum distributions.

Depending on who will be taking the distribution, whether the owner, the spouse or another beneficiary, the amount should be calculated using one of three tables based on life expectancy published by the IRS. The tables are not easy to find on the Agency's website. The taxpayer must navigate to Appendix C of Publication 590, Individual Retirement Arrangements.

One big pitfall that beneficiaries want to avoid, according to The Wall Street Journal: don't let the custodian write a check to you for the amount and deposit it in your own IRA, and unless you are a spouse, don't roll over the money directly into your own pre-existing IRA account. Both actions close out the original IRA, and the money is then taxable.

Non-spouse beneficiaries need to set up a trustee-to-trustee transfer before they move the money into retirement accounts in their own names. They must be knowledgeable about the timing rules for RMDs, for the decedent and for themselves. Multiple beneficiaries must learn numerous miscellaneous rules and understand that the RMD is based on the age of the oldest beneficiary.

IRA holders now have the option of contributing up to $100,000 of the distribution each year to a charity with no tax consequences, as long as the payment is made directly from the IRA to the charity. This rule does not apply to money from other retirement plans.

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.

44850

Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.

77478

Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.

49838

Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

91080
Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.
21719

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".

57104

William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.

82298

Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (www.ubcc.com), a software development firm of high-volume, high-productivity accounting and payroll technology.

25902

Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

65667

Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

35397
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
104533
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.
27068

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

54029
Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
28985
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.
33354

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.

102504

The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.

34667

FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.

113587

Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.

62607

Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

40704
Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.
67755

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of Yellowbook-CPE.com a website devoted to training for governmental auditors.

93880

AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish AccountingWEB.co.uk share their ideas, insights, and perspectives from across the pond.

54951