Re­tire­ment ac­count steps to end the year

Daily Press (Sunday) - - Success -

Take your RMD, max­i­mize

your IRA, 401(k)

The end of the year is the time to tie up your fi­nan­cial loose ends.

I’ll con­cen­trate on re­tire­ment ac­counts. IRA spe­cial­ist Ed Slott has iden­ti­fied three steps that in­vestors should take be­fore

Jan. 1 to take ad­van­tage of ex­ist­ing reg­u­la­tions to avoid penal­ties and to max­i­mize in­come.

Be sure to take your re­quired min­i­mum dis­tri­bu­tion be­fore year’s end.

RMDs are re­quired at age 70 1/2 for own­ers of a tra­di­tional IRA, SEP IRA, SIM­PLE IRA, 401(k), 403(b) or 457(b) ac­counts. If you don’t take the RMD, the IRS can pe­nal­ize you 50 per­cent of the amount that you didn’t take out. So if you were re­quired to take out $5,000 and you took out only $2,000, you could face a penalty of $1,500.

If you are not sure how much you are re­quired to take out, ask the plan ad­min­is­tra­tor what is the re­quired 2018 RMD. Your trustee can also tell you the amount you have al­ready with­drawn.

If you have more than one IRA with dif­fer­ent com­pa­nies, you have to de­ter- mine the to­tal RMD, which is the sum of all RMDs from sep­a­rate IRA ac­counts.

You can make a with­drawal from one IRA ac­count to sat­isfy all your RMD re­quire­ments. For ex­am­ple, as­sum­ing that your RMD from one IRA with one trustee is $3,000, and your RMD from an­other IRA with a dif­fer­ent trustee is $2,000, you would sat­isfy your IRS re­quire­ment if you with­drew $5,000 from one of your IRAs.

You can com­pute the RMD your­self. De­ter­mine the to­tal bal­ance of all your IRAs as of De­cem­ber 2017. Di­vide this amount by the dis­tri­bu­tion from the IRS Uni­form Life­time Table spec­i­fied in IRS reg­u­la­tion 590-B.

There is one ex­cep­tion. If your only ben­e­fi­ciary is more than 10 years younger than you, then you should use a dif­fer­ent table as spec­i­fied in IRS 590-B. If you have any ques­tions re­gard­ing RMDs, re­fer to 590-B.

If you plan on do­ing a Roth IRA con­ver­sion for 2018, you must do so by the year’s end.

Un­der cur­rent reg­u­la­tions, you are al­lowed to ex­e­cute a Roth con­ver­sion re­gard­less of how high your in­come is. You can con­vert from a tra­di­tional, SEP or SIM­PLE IRA, or you can con­vert from a qual­i­fied re­tire­ment plan to a Roth IRA.

The pri­mary ad­van­tage of do­ing a con­ver­sion is that af­ter do­ing so, any in­ter­est, div­i­dends or cap­i­tal gains are tax-free.

How­ever, the dis­ad­van­tage is that what­ever amount you con­vert, as­sum­ing it has not been taxed yet, is tax­able in the year of the con­ver­sion. Con­vert­ing in a year when your tax­able in­come is low is prefer­able.

There are three ways to con­vert: If you re­ceive a dis­tri­bu­tion from tra­di­tional IRA, you can roll it over to a Roth within 60 days of the dis­tri­bu­tion. You can also do a trustee-to-trustee rollover from the trustee of the tra­di­tional IRA to the trustee of the Roth IRA.

If the trustee of the tra­di­tional IRA and the trustee of the Roth IRA are the same, you can also do a trustee to trustee rollover. IRS pub­li­ca­tion 590-A ex­plains all your op­tions.

Give to char­ity us­ing qual­i­fied char­i­ta­ble dis­tri­bu­tions.

Be­cause of the dou­bling of the amount of the stan­dard de­duc­tion in the re­cent tax leg­is­la­tion, many in­di­vid­u­als who item­ized in prior years will no longer item­ize for 2018.

If you are 70 1/2 and sub­ject to the RMD, and you plan to make qual­i­fied char­i­ta­ble con­tri­bu­tions in 2018, then you should have your IRA cus­to­dian make a di­rect trans­fer of funds from your IRA to a qual­i­fied char­ity prior to Dec. 31, 2018.

Any con­tri­bu­tion up to $100,000 will re­sult in a tax sav­ing to you be­cause the con­tri­bu­tion will count as part or all of the RMD. For ex­am­ple, if your mar­ginal tax bracket is 28 per­cent, if you con­trib­ute $1,000 di­rectly to a char­ity from your IRA, your taxes will be re­duced by $280.

This al­ter­na­tive pro­duces tax sav­ings to you only if you don’t item­ize.

El­liot Raphael­son wel­comes your ques­tions and com­ments at raphel­[email protected] .com.


El­liot Raphael­son

The Sav­ings Game

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