Planning to Deal Correctly With Required Minimum Distribution Requirements Can Save Taxes

Published:

imageby Melissa Merrick and Marie Jett, CPA | Team Members of the Tax Services Group

 

When it comes to taxes, reaching age 70 ½ is an important milestone. That’s because you have to start taking minimum annual distributions from most retirement plans when you reach age 70 ½. And if you’ve already retired from your company, at 70 ½ you must also begin making withdrawals from your company’s retirement plan. Not taking these distributions means you could get hit with a 50% penalty tax! 

Retirement plans do not allow taxpayers to keep funds in them indefinitely. Because of this, an annual calculation must be made once an individual reaches 70 ½, to determine the minimum amount that must be distributed from the plan. The minimum distribution rules however do not apply to Roth IRAs which do not require that the owner make distributions from it. These required minimum distribution rules do apply to:

•Traditional IRAs
•SEPs
•SARSEPs
•Simple IRAs
• Profit-Sharing Plans
•401(k) Plans
•403(b) Plans
•457(b) Plans  
The required minimum distribution (RMD) that must be taken on your retirement plan is typically calculated by the IRA custodian or retirement plan administrator; however, the ultimate responsibility for the calculation is on the owner of the retirement account. The amount of the distribution has many variables affecting it including the owner’s age, the plan beneficiary’s age, and the retirement account balance at December 31 of the preceding year.

When must these minimum distributions begin? If you reach age 70 ½ in 2011, you actually have until April 1, 2012 to take your first year’s distribution (i.e. the one for 2011). You’ll also have to take your second year’s annual minimum distribution by December 31, 2012. Thereafter, from the second year on, the distribution must be made annually by December 31.

When a taxpayer takes his/her first year’s required minimum distribution, can be an important tax planning tool.  In the first year that a distribution is required, if the taxpayer delays payment (as allowed) until April 1, he/she will as well have to take his/her second year’s distribution in the same year (i.e. by December 31). If this happens, the individual may wind up increasing income too much for that year, which could cause the taxpayer to be pushed into a higher tax bracket and be hit with a larger tax on social security benefits, and/or have larger cutbacks for deductions (such as medical expenses or other deductions that are based on adjusted-gross-income amounts). To prevent this from happening to you, it is important to do some tax planning-so please contact us.

Individuals have until December 31, 2011, to contribute up to $100,000 of a taxable IRA distributions from to a charitable organization and exclude such distributions from taxable income (but in that case, no charitable deduction is claimed). The benefit of doing this may be having smaller limitations which are calculated on AGI (adjusted gross income). Caution, in order to be an eligible distribution it must be made directly from the IRA to the charity and must be from an individual that is at least 70 ½. If you are considering making a charitable gift, you may want to consider transferring your IRA distribution directly to the charity and benefit from reduced taxable income. If you have any questions as to how required minimum distributions will affect you now or in the future, please contact a tax advisor at Greenwalt CPAs at 317-241-2999 so that we can set you up with the right IRA and retirement plan payout strategy for you and your family. 

Planning to Deal Correctly With Required Minimum Distribution Requirements Can Save Taxes
by Melissa Merrick and Marie Jett, CPA | Team Members of the Tax Services Group
Melissa Merrick: 317.260.4469 | mmerrick@greenwaltcpas.com
Marie Jett, CPA: 317.260.4472 | mjett@greenwaltcpas.com

When it comes to taxes, reaching age 70 ½ is an important milestone. That’s because you have to start taking minimum annual distributions from most retirement plans when you reach age 70 ½. And if you’ve already retired from your company, at 70 ½ you must also begin making withdrawals from your company’s retirement plan. Not taking these distributions means you could get hit with a 50% penalty tax! 

Retirement plans do not allow taxpayers to keep funds in them indefinitely. Because of this, an annual calculation must be made once an individual reaches 70 ½, to determine the minimum amount that must be distributed from the plan. The minimum distribution rules however do not apply to Roth IRAs which do not require that the owner make distributions from it. These required minimum distribution rules do apply to:

•Traditional IRAs
•SEPs
•SARSEPs
•Simple IRAs
• Profit-Sharing Plans
•401(k) Plans
•403(b) Plans
•457(b) Plans  
The required minimum distribution (RMD) that must be taken on your retirement plan is typically calculated by the IRA custodian or retirement plan administrator; however, the ultimate responsibility for the calculation is on the owner of the retirement account. The amount of the distribution has many variables affecting it including the owner’s age, the plan beneficiary’s age, and the retirement account balance at December 31 of the preceding year.

When must these minimum distributions begin? If you reach age 70 ½ in 2011, you actually have until April 1, 2012 to take your first year’s distribution (i.e. the one for 2011). You’ll also have to take your second year’s annual minimum distribution by December 31, 2012. Thereafter, from the second year on, the distribution must be made annually by December 31.

When a taxpayer takes his/her first year’s required minimum distribution, can be an important tax planning tool.  In the first year that a distribution is required, if the taxpayer delays payment (as allowed) until April 1, he/she will as well have to take his/her second year’s distribution in the same year (i.e. by December 31). If this happens, the individual may wind up increasing income too much for that year, which could cause the taxpayer to be pushed into a higher tax bracket and be hit with a larger tax on social security benefits, and/or have larger cutbacks for deductions (such as medical expenses or other deductions that are based on adjusted-gross-income amounts). To prevent this from happening to you, it is important to do some tax planning-so please contact us.

Individuals have until December 31, 2011, to contribute up to $100,000 of a taxable IRA distributions from to a charitable organization and exclude such distributions from taxable income (but in that case, no charitable deduction is claimed). The benefit of doing this may be having smaller limitations which are calculated on AGI (adjusted gross income). Caution, in order to be an eligible distribution it must be made directly from the IRA to the charity and must be from an individual that is at least 70 ½. If you are considering making a charitable gift, you may want to consider transferring your IRA distribution directly to the charity and benefit from reduced taxable income. If you have any questions as to how required minimum distributions will affect you now or in the future, please contact a tax advisor at Greenwalt CPAs at 317-241-2999 so that we can set you up with the right IRA and retirement plan payout strategy for you and your family. 

Planning to Deal Correctly With Required Minimum Distribution Requirements Can Save Taxes
by Melissa Merrick and Marie Jett, CPA | Team Members of the Tax Services Group
Melissa Merrick: 317.260.4469 | mmerrick@greenwaltcpas.com
Marie Jett, CPA: 317.260.4472 | mjett@greenwaltcpas.com

When it comes to taxes, reaching age 70 ½ is an important milestone. That’s because you have to start taking minimum annual distributions from most retirement plans when you reach age 70 ½. And if you’ve already retired from your company, at 70 ½ you must also begin making withdrawals from your company’s retirement plan. Not taking these distributions means you could get hit with a 50% penalty tax! 

Retirement plans do not allow taxpayers to keep funds in them indefinitely. Because of this, an annual calculation must be made once an individual reaches 70 ½, to determine the minimum amount that must be distributed from the plan. The minimum distribution rules however do not apply to Roth IRAs which do not require that the owner make distributions from it. These required minimum distribution rules do apply to:

•Traditional IRAs
•SEPs
•SARSEPs
•Simple IRAs
• Profit-Sharing Plans
•401(k) Plans
•403(b) Plans
•457(b) Plans  
The required minimum distribution (RMD) that must be taken on your retirement plan is typically calculated by the IRA custodian or retirement plan administrator; however, the ultimate responsibility for the calculation is on the owner of the retirement account. The amount of the distribution has many variables affecting it including the owner’s age, the plan beneficiary’s age, and the retirement account balance at December 31 of the preceding year.

When must these minimum distributions begin? If you reach age 70 ½ in 2011, you actually have until April 1, 2012 to take your first year’s distribution (i.e. the one for 2011). You’ll also have to take your second year’s annual minimum distribution by December 31, 2012. Thereafter, from the second year on, the distribution must be made annually by December 31.

When a taxpayer takes his/her first year’s required minimum distribution, can be an important tax planning tool.  In the first year that a distribution is required, if the taxpayer delays payment (as allowed) until April 1, he/she will as well have to take his/her second year’s distribution in the same year (i.e. by December 31). If this happens, the individual may wind up increasing income too much for that year, which could cause the taxpayer to be pushed into a higher tax bracket and be hit with a larger tax on social security benefits, and/or have larger cutbacks for deductions (such as medical expenses or other deductions that are based on adjusted-gross-income amounts). To prevent this from happening to you, it is important to do some tax planning-so please contact us.

Individuals have until December 31, 2011, to contribute up to $100,000 of a taxable IRA distributions from to a charitable organization and exclude such distributions from taxable income (but in that case, no charitable deduction is claimed). The benefit of doing this may be having smaller limitations which are calculated on AGI (adjusted gross income). Caution, in order to be an eligible distribution it must be made directly from the IRA to the charity and must be from an individual that is at least 70 ½. If you are considering making a charitable gift, you may want to consider transferring your IRA distribution directly to the charity and benefit from reduced taxable income. If you have any questions as to how required minimum distributions will affect you now or in the future, please contact a tax advisor at Greenwalt CPAs at 317-241-2999 so that we can set you up with the right IRA and retirement plan payout strategy for you and your family. 

Planning to Deal Correctly With Required Minimum Distribution Requirements Can Save Taxes
by Melissa Merrick and Marie Jett, CPA | Team Members of the Tax Services Group
Melissa Merrick: 317.260.4469 | mmerrick@greenwaltcpas.com
Marie Jett, CPA: 317.260.4472 | mjett@greenwaltcpas.com

When it comes to taxes, reaching age 70 ½ is an important milestone. That’s because you have to start taking minimum annual distributions from most retirement plans when you reach age 70 ½. And if you’ve already retired from your company, at 70 ½ you must also begin making withdrawals from your company’s retirement plan. Not taking these distributions means you could get hit with a 50% penalty tax! 

Retirement plans do not allow taxpayers to keep funds in them indefinitely. Because of this, an annual calculation must be made once an individual reaches 70 ½, to determine the minimum amount that must be distributed from the plan. The minimum distribution rules however do not apply to Roth IRAs which do not require that the owner make distributions from it. These required minimum distribution rules do apply to:

•Traditional IRAs
•SEPs
•SARSEPs
•Simple IRAs
• Profit-Sharing Plans
•401(k) Plans
•403(b) Plans
•457(b) Plans  
The required minimum distribution (RMD) that must be taken on your retirement plan is typically calculated by the IRA custodian or retirement plan administrator; however, the ultimate responsibility for the calculation is on the owner of the retirement account. The amount of the distribution has many variables affecting it including the owner’s age, the plan beneficiary’s age, and the retirement account balance at December 31 of the preceding year.

When must these minimum distributions begin? If you reach age 70 ½ in 2011, you actually have until April 1, 2012 to take your first year’s distribution (i.e. the one for 2011). You’ll also have to take your second year’s annual minimum distribution by December 31, 2012. Thereafter, from the second year on, the distribution must be made annually by December 31.

When a taxpayer takes his/her first year’s required minimum distribution, can be an important tax planning tool.  In the first year that a distribution is required, if the taxpayer delays payment (as allowed) until April 1, he/she will as well have to take his/her second year’s distribution in the same year (i.e. by December 31). If this happens, the individual may wind up increasing income too much for that year, which could cause the taxpayer to be pushed into a higher tax bracket and be hit with a larger tax on social security benefits, and/or have larger cutbacks for deductions (such as medical expenses or other deductions that are based on adjusted-gross-income amounts). To prevent this from happening to you, it is important to do some tax planning-so please contact us.

Individuals have until December 31, 2011, to contribute up to $100,000 of a taxable IRA distributions from to a charitable organization and exclude such distributions from taxable income (but in that case, no charitable deduction is claimed). The benefit of doing this may be having smaller limitations which are calculated on AGI (adjusted gross income). Caution, in order to be an eligible distribution it must be made directly from the IRA to the charity and must be from an individual that is at least 70 ½. If you are considering making a charitable gift, you may want to consider transferring your IRA distribution directly to the charity and benefit from reduced taxable income. If you have any questions as to how required minimum distributions will affect you now or in the future, please contact a tax advisor at Greenwalt CPAs at 317-241-2999 so that we can set you up with the right IRA and retirement plan payout strategy for you and your family.