Tax Tip of the Week
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Follow the IRA rules or pay a 50% penalty
For the week of
March 5, 2001
IRA's rules are complex and they just changed again. Understanding and following
the rules will allow you to avoid penalties and to leave the maximum amount possible to grow in your tax-sheltered
IRA account until you need the money.
Important deadline approaching - You
must begin withdrawing money from your traditional IRAs in the year you turn 70½. You can postpone your
first withdrawal until April 1 of the year after you turn 70½. After that, you must withdraw a minimum amount
each year by December 31. If you postponed your 2000 distribution, you must take two distributions this year; your
2000 distribution must be made by April 2, 2001, and your 2001 distribution must be made by December 31, 2001.
New rules - The IRS just announced
new proposed rules for calculating the required minimum distribution from your IRA accounts. These new rules make
the calculation much simpler than before by providing one simple chart to calculate your required annual withdrawal.
The new rules also allow you to change previous distribution methods, and you have more flexibility in choosing
or changing a beneficiary.
Old rules - Under the old rules, you
had up to eight distribution methods to choose from, and the wrong choice often cost you or your family a huge
chunk of tax. You were required to choose a distribution method upon taking your first required distribution, and
your decision could not be changed.
Your choice - If you postponed taking
your 2000 distribution until this year, you must use the old rules to calculate your 2000 minimum distribution.
But for your 2001 distribution, you can choose between the old or new rules. Using the new chart results in a smaller required distribution for most people. This
allows more money to be left in your IRA to grow, tax-deferred, for your future use or for your heirs.
Avoid the penalty - One rule hasn't
changed. You can still withdraw more
than the required amount, but if you fail to take at least the minimum distribution on time, you are subject to 50% excise tax on the amount that should have been
withdrawn.
Contact us for assistance if you will turn 70½ this year or if you are already taking retirement distributions.
We can help you select the method best suited for your situation.
Click here to view previous tax tips.
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and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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