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IRA Year-End Planning

November 20, 2014

Those over age of 70½ have to take required minimum distributions (RMD) by December 31st unless this is the year they reach age 70½.  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.  Also, some states have annual exclusions that will be lost if the first available year is skipped.

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

  • If you have multiple accounts, distributions do not need to be made from each account.  You can total all your account balances (using last year’s Dec 31 balances) and take the distribution from any account you want.  Just make sure you notify the custodians that you will satisfy your RMD from other accounts.
  • To calculate your RMD you can go on line and search for RMD calculators, go to and download publication 590 and use Table III in Appendix C, or email me and I’ll send you the current IRS table.
  • When you take a distribution, you must designate whether or not you want tax withheld.  If you do not have tax withheld, any balance due because of the distribution will be payable when you file your tax return and might be subjected to underestimated penalties.
  • 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 2014 is to take a distribution, have all or most of the money paid as withholding tax either to the IRS and/or your state; and then repay those funds from other sources 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 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 RMD rules will not apply.  All earnings in the Roth IRA will be income 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 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 to the recipients when made.
  • If you are still working and are not a more than 5-percent owner, you are not required to take RMD from your employer’s 401k plan that you participate in.

Year-end planning with IRAs and retirement accounts is important and can indicate opportunities to save substantial tax.  Do it now!

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