written by Jennifer Cochran

Jennifer Cochran blog photoThis article will be split into two posts. To read our introduction to this Retirement Series, click here. To read part one, click here.

Failing to rollover IRA funds within 60-days
If you receive funds from an IRA and want to roll over the money to another, you have only 60 days to complete the rollover in order to escape paying taxes on transaction. In general, failing to complete a rollover from one IRA to another within the 60-day window has significant tax ramifications. If the funds are not rolled over within this timeframe, the amount is considered taxable income, subject to ordinary income tax rates. And, if you are younger than age 59 ½, you will pay an additional 10 percent tax.

The distribution may also have state income tax consequences as well. (Note: Rollovers from traditional IRAs to Roth IRAs are taxable, regardless of whether they are completed within 60 days). A direct, trustee-to trustee transfer involves your funds being rolled over from one financial institution to the other, avoiding the 60-day requirement since you never received the money.

Also, you can generally only make a tax-free rollover amounts distributed to you from IRAs only once in 12-month period. As such, you cannot make another rollover from the same IRA to another IRA (or from a different IRA to the same IRA) for one year without the amount being subject to tax. However the trustee-to-trustee transfer is not subject to the one-year waiting period.

Make Roth IRA contributions after age 70 ½
If you continue earning income after reaching age 70 ½, you can continue contributing to your Roth IRA, on top of not having any RMD requirement. Therefore, you continue to accumulate tax-free savings. If you have earned income, and your financial and personal situation allow, consider continuing contributions to your Roth, building up tax-free money when you withdraw the funds.

Failing to name an IRA beneficiary
Don’t make the mistake of neglecting to name a beneficiary for your IRA. IRAs do not pass by will, but rather pass under the terms of an IRA Beneficiary Designation Form. If you have not named a beneficiary of your IRA, such as your spouse or child(ren), the “default” beneficiary usually is the account holder’s estate. Where there is no named beneficiary, distributions from the IRA must then generally be made as a lump sum or within five years after the owner’s death.

When you designate your children as the IRA beneficiary, the rules regarding distributions differ from those that govern IRAs held by a surviving spouse beneficiary. Non-spouse IRA beneficiaries must generally begin taking required distributions over their life expectancy or within five years after the IRAs owner’s death. Although taking required distributions, the undistributed IRA assets continue to grow in a tax-deferred manner. On the other hand, a surviving spouse beneficiary may elect to treat the IRA as his or her own, or take minimum distributions as a non-spouse beneficiary would.

If you have any questions about this topic, please contact us at 417-881-0145. Continue to stay tuned to more articles in our Retirement Series.