Required Minimum Distributions from IRAs

Below are some of the standard questions I’m asked about IRA distributions.

    1. When must I begin taking distributions from my IRA? By April 1 of the year following the year in which you turn 70.5.

    2. Should I wait until then, or should I take out money earlier? It depends upon your facts and circumstances. However, delaying until April 1 following the year in which you turn 70.5 results in having to take out 2 years of required minimum distributions in the year you turn 71.5.

    3. What is the penalty if I don’t take out enough money? 50 percent of the shortage.

    4. Is there a limit on how much I can take out of my IRA? No.

    5. If I have more than one IRA, can I take all of my required distribution from one account? Yes.

    6. How is my required minimum distribution calculated? Your 12/31 IRA(s) balance is multiplied by your life expectancy (and in some circumstances the joint life expectancy of you and your spouse if he/she is 10 years younger) as determined by IRS tables.

    7. Who can I name as my beneficiary? Anyone you’d like, including a charity, a pet or even the IRS!

    8. What is an inherited IRA? This is an IRA that is established by a beneficiary of your IRA.

    9. What is an inherited IRA trust? This trust is designed to prevent beneficiaries from depleting IRA assets more quickly than you would like.

    10. Must owners of an inherited IRA or the trustee of an inherited IRA trust take minimum required distributions from the IRA? Yes. The amount is based upon life-expectancy tables based upon the beneficiary’s age.

    11. Why am I required to take money out of an IRA when I don’t need the money? The IRS wants to collect tax dollars on the funds you contributed on a tax-deductible basis as well as the earnings.

    12. What if I made non-deductible contributions to my IRA? A portion of the distribution will be nontaxable if you filed IRS Form 8606 each year you made a nondeductible contribution.

    13. Can I contribute to my IRA after I am 70.5? No. However, you can contribute to a Roth IRA if you have compensation and satisfy the eligibility requirements.

Ring in the Old

This is an excerpt from an article in Barron’s, October 6, 2014, by Thomas Dolan.

Happy New Year? Cries of joy and good cheer did not ring out Wednesday, when the U.S. government closed out fiscal 2014 and opened the books on fiscal 2015. There was little to celebrate, except that it’s over.

If you wonder why the U.S. government cannot control its finances, you can use the Brookings Institution’s new Fiscal Barometer, a product of its Hutchins Center on Fiscal and Monetary Policy. In the past 12 months:

    • Individual and payroll tax collections were up 7.5%, to $2.394 trillion.
    • Corporate and other collections rose 13.1%, to $570 billion.
    • Defense spending shrank 4.9%, to $580 billion.
    • Social Security benefits grew 4.5%, to $836 billion.
    • Medicare benefits paid by the federal government rose 2.1%, to $487 billion.
    • Medicaid benefits paid by the federal government grew 11.4%, to $294 billion.
    • Interest on the public debit climbed 5.4%, to $271 billion.
    • Federal spending on everything else, from foreign aid to welfare to bureaucrats’ paper clips, advanced 0.6%, to $1.013 trillion.

Total receipts were up 8.5%, to $2.965 trillion, while total outlays rose 1.0%, to $3.481 trillion. In the same period, GDP was expanding at an annual clip of about 2.6%.

What this means is that the federal government can regain control of its fiscal affairs. In the three places where Congress and the president have chosen to fight deficit spending, they have succeeded. Thanks to the much-derided sequester, tax receipts are up, defense spending is down, and the discretionary cost of general government is rising much more slowly than the economy.

But in mandatory spending, or entitlements, the government has tied its own hands. These programs roll along upward without serious review. When all is said and done, a succession of Congresses and presidents of both parties have refused to make changes to spending programs that constitute more than half of the federal budget.

And American attitudes about the national debt are changing. As William Gale of Brookings recently observed, “It is interesting that many people who thought former U.S. President George W. Bush’s agenda was unaffordable back when the debt-to-GDP ratio was half as big as it is now, feel that a ratio of 74% is nothing to worry about even though the debt is predicted to rise further.

People who complain about the sluggish economic recovery are giving more power to the elected officials and popular economist who call for more spending, more borrowing, and more stimulus. Such policies actually produce the illusion of economic growth, just as a dead frog’s legs twitched when Luigi Galvani applied an electric current to its muscles.

New Year Resolution- Health

The secrets to success in anything is simply doing a few correct things every day. I am fascinated at how people start the New Year with resolutions (I hate resolutions as they depict the negative side of a success. Rather, I work on my “goals”). Funny, most people have as a “resolution or goal”… to get healthy. Tell me I am wrong here, but, have you noticed on January 2nd of each year the workout centers are full; it takes 45 minutes to get on a machine; or, you see people are lining the streets to jog. Amazingly, on February 15th (the day after “sweetie’s” day) there is no one in the workout center or jogging except those that know the secret in this area… consistent effort. As Reverend Schuller so graciously put it… “Spectacular performance is always preceeded by unspectacular preparation.”

I have listed this link before but it is worth repeating. If health is one of your goals for this year by all means write down 10 reasons why you want to improve your health. As we all know, if the “why” is strong enough, then, the “how” is easy.

Go to this site… Livingto100.com … As you take the test be honest with yourself. Pay attention to the questions as you can vividly see what will not allow you to live beyond 100. My test results showed I will live to 108! So it is true… the good die young. :)

Here is my New Year wish for you… that you reach every goal and dream you have for this year and every year of your life.

Changes to Roth IRAs – Obama’s Agenda

Many people enjoy the benefits of a Roth IRA (there are far better alternatives than a Roth, but, it is a good start).

One of the features of a Roth is that you are not subject to the required minimum distributions (RMD) at age 70 ½. Unfortunately, that feature may change. A proposal in President Obama’s budget would require Roth owners to start taking mandatory distributions at 70 ½, the same as IRAs, 401(k)s and other qualified plans. This would change the tax-free compounding on the withdrawals, and, wipe out any estate planning benefits of passing those assets tax free to your heirs.

A second proposal would prohibit non-spousal IRA beneficiaries from stretching out the distributions. Instead, inherited IRAs would have to be distributed within 5 years of the owner’s death (pity the poor child that inherits Dad’s IRA right when they are at their peak income years. Dad’s IRA income will be added to their current income pushing them into an even higher tax bracket). Without the stretch it won’t pay for an owner to convert to a Roth.

No one should be shocked by the Present’s proposals. If anyone REALLY listened to his campaign speeches he told you, in a round about way, that he was going to wallop everyone with more taxes. I stopped asking the 50% of American’s who did vote for him… “Now, tell me again why you voted for him?”

Remember, elections do have consequences. In his final 2 years in office the President said he will use his pens as a sword. Watch out below.

Mid Term Returns

Since World War II, the S&P 500 stock prices have cumulatively gained an average of 15.3%, in the 6 months from October 31 just before each mid term election year, through the following April 30. This has happened 94% of the time.

On a year over year basis, in the 17 mid terms since 1945 to 2010, the average bounce was higher and more consistent than during the normal 6 month periods.

From October 31 of the mid term year to October 31 of the following year, the S&P has gained an average of 17.5% – rising 100% of the time.