no slide title · january of 2018. it would show the contributions made during the 2017 calendar...

Rev 7/10/2019

without prior written permission from Collin W. Fritz & Associates, Ltd.

Reminder:

This is Copyrighted Material.

No Video or Audio Recording is permitted without prior written consent from Collin W. Fritz & Associates, Ltd.

Thank you for your Compliance.

The Audio Portion of this presentation is available either by phone or by using the speakers and microphone on your PC. The phone number is provided to you in the confirmation from CWF and again at the time you join the meeting. You will need the access code that was emailed to you in the confirmation from CWF. The confirmation code is 9 digits in length e.g. 123-456-789 You will also need the Audio Pin # which is shown to you at the time you join this meeting

If you have trouble re-connecting please call CWF at 800-346-3961

Required Minimum Distributions Overview- Required Minimum Distributions (RMDs)

Living Accountholders

Traditional: Required

Roth: Not required

Beneficiaries

Traditional: Required

Roth: Required

Missed RMD = 50% Tax

Excess Accumulation = Missed RMD

Overview – Traditional, SEP, & Simple IRA Accountholders

IRS and Congress did not want IRA tax benefits to be perpetual

However, beneficiaries are allowed to “stretch” distributions for many years. For

example, a beneficiary age 48 has a life expectancy of 36.0 years and may setup a

periodic distribution schedule for 36 years.

The primary purpose of a traditional IRA is to provide retirement funds for the

traditional IRA accountholder and then to accumulate funds for a beneficiary.

Therefore, the tax laws require an IRA accountholder to take a required minimum

distribution for the year he or she attains age 70½ and each subsequent year.

After the IRA accountholder dies, the beneficiary or beneficiaries will be required

to take required distributions. There are specific formulas for determining how

much (i.e. the minimum amount) must be withdrawn, and when. A recipient will

pay income tax with respect to these required distributions at his or her current

marginal tax rate.

Required Minimum Distributions

Overview – Traditional, SEP, & Simple IRA Accountholders and

Beneficiaries, including Roth IRA

• IRS and Congress did not want IRA tax benefits to be perpetual

• Chose to start RMDs for year the person attains age 70½.

• IRA was designed to be a retirement account

• Required distributions generate tax Revenues.

Determine if the IRA software/system makes the calculations correctly !

For living accountholders – Normally it does

For beneficiaries – Many times it does not

• Ultimate responsibility for taking the RMD is the IRA Accountholder

or the Beneficiary

• IRS will assess the 50% tax against the individual, not the IRA custodian

• IRS Administrative Approach

• Required RMD Notice

• Calculation of RMD or Upon Request

• Paying the RMD Amount

• Required Beginning Date (RBD)

April 1 of year after year attains age 70½

• 50% Tax Penalty

Distribution is taxed, plus 50% penalty on under-distributed amount 50% Tax is

an Annual Tax

• IRA Accountholder or beneficiary is ultimately responsible for the 50% tax

• Law unsettled if IRA custodian can be penalized for not following the IRA plan

agreement which requires required distributions

• Distributions may be taken anytime after January 1 of the year age 70½ is

attained

RMD Recommended Administration for Traditional IRAs

• Track the Age of the Accountholder – Birthdates

• Furnish Annual RMD Notice – Required

• Calculate RMD

• Document Distribution

• Comply with All Withholding Rules

• Follow-Up with Reminders – Recommended

• Alternative – Force the distribution

• Require Accountholders and inheriting beneficiaries to establish a periodic distribution

schedule

• Write IRA form so there is authority to payout the RMD

RMD Notice Requirement

• Living Accountholders – IRS Mandated

• Beneficiary(ies) – Not IRS Mandated

Strongly recommended – Reduce legal claims

An IRA custodian/trustee must furnish an annual RMD Notice

The final regulation and Notice 2002-27 give the IRA custodian/trustee two

alternatives. They must inform an IRA accountholder what his or her required

minimum distribution amount is for each year and the date by which such amount

must be distributed, or they must inform the IRA accountholder that he or she must

take an RMD with respect to a specific IRA plan agreement for a given year and the

date by which such amount must be distributed, offer to calculate the RMD amount

upon request, and then provide the RMD amount, if requested. Under either

alternative, the notice must inform the IRA owner that the information will be reported

to the IRS on Form 5498.

For whatever reason, the IRA custodian/trustee is not required to furnish an RMD

notice to an inheriting beneficiary. CWF strongly recommends that the IRA

custodian/trustee also furnish a notice to an inheriting beneficiary.

In the 2001 proposed regulation, the IRS would have required the IRA

custodian/trustee to inform the IRA accountholder that he or she could use the

alternative or aggregate method and take the RMD amount for his or her IRA from

another IRA. This requirement was removed from the final regulation. Although the

IRS does not require this notification, we would suggest that an IRA custodian/trustee

still furnish this notification.

Recommended

Administration

• Track the Age of

Accountholder

• Furnish Annual

RMD Notice –

Required

CWF Form # 62-1

Required

Distribution Notice

Recommended

Administration

Accountholder

• Furnish Annual

RMD Notice –

Required

CWF Form # 62-2

Required

Distribution Notice

Recommended

Administration

Accountholder

• Furnish Annual

RMD Notice –

Required

CWF Form # 62-3

Required

Distribution Notice

Third RMD Notice Method

The IRS has now created a third method of complying with the RMD rules

The IRA custodian may furnish an individual with a copy of the 2018 Form 5498 in

January of 2019. It would show the contributions made during the 2018 calendar

year. Box 11 would be checked if the individual would be attaining age 70½ or older

in 2019. The IRA custodian would need to furnish IRA accountholder a “corrected

2018 Form 5498” if the IRA accountholder made a carryback contribution for 2018

during January 1 to April 15, 2019. The IRA custodian would also complete Box 12A

indicating the individual’s RMD date. This will either be December 31, 2019, or April

1, 2020. The custodian would also complete Box 12b indicating the RMD amount.

2018 IRS Form 5498 Box 11 - Indicate RMD for 2019

2018 IRS Form 5498 An optional alternative. Box 12a - RMD date May indicate due date of RMD for 2019

Box 12a - RMD date

Box 12b - RMD amount

Boxes 12a and 12b May be used with Box 11 for RMD Notices

Roth IRA Accountholder RMD Calculation / Notice

• There are no required minimum distributions for Roth IRA

accountholders, so no reason to prepare the RMD notice.

RMD must be taken for the year an individual attains age 70½

• Deadline – April 1 of the following year. This is called the Required Beginning

Date (RBD)

• Deadline for second RMD year and later years. December 31 of each

subsequent year.

Example: Jane was born March 15, 1949. She attains age 70½

on September 15, 2019. She must take an RMD for 2019.

Her 2019 deadline is 4-1-2020

Calculation Formula

RMD = Prior Year’s 12/31 FMV Divided by

Life Expectancy Factor (Uniform Lifetime Table)

These are actually two formulas used to calculate the RMD amount. The appropriate

formula is to be used.

Formula # 1 December 31 FMV = Required Minimum Distribution

Period from Uniform

Lifetime Table

Formula # 2 December 31 FMV = Required Minimum Distribution

Period from Joint

Life Table

IRS allows the IRA custodian to use Formula # 1 for purposes of preparing

and furnishing the RMD notice.

Uniform Lifetime

Joint Table – IRS created

Assumed Beneficiary

10 years younger

Note Distribution percentage Note impact of Interest Rate

Traditional, SEP, & Simple IRA Accountholder RMD Calculation

Calculation Formula

RMD = Prior Year’s 12/31 FMV Divided by

Life Expectancy Factor (Uniform Lifetime Table)

• Previous Year-End Fair Market Value

2018 RMD uses December 31, 2017 FMV

• What if person attains age 70½ in 2019 and he or she contributes $6,500

on March 15, 2019 for 2018 ?

Two Situations Require Adjustments to Prior Year’s FMV

1. Outstanding Rollovers and/or Transfers

2. Recharacterizations of a Conversion Contribution made in prior year

No longer possible for 2018 conversions

No other adjustments

1. Carryback annual contributions

2. Carryback SEP contributions

Why no other adjustments ?

Example – Adjusting for outstanding Rollover

Jane Doe has an IRA balance as of November 30, 2019 of $50,000. She has already

taken her RMD for 2019. She is age 75 in 2019. On December 20, 2019 she

withdraws $20,000. Her IRA balance as of December 21, 2019 is $30,000. Her

RMD for 2020 is calculated to be $30,000 / 22.0 = $1,363.64. On February 3, 2019,

she makes a rollover contribution of $20,000 to her same IRA.

Her 2020 RMD calculation must be re-done.

$50,000 / 22.0 = $2,272.73

Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation

• Uniform Lifetime Table

• Attained Age

• Previous Year-End Fair Market Value

• Year-End Balance Adjustments

Outstanding Rollovers

2019 2020

70½ year

1/1/2019 12/31/2019 12/31/2020

12/20/2019 1/15/2020 Rollover Distribution

• Uniform Lifetime Table

• Attained Age is used

Example: IRA Accountholder was born on June 30, 1943. He attained the

following ages in the respective years. The following factors are used in

the RMD calculations

Year Age Factor

2018 70 27.4

2019 71 26.5

2020 72 25.6

2021 73 24.7

2022 74 23.8

Example # 1: IRA Accountholder DOB is 6-30-1948, Attains age 70 on 6-30-18

Attained Age 70½ on 12-30-2018 (Also Age 70)

Distribution Period = 27.4 (Age 70)

12-31-2010 FMV = $27,400

2018 RMD 70 = $27,400 27.4 = $1,000

2019 RMD 71 = ??? 26.5

2020 RMD 72 = ??? 25.6

Uniform Lifetime Table

Joint Life Table To Be Used

If spouse is More Than 10 Years Younger

• Actually – 11 or more years younger

• Spouse must be sole beneficiary

Calculation Formula Is the Same, but different table used

RMD = Prior Year’s FMV / Life Expectancy Factor

(Joint Life Table)

Exception - Joint and Last Survivor Life Expectancy Table

Example: IRA Accountholder DOB 5-15-1938 (80 in 2018)

Sole primary spouse beneficiary DOB 12-31-1961. (57 in 2018)

Use factor from the Joint & Last Survivor Table

2018 Life Expectancy Factor = 28.4 (80 & 57)

• Joint and Last Survivor Life Expectancy Table – Adjustments

• Death of Spouse Beneficiary - no change in year of death

• Divorce - no change in year of death

• Changing/Adding Beneficiary(ies) - Use Uniform Lifetime in year of

change RMD amount will change

for the current year

• Qualified Trust as the IRA Beneficiary

General Rule – Use the Uniform Lifetime Table

Rare Exception - If the accountholder’s spouse is the sole beneficiary

of the trust (and the trustee) and is 11 or more years

younger, then may use the Joint Life Expectancy Table.

Periodic Distribution Instruction vs. Non-periodic Instruction

• Periodic – Strongly recommended, if not mandatory

• Non-periodic – old informal approach – IRA Accountholder comes in and

withdraws his or her RMD

• Periodic Distribution Schedule

• Document carefully

CWF Form # 64

Periodic Payment

Instruction for

Accountholders

70½ and Older

• Always allowed to take more than the RMD

• Normal Distribution Documentation

• Normal Distribution Reporting

• IRS Code 7 on Form 1099-R – no code for 70½ and older

• Regular Federal Withholding Election Rules Apply

• Federal Withholding Notice Rules Apply

• State Withholding Rules Apply

RMD Recommended

Administration

Document Distribution

CWF Form # 57

IRA Distribution Form

• Periodic Distribution Schedule

Document carefully

Be sure to comply with all withholding procedures

Required Minimum Distributions Withholding Reminder

Notice Rules

• 4 or more

distributions

per year

• Less than 4

distributions

per year

Reasonable notice ,

but no more than

6 months in advance

• Alternative Method - Multiple Like-Kind Traditional IRAs

IRA # 1 IRA # 2 IRA # 3 IRA # 4 Total

RMD $1,000 $1,200 $1,300 $1,400 $4,900

Examples of “Like-Kind” IRAs:

• Traditional IRAs of a person who holds them as an accountholder. This

includes SEP-IRAs and SIMPLE-IRAs;

• Traditional IRAs of a person who holds them as a beneficiary, as long as

related to the same deceased IRA Accountholder (i.e. an inherited IRA);

• Roth IRAs of a person who holds them as a beneficiary of the same

deceased Roth IRA accountholder (i.e. an inherited Roth IRA).

• Distribution from an IRA that is not of the same type may not be used to

satisfy the RMD requirement of another type of IRA.

Could take $4900 from any one IRA or any combination or IRAs.

Written Instruction.

CWF Form # 312

Election to Use the

Alternative Method for

Required Minimum IRA

Distributions

• RMDs and Rollovers

RMDs can never be rolled over

True for accountholder and/or beneficiary

• RMDs and Transfers

• RMDs may be transferred – no tax requirement that RMD must be

distributed before transfer occurs.

• Note incoming and outgoing RMDs

• Note the amount of outgoing transfer

• Request clarification for incoming transfer

• Set up reminder for any RMD received

• RMDs and Rollovers

• RMDs can never be rolled over

• Any RMD rolled over is reported as a Regular Contribution

• Form 5498 must be corrected to show correct amounts

Any excess contribution must be corrected in usual manner

• RMDs and Transfers

RMDs can be transferred

Qualified Charitable Distributions

• Now Permanent

• IRA Owner must be 70½ or older

• Distribution must be from a traditional IRA or Roth IRA

• Distribution allowed from inherited IRAs

• Distribution must be to eligible charity

• Checks/Drafts/Wires must be made payable to the charitable organization

• Individual can deliver/mail personally

• $100,000 limit per year

• Must be from IRA Accountholder’s own IRAs

• Cannot be from active SEP or SIMPLE IRA

• Counts toward RMD

• Inheriting Beneficiary must be 70½

• Counts toward RMD

• Distribution must be to eligible charity

• Checks/Drafts/Wires must be made payable to the charitable

organization

• Special Tax calculation rules

• Traditional IRA not Prorated

• Roth IRA Not in Distribution “Order”

• Recommended Administration

• IRA Owner Responsibility

• Document distribution carefully

Certification for

Tax-Free

Distribution from

Traditional/Roth IRA

CWF Form $ 57-C

Certification for Tax-Free

Charitable Distribution

• Recommended Administration

• IRA Owner Responsibility

• Document distribution carefully

• No Special custodian/trustee reporting

• IRS Code 7 – Traditional IRA

• IRS Code Q or T – Roth IRA

• IRS Code 4-Inherited Traditional IRA

• IRS Code Q or T-Inherited Roth IRA

• IRA Owner is allowed to deliver check/draft

• Maximum $100,000 per year, per person

• IRA Owner report on Form 1040

Line 15a and 15b

“QCD” in margin

0 QCD 10,000

18 For the Year Jan. 1 – Dec 31, 2013, or other tax year beginning .2013 .20

without prior written permission from Collin W. Fritz & Associates, Ltd.

If you have any questions regarding the subject covered in this Webinar please feel free to

call us at: 800.346.3961

or send an e-mail to: info@pension-specialists.com

or visit us on the Internet at: www.pension-specialists.com

no slide title · january of 2018. it would show the contributions made during the 2017 calendar...

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