Thanks to widespread coverage by the financial press and the proliferation of investor resources, today’s investors are aware of the advantages of IRAs, namely the tax deductibility of contributions and the deferral of taxes on investment earnings. Perhaps less well understood, however, are the rules and penalties associated with inheriting IRAs, and certain transactions, such as contributions, distributions and rollovers. For example, did you know that individuals are required to take an annual minimum distribution from their IRAs starting with the year in which they turn age 70 ½, whether they want to or not? Furthermore, any amount short of the annual required distribution that is not withdrawn is subject to a 50% penalty, a costly mistake.
A recent article in the Wall Street Journal highlights the fact that the IRS has not been particularly vigilant in monitoring and enforcing the rules on IRA transactions and suggests that the agency plans to ramp up its efforts to identify and enforce these rules, along with the associated penalties. Given the complex regulations governing IRAs, investors are advised to consult a tax or financial professional before conducting any type of IRA transaction to avoid triggering unwarranted taxes or penalties.
For more than twenty years, Dowling & Yahnke has advised clients on all types of IRA transactions as part of our wealth management services. Should you have questions regarding your IRA, please do not hesitate to contact us for more information.