Minimum required distribution on Keogh?

Discussion in 'Tax' started by AES, Apr 16, 2011.

  1. AES

    AES Guest

    Engineer retires at age 67 with retirement savings in various IRAs;
    begins taking minimum required distributions (MRDs) from all these IRAs
    at age 70 1/2 per the rules.

    He also begins doing some occasional consulting at age 71 (mostly as
    consultant or expert witness in patent litigation); reports this income
    as self employment income on tax returns (doesn't incorporate or set up
    any kind of LLC or other legal structure. He also sets up and begins
    making allowed contributions into a Keogh Plan set up with the same
    financial organization that provides all his IRAs, and takes an
    appropriate deduction for these contributions on his annual tax returns.

    Several years later he's still doing all this. Is he also supposed to
    be taking MRDs from what's accumulated in his Keogh account over
    this period of time?

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    AES, Apr 16, 2011
    #1
    1. Advertisements

  2. On Apr 16, 2:45 pm, AES <> wrote:
    > Engineer retires at age 67 with retirement savings in various IRAs;
    > begins taking minimum required distributions (MRDs) from all these IRAs
    > at age 70 1/2 per the rules.
    >
    > He also begins doing some occasional consulting at age 71 (mostly as
    > consultant or expert witness in patent litigation); reports this income
    > as self employment income on tax returns (doesn't incorporate or set up
    > any kind of LLC or other legal structure.  He also sets up and begins
    > making allowed contributions into a Keogh Plan set up with the same
    > financial organization that provides all his IRAs, and takes an
    > appropriate deduction for these contributions on his annual tax returns.
    >
    > Several years later he's still doing all this.  Is he also supposed to
    > be taking MRDs from what's accumulated in his Keogh account over
    > this period of time?
    >



    Yes, of course. A self-employed person is defined as an employee for
    purposes of Sec. 401 in Sec. 401(c). The plan will be subject to the
    excise tax provided by IRC Sec. 4974 if the RMDs are not made. There
    are provisions for abatement of the penalty (50% of the difference
    between the RMD and the amount actually distributed during the year)
    but you have to pay the penalty first and then apply for abatement on
    Form 5329. See the Form 5329 instructions.

    Katie in San Diego

    Katie in San Diego

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Katie in San Diego, Apr 17, 2011
    #2
    1. Advertisements

  3. "AES" <> wrote in message
    news:...
    > Engineer retires at age 67 with retirement savings in various IRAs;
    > begins taking minimum required distributions (MRDs) from all these IRAs
    > at age 70 1/2 per the rules.
    >
    > He also begins doing some occasional consulting at age 71 (mostly as
    > consultant or expert witness in patent litigation); reports this income
    > as self employment income on tax returns (doesn't incorporate or set up
    > any kind of LLC or other legal structure. He also sets up and begins
    > making allowed contributions into a Keogh Plan set up with the same
    > financial organization that provides all his IRAs, and takes an
    > appropriate deduction for these contributions on his annual tax returns.
    >
    > Several years later he's still doing all this. Is he also supposed to
    > be taking MRDs from what's accumulated in his Keogh account over
    > this period of time?



    If he's over 70.5 he must include the value of ALL his retirement accounts
    requiring RMDs in the calculation of his RMD AND he must take the RMD amount
    annually. BUT he doesn't necessarily have to actually take money from the
    Keogh plan itself. Once he knows how much he must take, he can use the
    "Musketeer Method" for distributions - some from all or all from one!

    Gene E. Utterback, EA, RFC, ABA

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Gene E. Utterback, EA, RFC, ABA, Apr 21, 2011
    #3
  4. AES

    Alan Guest

    On 4/21/11 10:59 AM, Gene E. Utterback, EA, RFC, ABA wrote:
    > "AES"<> wrote in message
    > news:...
    >> Engineer retires at age 67 with retirement savings in various IRAs;
    >> begins taking minimum required distributions (MRDs) from all these IRAs
    >> at age 70 1/2 per the rules.
    >>
    >> He also begins doing some occasional consulting at age 71 (mostly as
    >> consultant or expert witness in patent litigation); reports this income
    >> as self employment income on tax returns (doesn't incorporate or set up
    >> any kind of LLC or other legal structure. He also sets up and begins
    >> making allowed contributions into a Keogh Plan set up with the same
    >> financial organization that provides all his IRAs, and takes an
    >> appropriate deduction for these contributions on his annual tax returns.
    >>
    >> Several years later he's still doing all this. Is he also supposed to
    >> be taking MRDs from what's accumulated in his Keogh account over
    >> this period of time?

    >
    >
    > If he's over 70.5 he must include the value of ALL his retirement accounts
    > requiring RMDs in the calculation of his RMD AND he must take the RMD amount
    > annually. BUT he doesn't necessarily have to actually take money from the
    > Keogh plan itself. Once he knows how much he must take, he can use the
    > "Musketeer Method" for distributions - some from all or all from one!
    >
    > Gene E. Utterback, EA, RFC, ABA
    >

    For purposes of required minimum distributions, you must calculate a
    separate distribution from each type of plan. A taxpayer who has
    multiple accounts for each type of plan uses the aggregate balance of
    each type to calculate the RMD. That RMD can be taken from any number of
    that account type. This info is buried in the final regs for Sec. 401.

    Example 1: Taxpayer worked for two employers and has two 401(k) plans
    with spouse as beneficiary. T/p calculates RMD on total balance in both
    plans. T/P must take the RMD from one or both 401K plans.

    Example 2: Same as Example 1 and T/P also has a 403(b) plan with spouse
    as beneficiary. T/P performs the same calculation as in Example 1 to
    obtain the 401(k) RMD and must take the RMD from one or both 401(k)
    plans. T/P performs a separate calculation for the 403(b) and must take
    the RMD from the 403(b).

    Example 3: Same as Example 2 and T/P has 3 traditional IRA accounts in
    his name with his spouse as sole beneficiary. T/P performs the same
    calculation as in Example 2 and must take a 401(k) distribution and a
    403(b) distribution. T/P calculates the IRA RMD by using the account
    balances of all 3 accounts. RMD can be taken from 1, 2 or 3 different
    IRA accounts.

    Example 4: T/P has a traditional IRA in his name with his son as sole
    beneficiary. T/P also has a traditional IRA with his spouse who is 15
    years younger as the sole beneficiary. T/P also has a traditional IRA
    inherited from his uncle. T/P computes three separate RMDs for the three
    different IRA accounts as the life expectancy factor is different for
    all 3 accounts. T/P can withdraw the total RMD from 1, 2 or 3 IRA accounts.

    --
    Alan
    http://taxtopics.net

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Alan, Apr 21, 2011
    #4
  5. AES

    Alan Guest

    On 4/21/11 12:14 PM, Alan wrote:
    > On 4/21/11 10:59 AM, Gene E. Utterback, EA, RFC, ABA wrote:
    >> "AES"<> wrote in message
    >> news:...
    >>> Engineer retires at age 67 with retirement savings in various IRAs;
    >>> begins taking minimum required distributions (MRDs) from all these IRAs
    >>> at age 70 1/2 per the rules.
    >>>
    >>> He also begins doing some occasional consulting at age 71 (mostly as
    >>> consultant or expert witness in patent litigation); reports this income
    >>> as self employment income on tax returns (doesn't incorporate or set up
    >>> any kind of LLC or other legal structure. He also sets up and begins
    >>> making allowed contributions into a Keogh Plan set up with the same
    >>> financial organization that provides all his IRAs, and takes an
    >>> appropriate deduction for these contributions on his annual tax returns.
    >>>
    >>> Several years later he's still doing all this. Is he also supposed to
    >>> be taking MRDs from what's accumulated in his Keogh account over
    >>> this period of time?

    >>
    >>
    >> If he's over 70.5 he must include the value of ALL his retirement
    >> accounts
    >> requiring RMDs in the calculation of his RMD AND he must take the RMD
    >> amount
    >> annually. BUT he doesn't necessarily have to actually take money from the
    >> Keogh plan itself. Once he knows how much he must take, he can use the
    >> "Musketeer Method" for distributions - some from all or all from one!
    >>
    >> Gene E. Utterback, EA, RFC, ABA
    >>

    > For purposes of required minimum distributions, you must calculate a
    > separate distribution from each type of plan. A taxpayer who has
    > multiple accounts for each type of plan uses the aggregate balance of
    > each type to calculate the RMD. That RMD can be taken from any number of
    > that account type. This info is buried in the final regs for Sec. 401.
    >
    > Example 1: Taxpayer worked for two employers and has two 401(k) plans
    > with spouse as beneficiary. T/p calculates RMD on total balance in both
    > plans. T/P must take the RMD from one or both 401K plans.
    >
    > Example 2: Same as Example 1 and T/P also has a 403(b) plan with spouse
    > as beneficiary. T/P performs the same calculation as in Example 1 to
    > obtain the 401(k) RMD and must take the RMD from one or both 401(k)
    > plans. T/P performs a separate calculation for the 403(b) and must take
    > the RMD from the 403(b).
    >
    > Example 3: Same as Example 2 and T/P has 3 traditional IRA accounts in
    > his name with his spouse as sole beneficiary. T/P performs the same
    > calculation as in Example 2 and must take a 401(k) distribution and a
    > 403(b) distribution. T/P calculates the IRA RMD by using the account
    > balances of all 3 accounts. RMD can be taken from 1, 2 or 3 different
    > IRA accounts.
    >
    > Example 4: T/P has a traditional IRA in his name with his son as sole
    > beneficiary. T/P also has a traditional IRA with his spouse who is 15
    > years younger as the sole beneficiary. T/P also has a traditional IRA
    > inherited from his uncle. T/P computes three separate RMDs for the three
    > different IRA accounts as the life expectancy factor is different for
    > all 3 accounts. T/P can withdraw the total RMD from 1, 2 or 3 IRA accounts.
    >

    I just reread my examples and realized that the examples that contain
    two 401(k) plans is in error. When you have a 401(K) from multiple
    employers, you must calculate your RMD for each employer's plan and you
    must take that RMD from each employer's plan. This rule also applies to
    457(b) plans.

    --
    Alan
    http://taxtopics.net

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Alan, May 10, 2011
    #5
  6. AES

    Alan Guest

    On 4/21/11 12:14 PM, Alan wrote:
    > On 4/21/11 10:59 AM, Gene E. Utterback, EA, RFC, ABA wrote:
    >> "AES"<> wrote in message
    >> news:...
    >>> Engineer retires at age 67 with retirement savings in various IRAs;
    >>> begins taking minimum required distributions (MRDs) from all these IRAs
    >>> at age 70 1/2 per the rules.
    >>>
    >>> He also begins doing some occasional consulting at age 71 (mostly as
    >>> consultant or expert witness in patent litigation); reports this income
    >>> as self employment income on tax returns (doesn't incorporate or set up
    >>> any kind of LLC or other legal structure. He also sets up and begins
    >>> making allowed contributions into a Keogh Plan set up with the same
    >>> financial organization that provides all his IRAs, and takes an
    >>> appropriate deduction for these contributions on his annual tax returns.
    >>>
    >>> Several years later he's still doing all this. Is he also supposed to
    >>> be taking MRDs from what's accumulated in his Keogh account over
    >>> this period of time?

    >>
    >>
    >> If he's over 70.5 he must include the value of ALL his retirement
    >> accounts
    >> requiring RMDs in the calculation of his RMD AND he must take the RMD
    >> amount
    >> annually. BUT he doesn't necessarily have to actually take money from the
    >> Keogh plan itself. Once he knows how much he must take, he can use the
    >> "Musketeer Method" for distributions - some from all or all from one!
    >>
    >> Gene E. Utterback, EA, RFC, ABA
    >>

    > For purposes of required minimum distributions, you must calculate a
    > separate distribution from each type of plan. A taxpayer who has
    > multiple accounts for each type of plan uses the aggregate balance of
    > each type to calculate the RMD. That RMD can be taken from any number of
    > that account type. This info is buried in the final regs for Sec. 401.
    >
    > Example 1: Taxpayer worked for two employers and has two 401(k) plans
    > with spouse as beneficiary. T/p calculates RMD on total balance in both
    > plans. T/P must take the RMD from one or both 401K plans.
    >
    > Example 2: Same as Example 1 and T/P also has a 403(b) plan with spouse
    > as beneficiary. T/P performs the same calculation as in Example 1 to
    > obtain the 401(k) RMD and must take the RMD from one or both 401(k)
    > plans. T/P performs a separate calculation for the 403(b) and must take
    > the RMD from the 403(b).
    >
    > Example 3: Same as Example 2 and T/P has 3 traditional IRA accounts in
    > his name with his spouse as sole beneficiary. T/P performs the same
    > calculation as in Example 2 and must take a 401(k) distribution and a
    > 403(b) distribution. T/P calculates the IRA RMD by using the account
    > balances of all 3 accounts. RMD can be taken from 1, 2 or 3 different
    > IRA accounts.
    >
    > Example 4: T/P has a traditional IRA in his name with his son as sole
    > beneficiary. T/P also has a traditional IRA with his spouse who is 15
    > years younger as the sole beneficiary. T/P also has a traditional IRA
    > inherited from his uncle. T/P computes three separate RMDs for the three
    > different IRA accounts as the life expectancy factor is different for
    > all 3 accounts. T/P can withdraw the total RMD from 1, 2 or 3 IRA accounts.
    >

    I just realized that Example 4 is incorrect. You can only aggregate
    IRAs in which you are an owner. You can not aggregate an IRA in which
    your interest is as a beneficiary. In my example, the RMD for the
    beneficiary IRA must be withdrawn from the beneficiary IRA. The amounts
    calculated for the other two IRAs can be aggregated. Lastly, you can
    aggregate beneficiary IRAs that were inherited from the same decedent.
    The above info is found in Notice 88-38.

    --
    Alan
    http://taxtopics.net

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Alan, Aug 3, 2011
    #6
    1. Advertisements

Want to reply to this thread or ask your own question?

It takes just 2 minutes to sign up (and it's free!). Just click the sign up button to choose a username and then you can ask your own questions on the forum.
Similar Threads
  1. Barry  Picker
    Replies:
    0
    Views:
    555
    Barry Picker
    Jul 30, 2003
  2. Replies:
    13
    Views:
    1,413
    Joel Berry, CPA
    Dec 17, 2003
  3. zkeith
    Replies:
    9
    Views:
    315
  4. Michael B.
    Replies:
    2
    Views:
    267
  5. rob
    Replies:
    1
    Views:
    1,195
    Cal Lester
    Jul 28, 2004
Loading...

Share This Page