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IRA Year End Planning

November 12, 2013

Those over age 70 ½ have to take required minimum distributions by December 31st unless this is the year they reached age 70 ½ and then they have until April 1st of next year.  Generally, it is better to take the distribution this year otherwise, you’ll have to take two distributions next year.

This is just one of the IRA rules. There are many more and most not as simple as this.  Here are some year-end strategies that might benefit you:

  •  People are permitted to make a distribution and repay it within sixty days without tax or  penalty.  One strategy for those that underpaid their estimated taxes for 2013 is to take a distribution, have all or most of the money paid as withholding tax either to the IRS, your state, or both; and then repay      those funds within sixty days.  These withholding tax payments will be allocated by the taxing authorities as if they were made on time throughout the year and you’ll avoid penalty.


  • If your  plan is to make charitable bequests, you should consider leaving some of  your IRA or other retirement funds to the charities. This way, those funds would escape all income and estate taxes when eventually distributed.  IRA funds left to individuals are subject to required minimum distribution rules and will be subject to income tax when distributed; and they are also subject to estate tax depending upon the  size of the overall taxable estate.


  • If you are in a low tax bracket this year, you might want to consider rolling over your traditional IRA to a Roth IRA.  Once in the Roth IRA for five      years, any distributions will always be tax free and the required minimum distribution rules will not apply.  All earnings in the Roth IRA are also tax free.


  • If you have large balances in an IRA and an equally large business loss, you might want to consider taking a taxable distribution [that may or may not be transferred to a Roth IRA] that will be sheltered by the losses. If you do not, the business losses might not be fully absorbed by other income, and      will expire when you die, while IRA distributions will be taxed when made.


  • An estate tax planning strategy with a large IRA is to convert to a Roth IRA and pay the income taxes.  This will remove the income tax payments from your assets so your taxable estate would be that much lower.  Also, whatever would have been earned on those funds would also not end up in your estate and all future earnings on the Roth IRA would also never be subject to taxation.


  • If you are still working, you are not required to take minimum distributions from your employer’s 401k plan that you participate in.


  • If you have business income and are eligible to open a one-person 401k plan, it must be opened by December 31 but can be funded by the due date plus extensions of your tax return. If you want to shelter some of your income with a SEP/IRA, you can open and fund it anytime up until the due date including extensions of your 2013 tax return.  This might not work so well if you have eligible employees.  Check with a tax advisor to find out which will work best for you.


  • Now is a good time to review your beneficiary designations and update them if  necessary.  If you have grandchildren and named your children as      beneficiaries, make sure you add “per stirpes” after each child’s  name.  This way if a child predeceases you, their shares would go to their children and not their siblings.



2 Comments leave one →
  1. Robert Nagler permalink
    November 12, 2013 3:32 pm

    Hi Ed I think that you should consolidate all your 401K to an I.R.A. it would be much
    easy to control

  2. November 25, 2013 4:11 am

    Two things you also need to consider:
    1. When you take a distribution you need to designate whether or not you want taxes withheld. If you do not have taxes withheld, any balance due because of the distribution will be payable when you file your tax return and might be subjected to underestimated penalties.
    2. If you are a participant in a 401k plan and still working you must start taking required minimum distributions on the amount in the 401k plan if you are a more than 5-percent owner.

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