IRA Distributions

Judith A. DorianFIRMA Annual Conference

April 7, 2008

Agenda Age Related distribution Issues Allowable and Mandatory Age-Related

Distributions Exceptions to Early Withdrawal Penalty Minimum Required Distributions - traditional IRAs Distributions After owner’s Death Penalties Roth Distribution Issues

Permitted IRA Withdrawals Anytime, subject to 10% early

withdrawal penalty Over-contributions, without penalty

before tax filing deadline - including extensions Income or interest subject to tax if not

subject to Exception Rule Equal amounts during owner’s lifetime

Early Distribution Penalty

10% Tax on amounts withdrawn from IRA prior to owner reaching 59 1/2 years of age

10% Tax imposed in addition to ordinary income except in cases where exception applies

Penalty Exceptions 10% Penalty not applicable when distribution

is for: Unreimbursed medical expenses more than 7.5%

of AGI Distribution is not more than cost of medical

insurance Disability Payment to the beneficiary of a deceased IRA

owner

Penalty Exceptions Distributions received in form of annuity Distributions are not more than cost of

qualified higher education expenses Distributions used to buy, build or rebuild

1st home $10,000 cap, $20,000 if married

Distribution due to IRS levy of qualified plan

Distribution is qualified reservist distribution

Required Minimum Distributions First withdrawal must be taken for year

in which IRA owner attains age 70 1/2 Can be taken in that calendar year or no

later than April 1 of following year If taken at later date, 2 distributions

required in that year

Required Minimum Distributions May be taken in installments If IRA owner has multiple IRAs, all must

be aggregated to calculate RMD amount, but distribution may be taken from only one, or some of the accounts

Traditional IRA distributions are normally taxable at ordinary income rates

Qualified Charitable Distributions Non Taxable distribution made directly

by IRA Trustee to an organization eligible to receive tax deductible contributions

IRA owner must be at least 70 1/2 when distribution is made

Qualified Charitable Distributions Acknowledgement from charity required

Same as for deductible charitable contribution

Maximum amount of $100,000, but cannot be more than amount of distribution that would have been includable in income

Distribution will count toward RMD

RMD Amount Calculation Tables

Table I - Single Life Expectancy Beneficiaries

Table II - Joint Life and Last Survivor Expectancy Spouse more than 10 years younger

Table III - Uniform Lifetime Most distributions

No Table Designated beneficiary is not an individual and owner

died before RBD, entire account must be paid out by end of 5th year following owner’s death

IRA Owner Deceased Surviving Spouse - Sole Beneficiary

May elect to be treated as owner and not beneficiary. In this case, RMD is determined as if owner in year they elected or were deemed to be the owner

Can take deceased spouse’s RMD in year spouse died, if ownership acquired that year (If RMD required)

Multiple Individual Beneficiaries Beneficiary with shortest life expectancy

will be designated beneficiary if: All beneficiaries are individuals and The account has not been divided into

separate accounts or shares for each beneficiary

Trust as Beneficiary Trust cannot be designated beneficiary,

even if it is a named beneficiary

Beneficiaries of a trust will be treated as beneficiaries if all of the following conditions are met:

Conditions Valid trust under state law Irrevocable trust, or will become so

upon death of owner Common beneficiaries of trust and IRA

are identifiable from the trust instrument

Conditions IRA trustee, custodian or issuer is

provided a copy of the trust instrument and it is agreed that within a reasonable time, copies of any amendments to the document will be provided to the administrator

Or the administrator must receive all of the following:

Conditions A list of all the trust beneficiaries Certification that the list is complete, and the

requirements of the first 3 conditions are met An agreement to provide corrected

certification upon adoption of any trust amendments that impact the IRA beneficiaries

An agreement to provide a copy of the trust instrument to the IRA trustee, custodian or issuer upon demand

Trust as Beneficiary Deadline for providing beneficiary

documentation to IRA trustee, custodian or issuer is October 31 of year following year of the owner’s death

Separate account rules cannot be used by the beneficiaries of a trust

Taxability Traditional IRA Distributions

Fully taxable when received if only deductible contributions made

Partially taxable if non-deductible contributions made

Amt of non-deductible contributions is not taxable

Recognizing Losses Only possible when all amounts in

traditional IRA have been distributed and total distributions are less than unrecovered basis Misc. itemized deduction Subject to 2% of AGI limit Schedule A, Form 1040

Reporting and Withholding Distributions reported on Form 1099-R Codes indicate reason for distribution Withholding

Taken unless no withholding specifically requested Periodic payments based on marital status and #

allowances Amount on non-periodic distributions usually 10%

Roth IRA Distributions Qualified distributions not includable in

gross income

Qualified Distributions : After 5-years after 1st taxable year after

contribution was made and

Roth IRA Distributions Distribution is:

Made on or after attaining 59 1/2 Made due to disability Made to a beneficiary or estate after death Meets first home exception as in traditional

IRA rules

Roth IRA Distributions Early distribution 10% additional penalty

applies when: Violation of 5-year rule when conversion

contribution is involved Payable in year of distribution

Exceptions to Penalty Same as traditional IRA rules

Roth IRA Distributions Distributions are never required by

owner at any age if the owner is alive Minimum distribution rules apply after

death same as traditional IRAs as though owner died before required

beginning date.

Distribution to Beneficiary 5 Year Rule applies unless paid over life

expectancy of designated beneficiary If spouse is beneficiary:

Delay distribution until decedent would have reached 70 1/2

Can treat IRA as their own

Non Qualified Distributions Includable in beneficiaries gross income

Same treatment as would have applied to owner

Conditions: Owner died within 5 year period after 1st

contribution Owner died within 5 years of conversion

from traditional IRA

Tax on Excess Accumulations 50% Excise tax applicable

Distributions less than minimum required amount for year from Roth IRAs

Same as traditional IRA rule

IRA Distributions

Questions?