no slide title · january of 2018. it would show the contributions made during the 2017 calendar...
TRANSCRIPT
Rev 7/10/2019
Copyright 2019 © Collin W. Fritz & Associates, Ltd. “The Pension Specialists” All rights reserved. No part of this presentation may be reproduced in any form and by any means
without prior written permission from Collin W. Fritz & Associates, Ltd.
2
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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
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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much (i.e. the minimum amount) must be withdrawn, and when.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
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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.
Required Minimum Distributions
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Determine if the IRA software/system makes the calculations correctly !
For living accountholders – Normally it does
For beneficiaries – Many times it does not
Required Minimum Distributions
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Overview – Traditional, SEP, & Simple IRA Accountholders
• 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 Minimum Distributions
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• 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
Required Minimum Distributions
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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
Required Minimum Distributions
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RMD Notice Requirement
• Living Accountholders – IRS Mandated
• Beneficiary(ies) – Not IRS Mandated
Strongly recommended – Reduce legal claims
Required Minimum Distributions
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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.
Required Minimum Distributions
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An IRA custodian/trustee must furnish an annual RMD Notice
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.
Required Minimum Distributions
Required Minimum Distributions
RMD
Recommended
Administration
• Track the Age of
Accountholder
• Furnish Annual
RMD Notice –
Required
CWF Form # 62-1
Required
Distribution Notice
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Required Minimum Distributions
RMD
Recommended
Administration
• Track the Age of
Accountholder
• Furnish Annual
RMD Notice –
Required
CWF Form # 62-2
Required
Distribution Notice
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Required Minimum Distributions
RMD
Recommended
Administration
• Track the Age of
Accountholder
• Furnish Annual
RMD Notice –
Required
CWF Form # 62-3
Required
Distribution Notice
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An IRA custodian/trustee must furnish an annual RMD 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.
Required Minimum Distributions
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2018 IRS Form 5498 Box 11 - Indicate RMD for 2019
X
Required Minimum Distributions
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2018 IRS Form 5498 An optional alternative. Box 12a - RMD date May indicate due date of RMD for 2019
Required Minimum Distributions
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Box 12a - RMD date
Box 12b - RMD amount
Boxes 12a and 12b May be used with Box 11 for RMD Notices
Required Minimum Distributions
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Roth IRA Accountholder RMD Calculation / Notice
• There are no required minimum distributions for Roth IRA
accountholders, so no reason to prepare the RMD notice.
Required Minimum Distributions
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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.
Required Minimum Distributions
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
Her 2020 deadline is 12-31-2020
Her 2021 deadline is 12-31-2021
Overview – Traditional, SEP, & Simple IRA Accountholders
Calculation Formula
RMD = Prior Year’s 12/31 FMV Divided by
Life Expectancy Factor (Uniform Lifetime Table)
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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.
Required Minimum Distributions
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Uniform Lifetime
Table
Joint Table – IRS created
Assumed Beneficiary
10 years younger
Required Minimum Distributions
Note Distribution percentage Note impact of Interest Rate
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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
2019 RMD uses December 31, 2018 FMV
2020 RMD uses December 31, 2019 FMV
2021 RMD uses December 31, 2020 FMV
• What if person attains age 70½ in 2019 and he or she contributes $6,500
on March 15, 2019 for 2018 ?
Required Minimum Distributions
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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 ?
Required Minimum Distributions
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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
Required Minimum Distributions
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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
Required Minimum Distributions
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Traditional, SEP, & Simple IRA Accountholder RMD Calculation
• 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
Required Minimum Distributions
Year Age Factor
2018 70 27.4
2019 71 26.5
2020 72 25.6
2021 73 24.7
2022 74 23.8
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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
Required Minimum Distributions
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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
Required Minimum Distributions
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
Calculation Formula Is the Same, but different table used
RMD = Prior Year’s FMV / Life Expectancy Factor
(Joint Life Table)
Required Minimum Distributions
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Exception - Joint and Last Survivor Life Expectancy Table
33.2
35.1
34.2
Required Minimum Distributions
32.3
31.4
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
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)
2019 Life Expectancy Factor = 27.5 (81 & 58)
2020 Life Expectancy Factor = 26.6 (82 & 59)
2021 Life Expectancy Factor = 25.7 (83 & 60)
2022 Life Expectancy Factor = 24.8 (84 & 61)
2023 Life Expectancy Factor = 23.9 (85 & 62)
Required Minimum Distributions
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
• 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
Required Minimum Distributions
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
• 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.
Required Minimum Distributions
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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
Required Minimum Distributions
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
• Periodic Distribution Schedule
• Document carefully
Required Minimum Distributions
Required Minimum Distributions
CWF Form # 64
Periodic Payment
Instruction for
Accountholders
70½ and Older
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
• Always allowed to take more than the RMD
Required Minimum Distributions
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
• 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
Required Minimum Distributions
Required Minimum Distributions
RMD Recommended
Administration
Document Distribution
CWF Form # 57
IRA Distribution Form
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
• Periodic Distribution Schedule
Document carefully
Be sure to comply with all withholding procedures
Required Minimum Distributions
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
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Traditional, SEP, & Simple IRA Accountholder RMD Calculation
• 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);
and
• 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.
Required Minimum Distributions
Required Minimum Distributions
CWF Form # 312
Election to Use the
Alternative Method for
Required Minimum IRA
Distributions
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Traditional, SEP, & Simple IRA Accountholder RMD Calculation
• RMDs and Rollovers
RMDs can never be rolled over
True for accountholder and/or beneficiary
Required Minimum Distributions
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Traditional, SEP, & SIMPLE IRA Accountholder RMD Calculation
• 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
Required Minimum Distributions
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Traditional, SEP, & Simple IRA Accountholder RMD Calculation
• 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
Required Minimum Distributions
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Traditional, SEP, & Simple IRA Accountholder RMD Calculation
• RMDs and Transfers
RMDs can be transferred
Required Minimum Distributions
Qualified Charitable Distributions
Required Minimum Distributions
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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
Required Minimum Distributions
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Qualified Charitable Distributions
• IRA Owner must be 70½ or older
• Distribution must be from a traditional IRA or Roth IRA
• Cannot be from active SEP or SIMPLE IRA
• Counts toward RMD
• Distribution allowed from inherited IRAs
• Inheriting Beneficiary must be 70½
• Counts toward RMD
Required Minimum Distributions
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Qualified Charitable Distributions
• 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
• Special Tax calculation rules
• Traditional IRA not Prorated
• Roth IRA Not in Distribution “Order”
Required Minimum Distributions
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Qualified Charitable Distributions
• Recommended Administration
• IRA Owner Responsibility
• Document distribution carefully
Required Minimum Distributions
Required Minimum Distributions
Certification for
Tax-Free
Distribution from
Traditional/Roth IRA
CWF Form $ 57-C
Certification for Tax-Free
Charitable Distribution
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Qualified Charitable Distributions
• 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
Required Minimum Distributions
0 QCD 10,000
Required Minimum Distributions
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18 For the Year Jan. 1 – Dec 31, 2013, or other tax year beginning .2013 .20
Copyright 2019 © Collin W. Fritz & Associates, Ltd. “The Pension Specialists” All rights reserved. No part of this presentation may be reproduced in any form and by any means
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: [email protected]
or visit us on the Internet at: www.pension-specialists.com