The Slott Report | Ed Slott and Company, LLC

The Slott Report

The 20% Withholding Problem with Certain Rollovers From Company Retirement Plans

When you retire or switch jobs, you will be entitled to receive the funds from your company retirement plan. At that point you will be notified of your options on what to do with that money. The basic options you have are to receive the funds personally or do a direct rollover (sometimes called a direct transfer) of the funds to an IRA. If you want to do a rollover to your IRA, there are problems if you choose to have the money distributed to you personally. We detail these problems below.

An Unpleasant Experience with IRS

An advisor had a client who had missed part of her required minimum distribution (RMD). No big deal. This happens – frequently. To fix it, you take the RMD that was missed and you file IRS Form 5329 with the tax return. Form 5329 has you calculate the penalty – 50% of what was not taken. However, IRS can waive this penalty for good cause. The instructions for the form tell you how to do this, although they are a bit confusing. Then you attach a letter explaining what happened and requesting the waiver of the penalty. Apparently the tax preparer did not read the instructions and the penalty was included in the tax due on the client’s return. She did not pay the penalty portion of the tax due because she requested a waiver of the penalty. Now comes the fun part.

The 70 1/2 and Working RMD Rule: Does it Apply to Self-Employed Business Owners?

This week's Slott Report Mailbag includes two great questions, including one that piggybacks off an answer in last week's mailbag referencing RMDs (required minimum distributions) at age 70 1/2 and still working. Click to read this week's Q&A with our IRA Technical Expert.

Charitable IRA Rollovers for 2014? Planning with a Provision That Doesn't Exist

The provision for qualified charitable distributions (QCDs), which allows IRA and inherited IRA owners 70 1/2 or older to transfer portions of their accounts to qualifying charities tax-free. while satisfying all or a portion of their RMDs (required minimum distributions), expired at the end of 2013. Although widely expected to be reinstated by Congress at some point there is no guarantee that will actually happen. That’s especially true since this is an election year. Suppose, though, that you want to make a QCD now, while the provision doesn’t currently exist. What should you do?

Be Diligent When Your Employer Terminates Your Company's Retirement Plan

A recent IRS private letter ruling (PLR) showcased what can happen when a company retirement plan is terminated, and a common mistake that can occur when paying out those funds to employees or ex-employees. When a company retirement plan such as a 401(k) plan is terminated, the company has to go through a lot of formal steps to terminate it beyond simply deciding to discontinue the plan. These steps as well as what you can do to take action are detailed below.

You Don't Get a Do-Over If You Forget 60-Day Rollover Period

A taxpayer we will call "Andrea" received an IRA distribution on May 10, 2012. She used the distribution and failed to put the distribution back into her IRA within the 60-day limit.Andrea filed a PLR (Private Letter Ruling 201429033) asserting that her failure to accomplish a rollover within 60 days was due to the fact that she used the amount to pay for medical expenses stemming from car accidents which occurred prior to the distribution. She did not have the amount available to deposit into her IRA until several months after the 60-day IRA rollover period

How Do I Take RMDs If I'm Still Working at Age 70 1/2?

IRA questions ed slott
This week's Slott Report Mailbag looks at the delicate situation of moving retirement funds (either to another account or through distributions) when still employed. If you are nearing retirement and are looking long-term of your overall plan, these two questions could be applicable to your situation.

3 Things You Must Know About the Pro-Rata Rule

The pro-rata rule - another complicated intersection of moving IRA money. It's an important rule to know when thinking about distributing funds from your IRA, so we decided to break it down below into 3 things you need to know.

Investing in Coins Inside Your IRA

You are not allowed to invest your IRA money in collectibles such as artwork, rugs, stamps, gems, alcoholic beverages such as fine wine, and antiques. If you invest any part of your IRA in a collectible, you will get a tax bill for it. The Tax Code treats your investment in a collectible as a distribution, which means it’s taxable to you. Also, if you’re under age 59 ½ at the time of the investment, the deemed distribution will be subject to the 10% early distribution penalty tax too. The entire value of your IRA is not deemed distributed to you, only the amount invested in the collectible is taxable.

Inherited IRAs: When You DON'T Want That Check in the Mail

I talked to two different advisors this week who had almost the exact same story involving inherited IRAs.A client inherited a small IRA from a parent and the kind bank employee gave them a check. Wouldn’t this make most beneficiaries happy? Not necessarily. Click to find out why.

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