2009 hiatus on mandatory IRA withdrawals contributes to 2010 penalties
by AccountingWEB on
It's a common misconception that after a certain age you can choose to withdraw from your traditional IRA or leave it to grow. In fact, there is a Required Minimum Distribution (RMD) that a retirement plan owner must withdraw from any traditional IRA (or employer-sponsored retirement plan) when he or she reaches the mandatory withdrawal age of 70 1/2. The only way to avoid being forced to withdraw money is by continuing to work past this age; but, if the account holder is even a five percent owner of the business sponsoring the retirement plan, waiting for retirement to start taking withdrawals is not an option. Unfortunately, a 2009 hiatus on the RMD wound up causing quite a bit of confusion and some stiff penalties for those who are affected by it.
"Some of my clients who had arranged for the RMD to be automatically deposited into their checking accounts every December deactivated that service in 2009, when the withdrawal was not required," said Linda Seeger, EA, an enrolled agent with Seeger Tax Services, Inc. in Charlevoix, MI. "When 2010 rolled around, they didn't think to restart the withdrawals. I am writing letters to IRS concerning their situations and requesting relief from the penalty."
Enrolled agents report that this flip-flopping of the requirement has been particularly hard on clients who are elderly and do not have family members close by who help them maintain their finances. Some of these clients have no taxable income for the year and would not have had to file, yet now must pay an expensive penalty for something that was entirely unintentional and had no tax consequence.
But how muchmust the account holder withdraw when the time comes? The National Association of Enrolled Agents (NAEA) wants to remind taxpayers that calculating the correct amount of the RMD can be complicated. It involves dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in three separate tables. An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Many taxpayers choose to consult with a tax professional to help with calculating the proper IRA withdrawal amount.
About the National Association of Enrolled Agents (NAEA)
NAEA is the professional society that supports its members with resources, education and networking and by representing their interests to government, business and the general public. Find out more about NAEA and becoming an enrolled agent at www.naea.org.
You may like these other stories...
Business tax executives seem to agree with a majority of congressional lawmakers that tax reform is unlikely to happen this year.According to the 2014 Tax Policy Forecast Survey, which was released today by Washington, DC-...
By now, it’s pretty clear that it’s not about the money for former NFL players Hunter Hillenmeyer and Jeff Saturday.After tax authorities in Cleveland, Ohio, applied what the athletes said was unfair taxation...
Camp to Obama: Let’s talkHouse Ways and Means Committee Chairman Dave Camp (R-MI) said on March 6 there are some areas in his proposal to overhaul the tax code where he thinks he can work with President Obama, Bernie...
Upcoming CPE Webinars
BAR is an acronym for: Boundaries, Authority and Role. This simple tool will provide participants with a solid understanding of leadership essentials to improve their performance.
This material is designed to provide a start-to-finish overview of how to plan and complete high-quality small audits efficiently.
In this session Excel expert David H. Ringstrom, CPA shares numerous techniques that you can use to work with charts more efficiently.
Key Accounting and Reporting Issues for Nonprofits No. 1: Overview and Statement of Financial Position
This material focuses on non-profit organizations organization, accounting and reporting.