IRA Basics - Total Training Solutionsttsmedia.ttstrain.com/CUIRABasics012815.pdfRoth IRA $5,500 or $6,500 IRA Basics 13 Until 70 ½ Every year the accountholder has earned income and

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IRA Basics

Webinar 2016

IRA Basics 1

Instructor Christy Crawford

• Hello and welcome to the program.

• If you have any questions just call us at 225‐

252‐7173 or email us at

[email protected]

Christy Crawford is president of Christy Crawford Consulting specializing in the education of banks andcredit unions across the nation. Christy is an associate speaker for Gettechnical Inc. As a former trainerfor Wal‐Mart Corporation, and former V.P. of Gettechnical Inc. she brings her previous 12 years of salesand training experience to your financial institution. She earned a bachelor's degree from LouisianaState University and is BSA/AML certified. Her expertise is in the deposit side of the financial institutionand focuses on teller, new accounts, IRAs, HSAs, robbery, security and BSA for the frontline training.

IRA Basics 2

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Cost of Living Adjustments

Intro to IRA Products

2016 2015

IRA Contribution Limit $5,500 $5,500

IRA Catch‐up Contribution $1,000 $1,000

SEP Contribution Limit $53,000 $53,000

SEP Minimum Compensation $600 $600

SEP Maximum Compensation $265,000 $265,000

SIMPLE Maximum Contribution $12,500 $12,500

SIMPLE Catch‐up Contribution $3,000 $3,000

HSA Contributions Single Coverage $3,350 $3,350

HSA Contributions Family Coverage $6,750 $6,650

HSA Catch‐up Contribution $1,000 $1,000

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Traditional IRA —A Retirement Vehicle

IRA Basics 4

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What is a Traditional IRA?

IRA Basics 5

• A traditional individual retirement arrangement (IRA) is a personal savings plan that offers tax advantages to accountholders who set aside money for retirement—a possible tax deduction, tax deferred earnings and in some incomes a tax credit.

• Accountholders may be able to deduct contributions to their IRAs in whole or in part, depending on their circumstances. All earnings are tax‐deferred until distributed.

IRA Basics 6

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Who can have a Traditional IRA?

IRA Basics 7

Earned Income

Anyone who has earned income can contribute to an IRA if he or she is under the age of 70 ½.

IRA Basics 8

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Compensation/Earned Income

©Gettechnical Inc. 9

Some Types Of Income Not Considered Compensation

• Earnings and profits from property, such as rental income,

• Interest income or dividend income.• Pension or annuity income.• Deferred compensation received (compensation payments postponed from a past year).

• Income from a partnership for which you do not provide services that are a material income‐producing factor

• Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs

©Gettechnical Inc. 10

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How much can the person put into a Traditional IRA?

IRA Basics 11

Contribution Limit

An individual can make an annual contribution to a Traditional IRA up to:

1. the lesser of $5,500 or $6,500 (if 50 or older) or 100% of the individual’s annual compensation/earned income, minus

2. contributions to Roth IRAs maintained for the benefit of the individual. A person can still have a SEP, SIMPLE or rollover and those limits are not affected by contributions to a Traditional or Roth IRA for eligibility.

IRA Basics 12

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• Individuals are allowed to have both a Traditional IRA and Roth IRA at the same time.

• Both added together cannot equal more than $5,500 or $6,500.

Traditional IRA

Traditional IRA

Roth IRARoth IRA$5,500 or

$6,500

$5,500 or

$6,500

IRA Basics 13

Until 70 ½

Every year the accountholder has earned income and is below the age of 70 ½ the accountholder can make a contribution by April 15th to the IRA.

* These numbers vary from year to yearIRA Basics

Time you begin work

Plus $1,000 more if you are 50 or

better!


better!

$5,500Per year $5,500Per year

$5,500*Per year$5,500*Per year

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When does an accountholder have to contribute to a Traditional IRA?

IRA Basics 15

Timing Of Contribution

• IRA contributions must be made by the tax due date of the owner. This is usually April 15th (not including extensions). If the accountholder makes a contribution between January 1, 2016 and April 15th of 2016, it will be considered a contribution for the year in which it is made, unless the accountholder tells you otherwise. Some farmers file taxes in March. If that is their tax due date, then they have to make their IRA contribution on their tax due date.

IRA Basics 16

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Age Limit

• To make a contribution to an IRA the accountholder must be under the age of 70½.

IRA Basics 17

NOTE: It is the year that the accountholder turns 70½ that he/she can no longer make contributions to a Traditional IRA.

IRA Basics 18

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Can a nonwage‐earning spouse have a Traditional IRA?

IRA Basics 19

Spousal IRA – Both can have IRA

She can have an IRA!

He can have an IRA!

Can they have a Joint IRA? NO

Married Filing Joint on Taxes

IRA Basics 20

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Remember to be able to contribute to a spousal IRA….

• The couple must be married.

• The couple must file jointly on their taxes.

• One has to have earned income to contribute to an IRA.

• They may each have an IRA if the one spouse makes enough to fund both IRAs but they cannot have a joint IRA.

IRA Basics 21

Withdrawal

• Accountholders may begin to withdraw their IRA assets with no penalty at the age of 59 ½. They may withdraw money at any age, but there may be a 10% penalty attached unless it was due to death, disability, rollover, education, first‐time home buyer, medical expenses or annuity pay out. See Distributions section of online program for a full discussion.

IRA Basics 22

12

When can the accountholder take out of a Traditional

IRA?

IRA Basics 23

Withdrawal

Day account‐holder has

earned income

Begin contributions when the account‐holder has earned income

Day the account‐holder

turns 59½

YEAR the account‐holder turns 70½

May make distributions without IRS penalty & still may make

contributions

Must take distributions or face IRS 50% penalty. No more

contributions

IRA Basics 24

13

Your accountholder may receive penalties if…

• Excess contributions occur‐‐put in more than allowed by law

• Early withdrawal‐‐before 59 ½

• Failure to file an 8606

• Overstatement of amount which is nondeductible

• Failure to take out required minimum distributions.

IRA Basics 25

Summary of Eligibility for IRAs

IRA Basics

SummaryContribution

Rules

Must have Earned Income

Up to $5,500 per year per

individual –if you have earned

income

Catch-up of $1,000It is $6,500 if 50 or

older

Cannot contribute in year

accountholder turns 70½ and

older

Must make contribution by

April 15th

$5,500 between Traditional and

Roth added together

Catch-up of $1,000It is $6,500 if 50 or

older

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IRA Basics

Many Americans still qualify for an IRA deduction on the 1040. The accountholder can also get tax deferred earnings, and a possible tax credit.

Not to mention a vehicle for retirement!

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How does a person qualify for a deduction on a Traditional IRA?

IRA Basics 28

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Deductibility

• Whether or not an accountholder can take an IRA deduction depends on three things:

– Does the accountholder or his or her spouse participate in a qualified retirement plan?

– What is their filing status? (Single, Married, Married Filing Separate?)

– What is the amount of their Modified Adjusted Gross Income (MAGI)?

IRA Basics 29

Not everyone can deduct a Traditional IRA

IRA Basics 30

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Three types of retirement savers

• The accountholder who only saves in company retirement plans.

• The accountholder who only saves in IRAs.

• Then there is the accountholder who saves in both a company retirement plan and IRA. (This is the affected group)

IRA Basics 31

IRA Deductibility Phase Out—Single—

Active Participant of QRPChart #1

IRA Deductibility PHASE OUT – Single – Active Participant of QRP

YEAR FULL DEDUCTION IF MAGI

PARTIAL DEDUCTION IF

MAGI

NO DEDUCTION IF MAGI

2015 <$61,000 $61,000‐$71,000 >$71,000

2016

(no change)

<$61,000 $61,000‐$71,000 >$71,000

Intro to IRA Products 32

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IRA Deductibility Phase Out—Married Filing Separate—Active Participant of QRP

Chart #1

IRA Deductibility PHASE OUT – Married Filing SEPARATE – Active Participant of QRP

YEAR FULL DEDUCTION IF MAGI

PARTIAL DEDUCTION IF

MAGI


2015 + Future Years

$0‐$10,000 >$10,000


IRA Deductibility Phase Out—Married Filing Joint—Active Participant of QRP

Chart #1

IRA Deductibility PHASE OUT – Married Filing JOINT – Active Participant of QRP

YEAR FULL DEDUCTIONIF MAGI

PARTIAL DEDUCTION IF MAGI


2015 <$98,000 $98,000‐$118,000 >$118,000

2016

(no change)

<$98,000 $98,000‐$118,000 >$118,000


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IRA Deductibility Phase Out—Joint—

One is an Active Participant Chart #2

IRA Deductibility PHASE OUT – Married Filing JOINT – If you have no QRP but your spouse IS Active Participant of QRP

YEAR FULL DEDUCTIONIF MAGI

PARTIAL DEDUCTION IF MAGI


2015 <$183,000 $183,000‐$193,000 >$193,000

2016 <$184,000 $184,000‐$194,000 >$194,000


IRA Basics

Being eligible to make a contribution to an IRA is different from being able to deduct. (The accountholder must first be eligible to have an IRA then see if he/she can deduct.)

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Nondeductible IRA

• If an accountholder contributes to an IRA and fits into the categories above of Partial Deduction or No Deduction, he/she is still eligible for an IRA which is "nondeductible"..

IRA Basics 37

Form 8606Nondeductible IRAs and Coverdell ESAS

IRA Basics

Just for your information

38

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How does the IRS know a person has a Traditional IRA?

IRA Basics 39

Required Reporting: Traditional IRAs

REPORTS PURPOSE IRS DEADLINES IRA OWNER

5498 Contribution reporting

May 31 May 31st

1099R Distributions February 28th January 31st

Required Minimum Distribution Notice

Reports need for required minimum distribution

There is a box on the 5498 to indicate a RMD Required see time frames for 5498

January 31st

Fair Market Value Reports balance January 31st

IRA Basics40

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IRA Reporting ‐ 5498

IRA Basics 41

CORRECTED (if checked)TRUSTEE or ISSUER’S name, street address, city, state and ZIP code 1 IRA contributions (other than

amounts in boxes 2‐4, 8‐10, 13a and 14a)

$5,500

20XX

Form5498

IRA ContributionInformation

2 Rollover contribution

$

3 Roth IRA conversion amount

$4 recharacterized contributions

$

Trustee’s or issuer’s federal identification no.

Participant’s social security number

5 Fair market value of account

$

6 Life insurance cost included in box 1

$

Participant’s name

Street Address (including apt. no.)

City. State, and ZIP code

7 IRA SEP SIMPLE Roth IRA 8 SEP contributions

$9 SIMPLE contributions

$10 Roth IRA contributions

$

11 if checked, required minimum distribution for 20XX

12a RMD date 12b RMD amount

$13a postponed contribution

$13b Year 13c

Code

14a Repayments

$14b Code

Account number (see instructions) 15a FMV of certain specified assets 15b Code(s)

Form 5498 (keep for your records) www.irs.gov/form5498 Department of the Treasury‐Internal Revenue Service

X

IRA Reporting – 1099‐R

IRA Basics 42

VOID CORRECTED PAYER’S name, street address, city, state and ZIP code 1 Gross distribution

$ 1,000 20XX

Form1099‐R

Distribution From Pensions, Annuities, Retirement or Profit‐Sharing Plans, IRAs, Insurance Contracts, etc.2a Taxable amount

$

2b Taxable amount

not determined Total

distribution PAYER’S federal identification no. RECIPIENT’S identification

number3 Capital gain (included in box 2a)$

4 Federal income tax withheld$

Recipient’s name



5 Employee contributions/Designated Roth contributions or insurance premiums$

6 Net unrealized appreciation in employer’s securities

$

7 Distribution code(s)

1 or 7IRA/SEP/SIMPLE

8 Other

$ %

9a Your percentage of total distribution 9b Total employee contributions$

10 amount allocable to IRR with 5 years$

11 1st year of desg. Roth contrib.

12 State tax withheld$

13 State/Payer’s state no. 14 State distribution$

$ $Account number (see instructions) 15 Local tax withheld

$16 Name of locality 17 Local distribution

$$ $

Form 1099‐R (keep for your records) www.irs.gov/form1099r Department of the Treasury‐Internal Revenue Service

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Roth IRA—A Retirement Vehicle

IRA Basics 43

What is a Roth IRA?

IRA Basics 44

23

• Beginning in 1998, the Roth IRA became another choice for a nondeductible IRA.

IRA Basics 45

• A Roth IRA is nondeductible, but the interest earned is tax‐free if distributed for one of the qualifying reasons under distributions. It is a retirement plan for an individual.

IRA Basics 46

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• A Roth IRA must be designated as a Roth IRA at the time it is established. A SEP or SIMPLE cannot be designated as a Roth IRA. Contributions may be made to the accountholder’s Roth IRA after 70 ½ and leave the contribution as long as he or she likes.

IRA Basics 47

How much can go into a Roth IRA?

IRA Basics 48

25

Contribution Limit

Amount of contributionAn individual can make an annual contribution to a Roth IRA up to:

1. the lesser of $5,500 or $6,500 (if 50 or older) or 100% of the individual’s annual compensation/earned income, minus

2. contributions to Traditional IRAs maintained for the benefit of the individual. A person can still have a SEP, SIMPLE or rollover and those limits are not affected by contributions to a Traditional or Roth IRA for eligibility.

IRA Basics 49

• Individuals are allowed to have both a Traditional IRA and a Roth IRA at the same time.

• Both added together cannot equal more than $5,500 or $6,500.

Traditional IRA

Traditional IRA

Roth IRARoth IRA$5,500 or

$6,500

$5,500 or

$6,500

IRA Basics 50

26

Every year the accountholder has earned income and is below the income limit the accountholder can make a contribution by April 15th to the IRA.

* These numbers vary from year to year

IRA Basics

Time you begin work

Until RetirementPlus $1,000 more if

you are 50 or better!


better!

$5,500Per year$5,500Per year

$5,500 per Year*

$5,500 per Year*

51

Compensation/Earned Income

IRA Basics 52

27

Eligibility for Roth contribution is determined by both earned income and MAGI

Three accountholder questions:(1)Do you have earned income/compensation?

(2)Have you made a contribution to your Traditional IRAand

(3) Is your MAGI within these limits?

Filingstatus

MAGI EligibleFor Roth

MAGI Phase out*Partial eligibilityfor Roth

MAGI Not Eligiblefor Roth

Single <$116,000 (2015)<$117,000 (2016)

$116,000-$131,000 (2015)$117,000-$132,000 (2016)

>$131,000 (2015)>$132,000 (2016)

Married—filing joint

<$183,000 (2015)<$184,000 (2016)

$183,000-$193,000 (2015)$184,000-$194,000 (2016)

>$193,000 (2015)>$194,000 (2016)

Married—filingseparate

$0-$10,000 (2015)$0-$10,000 (2016)

>$10,000 (2015)>$10,000 (2016)


Age Limit

• There is no age limit on Roth IRAs.

• Accountholders can contribute to a Roth IRA if they still have earned income, are within the income limits and make the contribution before the tax deadline (no extensions).

IRA Basics 54

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Timing of Contribution

• The accountholder must make the contribution to the IRA by April the 15th

• There are no extensions on making a contribution to a Roth IRA.

IRA Basics 55

Married Filing Joint on Taxes

IRA Basics

She can have a Roth IRA!

He can have a Roth IRA!

Can they have a Joint Roth IRA? NO

Spousal IRA – Both can have a Roth

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29

To take money out of a Roth IRA

• The accountholder must meet a five year time clock and it has to be one of the choices from the following slide for it to be a “qualified distribution”.

IRA Basics 57

Qualified distributions—Earnings Tax‐free

• A distribution from a Roth IRA that is a “qualified distribution” is not included as income. A distribution that is not a “qualified distribution” would be taxable on the portion that is distributed from earnings. The Roth contributions have already been taxed. Effective after December 31, 2000 Roth IRAs are not subject to withholding.

IRA Basics 58

30

5 yearsAND

59 ½ Death DisabilityFirst-time

homebuyer

Qualified Distributions

IRA Basics 59

Year Principal earnings

2011 $5,000 + interest 5 year Time Clockbegins here on Januaryof the contribution year!!

2012 $5,000 + interest

2013 $5,500 + interest

2014 $5,500 + interest

2015 $5,500 + interest

total $26,500 + interestIRA Basics 60

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IRA Reporting ‐ 5498

IRA Basics 61



$

20XX

Form5498

IRA ContributionInformation2 Rollover contribution

$



$




$


$







$5,50011 if checked, required minimum distribution for 20XX



$13b Year 13c

Code

14a Repayments

$14b Code



X

IRA Reporting – 1099‐R

IRA Basics 62


$1,000 20XX

Form1099‐R


$

2b Taxable amount





Recipient’s name





$


J/Q/ TIRA/SEP/SIMPLE

8 Other

$ %








$$ $


32

IRS Reporting CodesJ —Early distribution from a Roth IRA. (just pulling money out early‐meets no requirements)

Use Code J for a distribution from a Roth IRA whenCode Q or Code T does not apply. But use Code 2 foran IRS levy and Code 5 for a prohibited transaction.

Q—Qualified distribution from a Roth IRA. (meets 5 years and other stipulations)

Use Code Q for a distribution from a Roth IRA if youknow that the participant meets the 5‐year holdingperiod and: •The participant has reached age 59½, or•The participant died, or •The participant is disabled.Note: If any other code, such as 8 or P, applies, useCode J.

T—Roth IRA distribution, exception applies. (doesn’t meet 5 year time clock but meets other stipulations)

Use Code T for a distribution from a Roth IRA if youdo not know if the 5‐year holding period has beenmet but: •The participant has reached age 59½, or•The participant died, or •The participant is disabled.Note: If any other code, such as 8 or P, applies, useCode J.

IRA Basics 63

IRA Basics

Distribution Reason CodeFinancial Institution knows 5 years +:59 ½ QDeath QDisability QFinancial Institution does NOT know 5 years but is for:

59 ½ TDeath TDisability TOther casesFirst Time home buyer (always) JExcess J and 8 or PEducation JMedical JAnnuity Payout JRollover JReservist JProhibited Transaction 5IRS Tax Levy 2HSA funding transaction (coded out as transfer out)

Roth Distribution Codes

64

33

• Use code “J” for first‐time homebuyer and the accountholder settles up with the IRS on his/her taxes.

IRA Basics 65

Two basic ways IRAs move—Rollover and Transfer

Source of Funds

IRA

Source of Funds

IRA

Check made payable to person

Check made payable to person

Check made payable to financial institution


Rollover

- 60 days

- 1 per 12 months

- RMD removed

Rollover

- 60 days

- 1 per 12 months

- RMD removed

Transfer

- Unlimited number

- RMD does not have to be removed

Transfer

- Unlimited number

- RMD does not have to be removed

IRA Basics 66

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IRA to IRA Rollover

IRA Basics 67

Step 1Accountholder goes to Financial Institution A (RMD – has to be removed before Rollover is complete)

Financial Institution ADistributing

IRA Basics 68

35


All or part of balance is given to accountholderFinancial Institution A generates Form 1099‐R showing the money went out

Distribution Form

Step 2

(Minus any RMD)

IRA Basics 69

Financial Institution BReceiving

Accountholder goes to Financial Institution B Signs IRA Contract and Rollover Review Form (Rollover review form is required by law)(Financial Institution B codes in as rollover)

Step 3

IRA Basics 70

36


Financial Institution B puts money into IRA account(CD or what your bank offers) for Sally Jane Smith

Step 4

Sally Jane SmithIRA account

IRA Basics 71

Financial Institution AShows Money OUT

IRA to IRA Rollover Reporting

IRA Basics


$ 10,000 20XXForm1099‐R


$ 10,0002b Taxable amount





Recipient’s name





$



8 Other

$ %








$$ $


Sally Jane Smith

72

37

Financial Institution BShows Money IN


IRA Basics



$

20XX

Form5498



$ 10,0003 Roth IRA conversion amount


$




$


$







$




$13b Year 13c

Code

14a Repayments

$14b Code



Sally Jane Smith

X

73

Accountholder Reports on FORM 1040

10,000 0


IRA Basics 74

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What if she kept some of the money?

What is she kept $3,000?

How would the reporting look then?

IRA Basics 75

Financial Institution AShows Money OUT


IRA Basics


$ 10,000 20XXForm1099‐R







Recipient’s name





$



8 Other

$ %








$$ $


Sally Jane Smith

X

76

39

Financial Institution BShows Money IN


IRA Basics



$

20XX

Form5498



$ 7,0003 Roth IRA conversion amount


$




$


$







$




$13b Year 13c

Code

14a Repayments

$14b Code



Sally Jane Smith

X

77

Accountholder Reports on FORM 1040

10,000 3,000


IRA Basics 78

40

A rollover from one IRA to another is an easy way to move money but it has its limitations. Now we will look at transfers between IRAs.

IRA Basics 79

IRA TO IRA TRANSFER: TYPE 1 –

WHEN RECEIVING INSTITUTION INITIATES

THE TRANSFER

IRA Basics 80

41

Step 1


Accountholder goes to receiving Financial Institution B Signs Transfer Request Form and IRA Contract(RMD – either taken out by Financial Institution A or B)

IRA Basics 81

Step 2


Financial Institution B (the receiving financial Institution) sends the Transfer Request Form to Financial Institution A (the distributing financial Institution)


Transfer Request Form

IRA Basics 82

42

Step 3


Financial Institution A sends the check payable toFinancial Institution B for the benefit of Sally Jane Smith


IRA Basics 83

Step 4


Financial Institution B puts money into the IRA account(CD or what your Financial Institution offers) for Sally Jane Smith

Sally Jane SmithIRA account

IRA Basics 84

43



$

20XX

Form5498



$



$




$


$







$




$13b Year 13c

Code

14a Repayments

$14b Code



IRA TO IRA TRANSFER: TYPE 1 –WHEN RECEIVING INSTITUTION INITIATES THE TRANSFER

Step 5 Financial Institution B reports only on Form 5498

Form 5498 goes to accountholder on May 31st.

Sally Jane Smith

IRA Basics

10,000X

85


WHEN RECEIVING INSTITUTION INITIATES THE TRANSFER

Accountholder does not report on taxes

IRA Basics 86

44


WHEN DISTRIBUTING INSTITUTION INITIATES

THE TRANSFER

IRA Basics 87

Step 1


Accountholder goes to Financial Institution A (RMD – either taken out by Financial Institution A or B)

IRA Basics 88

45

Step 2


Financial Institution A sends the Check to Financial Institution B

IRA Basics 89

Step 3


Accountholder goes to Financial Institution B and Signs IRA Contract (Financial Institution B codes in as Transfer)

IRA Basics 90

46

IRA TO IRA TRANSFER: TYPE 2 –WHEN DISTRIBUTING INSTITUTION INITIATES THE TRANSFER

Step 5 Financial Institution B reports only on Form 5498

Form 5498 goes to accountholder on May 31st.IRA Basics



$

20XX

Form5498



$



$




$


$







$




$13b Year 13c

Code

14a Repayments

$14b Code



Sally Jane Smith

10,000X

91


WHEN DISTRIBUTING INSTITUTION INITIATES THE TRANSFER

Accountholder does not report on taxes

IRA Basics 92

47

An accountholder can make as many transfers as he or she wants, but the check must be made payable to the financial institution as custodian for the accountholder.

Now on to a quick summary.

IRA Basics 93

Transfers After 70 ½

The required minimum distribution can be taken out of either the transferring institution or the receiving institution. You no longer have to take the required minimum out of the IRA before a transfer is made to the new financial institution.

IRA Basics 94

48

Qualified Retirement Plan (QRP) to IRA Movement

IRA Basics 95

Eligible Persons:

• Plan participant

• Spouse beneficiary

• Alternate Payee under a Qualified Domestic Relations Order (QDRO)

• Nonspouse beneficiaries ‐may make a direct rollover into an inherited IRA. The nonspousecannot add to the inherited IRA. He or she may only move by a trustee‐to‐trustee transfer to another IRA, must follow inherited IRA rules on distributions.

IRA Basics 96

49

Eligible Types of Qualified Retirement Plans

1. Pension Plan ‐ IRC 401(a)

2. HR‐10 or Keogh Plan ‐ IRC 401(a)

3. Federal Thrift Savings Plan ‐ IRC 7701

4. Profit Sharing Plan (including 401(k) plan or Stock Bonus Plan

5. ESOP ‐ IRC 401 (a)

6. Tax‐sheltered Annuity ‐ IRC 403(b)

7. 457 Plans

IRA Basics 97

a. Substantially Equal Periodic PaymentsThe QRP cannot be a series of substantially equal period payments over a period of ten (10) years or more. You can determine what is "substantially equal period payments" if you review the three methods listed under the annuity exception in the Premature Distribution lesson.

b. Required Minimum DistributionThe QRP cannot have any money which is part of a required minimum distribution (70½ payment). If the employee is over the age of 70½, a required minimum distribution would have to be taken out before any rollover can be made.

c. Hardship DistributionsIf your accountholder has received a hardship distribution from a qualified plan, the hardship distribution cannot be rolled over into an IRA.

If any of these are rolled over into an IRAit is considered an excess contribution.

IRA Basics 98

50

Two Types of Rollover

• Direct Rollover

• Indirect Rollover

IRA Basics 99

Qualified Retirement PlanRollover Summary

* RMDs must be removed before rollover

Source of Funds

Qualified Retirement Plan*

Source of Funds

Qualified Retirement Plan*



Check made payable to person (20% withholding)

Check made payable to person (20% withholding)

Direct RolloverDirect Rollover

Indirect RolloverIndirect Rollover

IRA Basics 100

51

Exceptions to 10% Premature Distribution penalty

• Death • Disability • Annuity Payout • Medical • IRA to HSA• First Time Homebuyer• Education • IRS Tax levy • Armed Reserves• Rollover and Conversions

IRA Basics 101

Reason Traditional IRS Code Roth IRS Code

Disability 3 T

Death 4 T

Rollover 1 J

Conversion 2 J

Annuity 2 J

Higher Education 1 J

Medical 1 J

First‐time Homebuyer 1 J

IRS Tax Levy 2 2

Reservist 1 J

Exceptions Reporting on 1099R (Box 7)

IRA Basics 102

52

Required Minimum Distributions

IRA Basics 103

Required Minimum Distribution Year

Deadline to Take Distribution

2015-Year one April 1, 2016

2016-Year two December 31, 2016

2017-Year three December 31, 2017

©Gettechnical Inc.

53

Calculating the Required Minimum Distribution

Account Balance on December 31st Prior Year

Life Expectancy

* Plus or minus any outstanding rollovers

IRA Basics 105

Calculating Life Expectancy

AGE LIFE EXPECTANCY WITH SPOUSE BENEFICIARY

LIFE EXPECTANCY WITH NONSPOUSE

BENEFICIARY

Owner 70 Beneficiary 65

27.4 27.4

Owner 71Beneficiary 65

26.5 26.5


31.8 27.4


31.7 26.5

IRA Basics 106

54

Age To Start• The IRA owner will start with age 70 or 71. The owner’s age is used on the last day of the 70 ½ year. If the owner is born in the first six months of the year, he or she will turn 70 ½ in the year he or she turned 70 and will start with age 70. If the IRA owner was born in the last six months of the year, he or she will turn 70 ½ the year after turning 70 and will have a birth date and the starting age is 71.

IRA Basics 107

Age of Employee Distribution Period

70 27.4

71 26.5

72 25.6

73 24.7

74 23.8

75 22.9

76 22.0

77 21.2

78 20.3

79 19.5

Uniform Table for Life Expectancy

IRA Basics 108

55

Under Distribution Penalty

• There is a 50% penalty for the accountholder for failure to take his/her 70 ½ required minimum distribution. For instance, if the financial institution figures that an accountholder needs to take out $1,000 and the accountholder only takes $500. The penalty is $250 or half of the remaining $500.

IRA Basics 109

Waivers

• Accountholders may waive their distribution at your institution if they are taking enough out of an IRA at another financial institution to satisfy both required minimum distributions. You should still calculate the payout and present the amount to the accountholder and the IRS. The accountholder needs to give you a written waiver stating that the distribution is being met elsewhere.

IRA Basics 110

56

IRA Required Minimum Distribution Reporting Rules

IRS Notice 2002‐27

Required Reporting to the IRA Owner

• The financial institution must provide a statement to the IRA owner on January 31st of year any owner has a required minimum distribution (not just the new accountholders turning 70 ½ for the first time). The IRA owner must be alive at the beginning of the year and the financial institution has a prior year end balance for the accountholder. This requirement begins in January of 2003. The financial institution may use one of these two alternatives for the report to the accountholder.

IRA Basics 111



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IRA Basics 112

57

Miscellaneous

• Final regulations allow the IRA holder to make a transfer after 70 ½ and take the required minimum at the receiving institution instead of the distributing institution. This is a change from the temporary regulations.

• Charitable distributions brought back with Taxsaver’s Relief Act 2012

IRA Basics 113

Inherited IRAs and Death Distributions

Beneficiaries of IRAs inherit the IRA at the deathof the owner.

When an accountholder inherits and IRA, he orshe receives the funds and in some cases will paytaxes.

If the beneficiary is a spouse, the spouse may“treat the IRA as own”.

IRA Basics 114

58

Inheriting the IRA

To “Inherit” an IRA means to move money to thebeneficiary IRA, with the beneficiary’s socialsecurity number. The distributions are taken outas “due to death”. The beneficiary is onlyallowed to pull money out and not to makecontributions.

IRA Basics 115

Treat as Own

• When a spouse “treats the IRA as own”, it becomes his or hers. It is transferred into his or her name and any payments taken out are normal or premature depending on the spouse’s age.

IRA Basics 116

59

Roth IRA Beneficiary(five years and death)

Traditional IRABeneficiary(Traditional, SEP & SIMPLE)

10% Penalty 10% PenaltyPay Income Tax Pay Income Tax

IRA Basics 117

Qualified Disclaimers

Qualified Disclaimers

Refusal is in writing

Beneficiary has not accepted interest or any of its benefits

Transferor of interest has to receive written

notice

Disclaimed money passes to next person in line

(spouse or person not disclaiming)

IRA Basics 118

60

Primary Vs. Contingent Beneficiaries

Beneficiaries

Primary BeneficiaryBeneficiary who receives IRA at death of owner

Contingent BeneficiaryContingent beneficiary only receives IRA if all primary beneficiaries die prior to IRA owner

IRA Basics 119

Beneficiaries

Primary BeneficiaryBeneficiary who receives IRA at death of owner

Contingent BeneficiaryContingent beneficiary only receives IRA if all primary beneficiaries die prior to IRA owner

NondesignatedBeneficiary •Estate, trusts, charitable organizations and other entities•Contingent beneficiaries•Non‐qualified trust beneficiaries•Combinations of individuals and entities

Designated Beneficiary •Named individuals who are primary beneficiaries on Sept 30 of year after owner died (called the determination date)•Qualified Trust

IRA Basics 120

61

John Doe dies at 65. He leaves the IRA to his daughter, Mary. The balance is transferred into her name as beneficiary. She takes out $1,000 due to death.

IRA Basics 121



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IRA Basics 122

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IRA Basics 123


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IRA Basics 124

63

125125

Thanks for participating!

Christy Crawford

[email protected]

225‐252‐7173

IRA Basics

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