FIOLEK TAX & FIANCIAL(732) 494-5227 *** FIOLEKTAX@AOL.COM
Dear Taxpayers: Most people are aware of the IRA rule allowing savers - once a year - to withdraw from an IRA and deposit it into another IRA within 60 days without any taxes or penalties. That rule dramatically changed on January 1, 2015.
A little background first. There has actually been no tax law change, per se. Rather; a recent Tax Court opinion has adopted a stringent reading of the original tax code. The tax code providing for the option of rolling an IRA over once a year - when strictly read - applies on a per person basis, not per IRA. Many people have multiple IRAs, diversified between different banks, CDs, mutual funds and annuities. Historically, common sense had prevailed allowing savors to move each separate IRA once a year without penalty. That privilege ended on January 1 st, 2015.
Now, once you have rolled an IRA over, you have to wait 365 days (not simply to the next calendar year) to roll ANY OTHER IRA over. If you do roll a second IRA over, the ENTIRE IRA rolled over will be subject to ordinary income tax PLUS a 6% penalty for ‘overfunding’ an IRA (and a 2% Obamacare penalty, if you do not have health insurance coverage).
Clearly there are two beneficiaries: the IRS, when savers make innocent mistakes with the paperwork handling their own monies, AND the banks paying virtually ZERO percent interest on IRAs which are now more difficult to move to higher yielding investments.
Yes, you can still change the investment choice and custodian of an unlimited number of IRAs each year and avoid the IRS Tax Grab by directly transferring the assets from your old custodian to the new. Of course, your existing IRA company likely is not going to be too helpful in explain this to you because they do not want to lose your account – especially considering they probably have had the use of your money in exchange for .00005% interest in return.
Please call our office 732-494-5227 or e-mail me firstname.lastname@example.org prior to transferring any IRAs or 401k accounts.
While you may have no influence with congress, the life insurance industry does and they’ve been awarded with a substantial tax loophole which you may want to take advantage of if you have no need to take your full required mandatory distributions between ages 70 ½ and 85. You may now put up to 25% of the value of your IRA (or 401k) into a ‘longevity annuity.’ (The maximum contribution is $125,000). IRA money in longevity annuities do not count towards your annual required withdrawals until you reach age 85. This is a wonderful opportunity for individuals who are concerned about outliving their savings or those with pensions or other retirement income sources who view their IRAs as a nest egg rather than an income source. It’s important to understand that simply putting your IRA in an annuity does not qualify the funds from immunity from IRA mandatory withdrawals. The funds must be invested specifically in a longevity annuity. These are brand new investments and only a handful of companies have approved products by the state of New Jersey at this time.