Will you get an IRA penalty this year?

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The Tax Policy Center reports that 68% of IRA owners over age 70 1/2 have not yet taken their required minimum distributions this year.  If they don’t take these distributions by the end of the year, they will pay a 50% penalty on the distributions they should have taken!
Will two out of three IRA owners pay a huge tax penaltyTime keeps on slippin.’ Will two out of three IRA owners pay a huge tax penalty? New research from Fidelity offers a wake-up call to IRA holders over age 70 and a halfTime reports the findings: Among the 750,000 IRA holders required to take distributions and pay taxes by December 31, 68 percent have yet to take their full amount. More than half—56 percent—have so far taken nothing. If the money is not taken out, the IRS assesses a hefty penalty equal to half the amount to be distributed out of the account. As many as 250,000 IRA owners each year miss the end-of-year distribution deadline, according to the Treasury Inspector General. This generates potential tax penalties totaling $175 million.

What is a stretch IRA?

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By Robin Crouch

The term “stretch” does not represent a type of IRA, it refers to a financial strategy that allows people to stretch out the benefits from an IRA as well as receive income tax advantages. By using this strategy, an IRA can be passed down from generation to generation while beneficiaries enjoy the income as well as tax deferred growth for as long as possible.

Not all IRA custodial agreements allow the stretch strategy, you should check with your IRA custodian or financial institution to determine if beneficiaries will be allowed to take distributions over a life-expectancy period.  Most IRA providers would rather make such allowances than have their customer transfer his or her IRA to another financial institution.

Please note, the average inheritance, when received by a beneficiary, is completely consumed within one year.  The reasons are numerous but here are a few:  Beneficiary wants to spend it; Creditors, Predators, and Divorce; Not understanding the rules and choices. . . when the money is gone, it’s gone.  With an IRA, not only would the money be gone, but there will be a huge tax bill to pay.

The good new is that the choice can be yours to make.  If you wish to remove some of the roadblocks and ensure that your beneficiaries take the stretch and provide them with asset protection to avoid losing what you have worked a lifetime to earn, please ask about our Heritage Trust.

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Don’t let Retirement Benefits go down the drain!

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By Robin Crouch

If there is no beneficiary named on your retirement account, who inherits and how is the the required distribution calculated?

Unfortunately, there are cases where Dad died, Mom was the named beneficiary, but she predeceased him. OR, Mom inherited the IRA and died before naming her own beneficiary.

Each IRA has it’s own rules and each IRA custodian has their own agreement with language that will indicate who inherits the IRA when there are no named beneficiaries. Most agreements default to the estate of the deceased IRA owner.

A designated beneficiary is a living, breathing person who can stretch distributions over their own life expectancy and pay the income tax accordingly. Traditional IRAs are typically funded with pretax dollars. Distributions out of the account after age 59½ are taxed as ordinary income at each individual’s tax rate.

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A Bird in the Hand is Worth Two In the Bush

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By Julian Guilfoyle

The belief that it is better to have a lesser certain benefit than the possibility of a greater one that may come to nothing is a decision increasing contemplated by today’s retiree. George Yacik outlines this decision that can have severe repercussions in the February issue of Financial Planning. In an article titled “Weighing a Pension Buyout”, Mr. Yacik discusses the complex decisions these retirees face when deciding between a lump sum disbursement versus a promised income stream for life. [Read more…]