Common IRA Mistakes
Two Withdrawals in One Year May Push You Into a Higher Income Tax Bracket
Assume that you turn 70 1/2 on January 10, 2010. Technically, you have until April 2011 to take your required IRA minimum distribution (RMD) for the year 2010. However, you must also take your distribution for 2011 prior to December 31, 2011. Therefore, your "double" distribution in 2011 could place you into a higher income tax bracket.
Is Your Beneficiary Designation Current?
If your circumstances have changed, divorce, remarriage, additional family member...you may wish to update your beneficiary and should review your beneficiary designations at least annually.
You May Want to Reconsider Before You Name Your Estate as Your Beneficiary
Naming your estate as the beneficiary of your IRA creates several concerns. The IRA:
· becomes an asset of your estate and must go through the costly and time-consuming process of probate.
Taking Receipt of Qualified Plan Distributions
· the entire account balance may be required to be distributed to heirs by the end of the fifth year after the year of death. This rapid pay out may make for a large tax bill and the loss of future tax-deferred growth for loved ones.
· When the benefactor has already been receiving the required pay outs and was recalculating the payments each year based upon their life expectancy, the pay out may even occur faster, as the life expectancy drops to zero and the entire account must be distributed by December 31, following the year of death.
Have your IRA rollover sent directly to your new IRA custodian. Taking receipt of a rollover distribution can cause many tax problems as tax laws mandate that 10% of the distribution be withheld for income tax purposes if the distribution is made to the individual.
MEA Financial Services/Paradigm Equities, Inc. does not give tax or legal advice. The comments regarding the law and tax treatment simply reflect our understanding of current interpretations of such laws. Since laws are always subject to interpretation and possible changes, we recommend that you seek the counsel of an attorney, accountant or other qualified tax advisor regarding these matters as it applies to your particular situation.
MANY TAX PROVISIONS ARE SCHEDULED TO EXPIRE IN 2006 THROUGH 2010 UNLESS EXTENDED OR MADE PERMANENT BY CONGRESS.