June 23, 2012 – WEEKEND INVESTOR – By Kelly Greene IRA Rules Get TrickierUncle Sam is about to get a lot tougher on individual retirement account mistakes—and thatcould trip up investors who arent careful.Some 46 million U.S. households, or two out of five, hold a combined $4.9 trillion in IRAassets, according to the Investment Company Institute. The more-aggressive enforcementmeans those investors need to make sure their accounts are in order—quickly.
Failing to WithdrawPeople in their 70s have to start taking money out of IRAs and pay the federal governmentits due. But the rules get complicated quickly.IRA owners must start taking their required withdrawals from traditional IRAs by April 1 ofthe year after they turn 70½. Those withdrawals are calculated by dividing the total IRAbalance as of Dec. 31 of the year before the owner turns 70½ by life expectancy, found in atable in IRS Publication 590.Contributing Too MuchGenerally, an excess contribution to a traditional IRA is any amount more than $5,000 ayear, or $6,000 if you are 50 or older. But you cant contribute more than your "earnedincome," which trips up some people who manage their own property and investments,accountants say.Inheriting an AccountWhen you inherit an IRA, the rules for making withdrawals are different from thosegoverning regular IRAs, and even some financial professionals dont know them.Comments June 23, 2012One important exception to the $5,000 per person or $6,000 per person (for those 50 years ofage or older) IRA contribution rule exists for spouses: if you and your spouse are 50 years ofage or older and you do not earn “earned income”, but your spouse does, you can stillcontribute to an IRA.For example, if only your spouse had a part-time job that generated $14,000 per year, eachof you could contribute $6,000 to either a Traditional IRA or a Roth IRA. This is a greatway for retirees to grow or retain their retirement nest egg.Assuming contribution limits do not increase in the future, that same 50 year old couplecould contribute $12,000 per year to IRAs through age 75 (or any age, since there no agelimits on Roth IRAs). Based on an 8% annual return the IRAs would grow to $877,271 –providing a nice supplement to their other retirement savings. Without using the exceptionreferenced above the IRA savings would be half this size.Aaron Skloff, AIF, CFA, MBACEO - Skloff Financial GroupAaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA),Master of Business Administration (MBA), is the Chief Executive Officer of SkloffFinancial Group, a NJ based Registered Investment Advisory firm. The firm specializes infinancial planning and investment management services for high net worth individuals andbenefits for small to middle sized companies. He can be contacted at www.skloff.com or908-464-3060.