IRA Rules

Archive for April, 2009

Question: Can multiple beneficiary’s avoid paying income tax when inheriting a traditional IRA from a relative?

By this I mean can they take distributions over a period of years to lower the tax bite. In this case there are five beneficiaries with the following percentages. 34%- 33%- 11%- 11%- and 11%. I know your spouse can do this but don’t know about this situation with two children and three grandchildren. I am hoping they can take minimum distributions over their lifetime.

Answer: The best information you can get on this is from the bank where the IRA was set up. The reason I say that is because there are certain little “quirks” from bank to bank, and they all have a lot of lattitude in how they handle beneficiary distributions.

In my own case, my brother and I can do either lump sum or take distributions, and there is some break on the taxes, too. I just don’t remember what it is, at the moment.

The concept of life expectancy is very important for the calculation of Required Minimum Requirements or RMD. RMD and life expectancy are discussed in this section of the IRA Rules website. 

Important RMD Considerations

It is important that IRA owners comply with IRA rules, IRA distribution rules, and IRA rules regarding required minimum distribution (RMD). Failure to take theRequired Minimum Distribution (RMD) may subject the IRA owner to an excise penalty tax of 50% of the amount that should have been distributed. Some important facts of IRA Rules regarding Required Minimum Distributions (RMD) are laid out below. 

• Required Minimum distributions (RMDs) are merely annual minimums. IRA distribution rules allow greater distribution amounts to be taken each year.

Ira Rules on How to Determine the Life Expectancy Factor (for IRA owners)

Under Ira Rules, there are now only two calculation choices for Life expectancy: 

1) Uniform Life Expectancy:

When the IRA owner is alive, the life expectancy factor used to calculate Required Minimum Distribution (RMD) will be obtained from the Uniform Table, under Ira Rules. The IRA owner will refer back to the Uniform Table each Distribution Calendar Year (DCY) and use the factor that appears next to the IRA owner’s age on his or her birthday during that year. The Uniform Table will generally result in a smaller annual RMD amount for most IRA owners andstretch-out the IRA for a greater number of years than would have been the case under the old RMD rules. 

OR 

2) Joint Life Expectancy, Recalculating Both Life Expectancy:

Under the new RMD rules, all IRA owners must use the Uniform Table except for an IRA owner whose spouse is the sole primary beneficiary for the entire Distribution Calendar Year (DCY) and the spouse is more than 10 years younger than the IRA owner. This group of IRA owners may use the Joint Life Expectancy Tables. For this table, the ages of the IRA owner and the spouse as of December 31st of each Distribution Calendar Year (DCY) are used to find that year’s life expectancy factor.

Question: Can I have both a 403b and a Roth IRA?

I have a TSA (tax-sheltered annuity) through Fidelity (signed up for this through my job)…I was told that “TSA” is basically just another term for a 403b. I want to open up a Roth IRA also…can I do this even though I have the TSA? Are there rules/laws regarding this?

Answer: Yes; assuming you are eligible to contribute to the Roth. Annual IRA contribution limits are separate from other qualified plans.

Roth IRA CONVERSIONS