Month: May 2016

Understanding Required Minimum Distributions (RMD)with Your IRA

IRA’s can be complex and confusing sometimes. There are so many rules and laws that must be followed to avoid penalties. One common area of confusion surrounds the required minimum distribution (RMD). The RMD is simply the minimum amount that an IRA holder must withdraw from their account once they hit the mandatory age to avoid being hit with penalties. This mandatory age varies from state to state but is typically age 70 ½ in most states.

When dealing with any aspects of your financial life, especially your IRA’s, it is always best to consult a financial planner that has experience in IRAs and tax laws.

Required minimum distributions seem to create the most questions when it comes to traditional IRAs. One of the most common questions pertains to taxes. Will the RMD be taxed? This depends on how your IRA is set up. If your IRA contributions are done pre-tax, then the answer to that is yes. You will pay taxes on the RMD. If you had your contributions taxed at the time of the contribution (which is not the typical scenario) you will not have your distribution taxed. Just remember that at some point taxes will have to be paid on this money. If you didn’t pay taxes when you made the contribution you will pay taxes at distribution.

The amount that you receive from your RMD is calculated based on the total account of your IRA balance divided by the distribution period. The IRS has worksheets available that allow you to calculate exactly what your personal distribution period is and what your distribution amount will be.

So what happens if you choose not to take your RMD after you’ve reached the mandatory age? The IRS strongly discourages that by charging you an excise tax on the amount that should have been distributed. This can be up to 50% of the distribution amount. It’s definitely in your best interest to receive the distribution, even if you just want to put it into savings.

Another common question we see concerns that amount above the RMD that you’re allowed to take. The IRS does allow you to take more than the RMD, just remember that taxes will still be applied to this amount. You cannot take more than the required amount and then skip taking an RMD the following year, nor can you apply any portion of what you take one year to your RMD the following year. These rules are very clearly spelled out.

The bottom line with your RMD is that there are very specific rules about what you can and cannot do. Your financial advisor should be aware of these rules and can help you with specific questions that pertain to your situation.

The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.

Contact our office by calling (608) 268-5751 to schedule a consultation or use our online contact form.

Which Is More Important: Family Values & History or Financial Assets?

When talking about families and inheritance, studies show that while financial assets are important, family values and family history take the driver’s seat. Most people treasure family stories and life lessons regardless of their age, financial situation, or race. A simple case would be comparing the reactions of siblings on two topics: a family legend or a new car. Chances are, the stories of the new car will stop after one month while the family stories will continue to be told and enjoyed for decades. This is because family stories, family values, and life lessons learned by members of the family are integral to its legacy.

safeDepositBoxA very recent study though shows that millennials think of inheritance as a “bonus” but expect to get that bonus – and are expecting large sums of up to $100,000. However, they are willing to lower that figure because many parents are already helping their adult children financially with student loans and other expenses.

An article published on www.Marketwatch.com reported that one in three Americans will “blow their inheritance” because they are not prepared to handle it. In fact, those who inherit money tend to spend it quickly and one-third end up with negative savings two years later.

Parents have a responsibility to teach their children money management so any windfall they get will be spent wisely. Inheritance, while a “bonus,” should not be just “fun money.” In today’s economy, a $1,000,000 inheritance does not even guarantee a comfortable retirement for a couple beyond their fifties. …

Why Estate Planning Is Also For Young Adults

The young often think of themselves as invincible in the sense that in their protected world, nothing bad can happen to them, especially with their parents around. Studies show that over 90% of adults under 35 do not have a will, providing reasons like:young-family

  • It’s not necessary.
  • It’s too complicated for me to deal with right now.
  • It’s too expensive.
  • My parents will take care of all that.
  • I won’t need it for a long time anyway.
  • It takes too much time

According to surveys done by USA Life Expectancy, adults aged 15 to 34 rarely die from medical causes but the figures are high for accidents, poisoning, suicide, homicide, and injuries. This suggests that for young adults, death often comes unexpectedly. …

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