What to do if you miss taking an RMD

People don’t often think of the IRS as their friend. But there is at least one taxpayer-friendly thing the IRS is known for: its process for people who miss taking their required minimum distributions, or RMDs, from a retirement account. If you don’t go about it the right way, though, it can cost you 50% of the missed amount plus interest as penalty. If you follow the steps below, you can possibly get the penalty waived. The IRS has a guidance that states that the penalty may be waived if the RMD was missed because of “reasonable circumstances.” It doesn’t specify what qualifies as reasonable circumstances, but if this is your first time missing an RMD (even one that covers multiple years) and it was an honest mistake, the chances are good that the IRS will grant a waiver if you correct it right away. Here’s how to ask for relief from the penalty for missing RMDs. The first step is to withdraw the missed amount. The IRS won’t even consider granting relief from the penalty until you’ve taken care of that. Then, you need to report the mistake to the IRS. You do not have to amend previous income

February 8, 2019 No Comments

Three RMD to-do’s before the end of the year

The end of the year is full of deadlines for your financial matters. Here are three of the most important to-do items when it comes to taking your required minimum distribution (RMD) from a retirement account. If you’re at least 70 years old and have a retirement account, you should read over this list and make sure you’ve met RMD requirements to avoid a tax penalty. 1. Make sure that 2018 required minimum distributions (RMDs) for all IRA account owners who reached age 70½ prior to 2018 are paid out. IRA owners generally use the IRS’s Uniform Lifetime Table to find the life expectancy factor to calculate their required minimum distributions. There is an exception for people whose spouses are more than 10 years younger and were their sole primary beneficiary for the entire year. Those individuals will use the Joint Life Expectancy Table. There is a 50% penalty that applies when RMDs are missed, so be sure you don’t miss this deadline. 2. Verify that all 2018 minimum distributions for deceased IRA owners, if not taken by the IRA owner when alive, are paid out to the beneficiaries by year end. The year-of-death RMD is calculated as though the account owner lived for the entire year. It is often overlooked, particularly when IRA

December 7, 2018 No Comments

Five facts about Roth IRAs

By Ehab Alalfey Azzad Investment Advisor Fresh off a trip to an IRA conference organized by consumer advocate and IRA expert Ed Slott, Azzad’s Ehab Alalfey shares with you five facts about Roth IRAs that you may not know. Do you have a Roth IRA? Do you know how it’s different from a traditional IRA? There’s much to learn about Roth IRAs, but we’ve got you covered at Azzad. We make it a point to stay on top of trends and changes in the industry. Here are five facts about Roths you might not know: You can withdraw your contributions any time–tax and penalty free. This is true regardless of your age and what you intend to do with the money. This only applies to the money you contributed to the account but not to the investment earnings, which causes confusion for many people. So don’t let not knowing if you might need the money later stop you from making a contribution. You can always withdraw it later, no strings attached. You are never too old to contribute. Unlike traditional IRAs, which don’t allow contributions after the year you turn 70.5, Roth IRAs allow you to make tax year contributions regardless

April 10, 2018 No Comments

Three strategies to reduce your RMDs

Nothing lasts forever, not even the tax deferral on your IRA. When you turn 70½, the government will require that you withdraw money from your IRA; those withdrawals are known as required minimum distributions, or RMDs. But what if you don’t need the money? What if you want to avoid a tax hit? Here are three strategies to help reduce your RMDs. Be charitable. If you’re 70½ and planning on giving money to charity anyway, consider making a qualified charitable distribution (QCD) from your IRA. You can transfer up to $100,000 annually from your IRA to a charity free to tax. The QCD will satisfy your RMD without increasing your taxable income. Be careful though — make sure your QCD is done properly. Go Roth. If reducing RMDs is a top concern for you, you may want to consider converting some or all of your IRA into a Roth. This is because you aren’t required to take RMDs from your Roth IRA during your lifetime. While you will pay taxes on your conversion, you can exchange the one-time tax hit for a lifetime of never having to worry about RMDs and their tax consequences. Note: your beneficiaries will need to

September 7, 2017 No Comments

Top 5 Required Minimum Distribution Questions

1) What are required minimum distributions (RMDs)? Required minimum distributions, often referred to as RMDs, are amounts that the government requires you to withdraw annually from IRAs and employer-sponsored retirement plans after you reach age 70½. You can always withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you will be subject to a federal penalty. The RMD rules are designed to spread out the distribution of your entire interest in a retirement account over your lifetime. The purpose of the RMD rules is to ensure that people don’t just accumulate retirement accounts, defer taxation, and leave these funds as an inheritance. Instead, required minimum distributions generally have the effect of producing taxable income during your lifetime. 2) Which retirement savings vehicles are subject to the RMD rules? In addition to traditional IRAs, simplified employee pension (SEP) IRAs and SIMPLE IRAs are subject to the RMD rules. Roth IRAs, however, are not subject to these rules. If you own more than 5% of the company sponsoring a retirement plan, you must also take a minimum distribution from your plan. However, if you’re an employee of that

March 1, 2017 No Comments