Arkansas Bankers Trust School IRA Update May 16, 2018

Arkansas Bankers Trust School IRA Update May 16, 2018 Presented by: 1 Patrice Konarik Sunwest Training Corp. Kendalia, TX www.sunwesttraining.com patrice@sunwesttraining.com 830.336.3422 2 Trust School IRA Section Agenda Comparison of IRA Plan Types Traditional IRA Roth and Conversion Roth Simplified Employee Pension Plan (SEP) Savings Incentive Match Plan for Employees and Employers (SIMPLE IRA) Rollovers vs. Transfers Qualified Plan to IRA Direct and Indirect Rollover IRA to IRA Rollover vs. Direct Transfers Beneficiary Designations Primary vs. Contingent Beneficiary Options and Payouts 9 Red Flags of Beneficiary Payouts Reporting Death Distribution to Beneficiaries Update Information on QCD and DOL Fiduciary Rules 1

3 TRADITIONAL IRA Created by ERISA in 1974 Qualifications: Must have earned income or be married to someone with earned income Must file a tax return (or joint return for spousal for larger contribution) No minimum age with earned income for minor Maximum age for regular contributions last contribution year is the year before age 70.5 2018 Contribution Amount: 100% of earned income up to $5500 under age 50 and $6500 age 50 and over. Traditional and Roth contributions for the same year are added together to get the contribution limit. 4 IRA DEDUCTIBILITY PHASEOUT ACTIVE PARTICIPANT OF A QRP and MAGI IS: Single YEAR FULL PARTIAL NO DEDUCTION 2017 <$62K $62K - $72K >$72K 2018 <$63K $63K - $73K >$73K Married both covered 2017 <$99K $99K - $119K >$119K 2018 <$101K $101K - $121K >$121K 2

5 IRA DEDUCTIBILITY ONE SPOUSE NON-PARTICIPANT One Spouse Is An Active QRP Participant AND One Spouse Is Not An Active QRP Participant Non-Participant Spouse Deduction if The Joint MAGI: YEAR FULL PARTIAL NO DEDUCTION 2017 <$186K $186K - $196K >$196K 2018 <$189K $189K - $199K >$199K 6 RMDs and Contribution Deadline Required Minimum Distributions: Must begin the year the owner attains the age of 70.5 First year s RMD can be postponed as late as April 1 st of the year after attaining age 70.5 Must take an additional amount to meet the next year s RMD If first year is postponed until the following year, both RMD amounts will be taken in the same year. They will be reported for the same year and taxable the same year. Contribution Deadline: Tax filing deadline not including extensions. For 2017 contributions, April 17, 2018 For 2018 contributions, April 15, 2019 3

7 ROTH IRA Created in 1998 Earned income and file a tax return Contributions are always nondeductible Participating in an employer QP has no bearing on eligibility 100% of earned income up to $5500 under 50 or $6500 age 50 and older for 2018 Contribution eligibility - Based on Modified Adjusted Gross income for 2017 and 2018 as follows: Single FULL PARTIAL NO CONTRIBUTION (2017) <$118K $118K - $133K >$133K (2018) <$120K $120K - $135K >$135K Married (2017) <$186K $186K - $196K >$196K (2018) <$189K $189K - $199K >$199K 8 Roth IRA Contributions can still be made after age 70.5 if still working No RMDs required at age 70.5 for account owner or spouse beneficiary treating it as own RMDs are required for nonspouse beneficiaries as per the beneficiary options. Earnings are considered tax-free after any Roth has been established for 5 years and meets the qualified distribution rules Contributions are considered distributed first followed by the interest earned. 4

9 Roth Qualified Distributions Regular contributions (principal) can be withdrawn tax-free at any time from initial contribution. Tax-free distributions of interest/earnings after five years from initial contribution AND: Customer is over age 59.5 Death payment to beneficiary Disability payment to owner First time homebuyer exception 10 Roth Non-Qualified Distributions Taxable distribution of earnings but no 10% penalty applies if withdrawn under age 59.5 at any time for: Substantially Equal Periodic Payment Medical Exception for high un-reimbursed medical bills Health Insurance Premiums for unemployed College Education Exception Qualified reservist Taxable distribution of interest and 10% IRS penalty applies if under 59.5 and taken for no known exception 5

11 Why do a Roth if.. Contributions are not deductible You have to wait 5 years for free interest Then you have to be Age 59.5 or older Deceased Disabled Buying a first home Answer: Because of the way the money is withdrawn from a Roth called an Order of Distribution 12 Roth Withdrawal Example $20,000 Roth Contributions (Distributed 1st) $ 5,000 Roth Earnings (Distributed 2nd) ------------------------------ $25,000 Roth Established in 1998 Under age 59.5 taking $22,000 for vacation: Bank codes it as Roth premature no exception Client receives a 1099-R for $22,000 with a J code in box 7 Client files 8606 showing 1. $20,000 - as tax free basis 2. $ 2,000 taxable interest plus 10% penalty applies on the interest portion 6

13 Roth Withdrawal Example $20,000 Roth Contributions (Distributed 1st) $ 5,000 Roth Earnings (Distributed 2nd) ------------------------------ $25,000 Roth Established in 1998 Under age 59.5 taking $22,000 for college education: Bank codes it as Roth premature-no exception Client receives a 1099-R for $22,000 with a J code in box 7 Client files 8606 showing 1. $20,000 - as tax free basis 2. $ 2,000 taxable interest but 10% penalty does not apply on the interest if 5329 form is filed with Client s taxes and the higher education exception is taken 14 Roth Withdrawal Example $20,000 Roth Contributions (Distributed 1st) $ 5,000 Roth Earnings (Distributed 2nd) ------------------------------ $25,000 Roth Established in 1998 Under age 59½ taking $22,000 to give to daughter for down payment on first home: Bank codes it as Roth premature-no exception Client receives a 1099-R for $22,000 with a J code in box 7 Client files 8606 showing 1. $20,000 - as tax free basis 2. $ 2,000 tax free for maintained Roth IRA for five years and first-timehomebuyer exception 7

15 CONVERSION ROTH WHAT IS IT? Moving money from a Traditional, SEP or SIMPLE IRA (after two years of participation in the SIMPLE) into a Roth IRA WHY DO IT? Put more money into an IRA earning tax-free interest versus tax-deferred WHO CAN DO IT? Effective 2010, anyone can convert their Traditional to a Roth (the $100,000 income limited that applied to conversions in the previous years was eliminated). All pre-tax money converted from a Traditional IRA to a Roth will have to be claimed as income in year converted or rolled over. Same rules apply to Rollovers from Qualified Employer Plan to Roths 16 TRADITIONAL TO ROTH CONVERSION REPORTING Coding Requirements From a Traditional to a Roth: If under age 59.5: Distribution Coding: If you know it is going directly to a Roth, IRS Code 2 in box 7 of the 1099-R Premature Exception Applies. If you make the check payable to the Client, code it as IRS Code 1 in box 7 of the 1099-R Premature No Exception Contribution Coding: Conversion Contribution (dollar amount shows up in Box 3 of the 5498) If age 59.5 and over: Distribution Coding: IRS Code 7 in box 7 of the 1099-R Normal Distribution Contribution Coding: Conversion Contribution (dollar amount shows up in Box 3 of the 5498 8

17 QUALIFIED PLAN TO ROTH ROLLOVER REPORTING From a Qualified Employer Plan to a Roth: If under age 59.5 and check is made payable to the plan participant:: Distribution Coding: IRS Code 1 in box 7 of the 1099-R Premature No Exception Contribution Coding: Rollover Contribution (dollar amount shows up in Box 2 of the 5498) If over age 59.5 and check is made payable to the plan participant: Distribution Coding: IRS Code 7 in box 7 of the 1099-R Normal Distribution Contribution Coding: Rollover Contribution (dollar amount shows up in Box 2 of the 5498) At any age if check is made payable to the financial institution fbo the plan participant: Distribution Coding: IRS Code G in box 7 of the 1099-R Direct Rollover Distribution Contribution Coding: Rollover Contribution (dollar amount shows up in Box 2 of the 5498) 18 SIMPLIFIED EMPLOYEE PENSION PLAN (SEP IRA) Can be self employed, partnership, LLC or incorporated Can be only employee or have several employees Employees have to meet qualifications set by employer on 5305-SEP. The strictest requirements are: - at least 21 years old - employed 3 out of 5 years - earn at least $600/yr for 2017/2018 Maximum Contributions: IF INCORPORATED 0-25% of employees and employers salary up to: $270,000 (max $54,000) for 2017, or $275,000 (max $55,000) for 2018 IF UNINCORPORATED 0-25% of employees salary and 0-25% of employers net income after the SEP contribution up to: $270,000 (max $54,000) for 2017, or $275,000 (max $55,000) for 2018 9

19 SEP General Rules Employer can offer qualifying employees optional financial institutions or require all SEPs be set up at same institution Bank will set up separate IRA plans for the employer and each qualifying employee using Traditional IRA plan agreements signed by each employee Employer will make the contribution and bank will code it as a EMPLOYER SEP contribution into each SEP IRA. Employer takes the tax deduction and employees will pay taxes when withdrawn from the IRA. Same distribution rules and penalties apply as Traditional IRAs. 20 SEP General Rules SEP Contribution deadline is the employer s tax filing deadline plus extensions (October 15, 2018 for a 2017 contribution) All SEP contributions are reported as current year contributions to the IRS on the 5498 for the year they are made IN, regardless of the year the contribution is made FOR All SEP contributions made between Jan 1, 2018 and Dec 31, 2018 will be reported on the 2018 IRS form 5498 in box 8 even if they were made for 2017 Employer can take the tax deduction for the previous or current year to which it applies SEP plan participation will affect the deductibility of the Traditional IRA Contribution just like a participant of a 401(k) 10

21 Savings Incentive Match Plan for Employers and Employees SIMPLE IRA DEFINITION The SIMPLE is a small business retirement plan where employees (including the employer) can make pre-tax contributions and receive matching employer contributions very much like a 401K. Employee s salary deferrals, employer's contributions and any investment earnings are not taxed until the employee takes distributions from the SIMPLE SIMPLE Plan Qualifications 22 1. The employer must have no more than 100 employees in the prior year. 2. In order to be eligible to participate in the plan, the employee must earn at least $5000 or more from the employer during any two preceding years, and reasonably expect to earn at least $5000 during the current year (Note: Employer can lessen this requirement when setting up the SIMPLE) 3. There is no minimum age requirement. 4. Top-heavy rules and testing do not apply to the SIMPLE. 5. The employer must not maintain any other retirement plan to which contributions were made or benefits accrued for service in the year the SIMPLE is to become effective. 6. Distributions from a SIMPLE are taxed to the employee under the IRA rules, except within the first two years of the employee's participation in the plan. An early withdrawal penalty of 25% (instead of 10%) applies if the accountholder is under age 59.5 11

23 SIMPLE IRA Contribution Limits Employee Salary Deferral Limit Employee pre-tax contributions are allowed up to a maximum of and $12,500 (2017/2018). Catch-up contributions of $3,000 (2017/2018) for people age 50 or over apply to annual contributions Employer Contribution Match 1. Matching Contribution - The employer must generally match the employee s elective contributions dollar-for-dollar up to the annual deferral limit or 3% of compensation whichever is less - for all participating employees. Alternatively, the employer may lower the match in two of any five years, to as low as 1%. 2. Non-Elective Contribution - An employer may elect to make a non-elective contribution of 2% of compensation on behalf of each eligible employee with at least $5000 in compensation - whether they have chosen to participate in the SIMPLE or not. The maximum compensation the non-elective match can be based on is $270,000 (2017) and $275,000 (2018). The employer must notify employees of this election within a reasonable period of time before the election deadline (which is defined as 60 days before the beginning of the plan year). 24 Deadline to Establish and Contribute The employer must notify the employees before 60 days prior to the plan year of the employer's matching contribution election (i.e., Before November 1st for a plan year beginning January 1st). The employees have 60 days before the plan year before the plan year begins to elect the amount or percentage of their salary deferrals. The employee s SIMPLE accounts must be established before the salary deferrals can begin. Employee deferrals must be deposited into the employee's SIMPLE account within 30 days of the payroll deduction. The employer match must be contributed by the tax-filing deadline including extensions. 12

25 QP and IRA Rollovers vs. IRA Transfers QP Direct Rollover - Qualified Plan to Traditional, Roth or SEP (no access) QP (Indirect) Rollover Qualified Plan to Traditional, Roth or SEP (with access) IRA Direct Transfer IRA to IRA (no access) IRA Rollover IRA to IRA (with access) 26 QUALIFY THE MONEY!!!! When a financial institution receives money from anywhere, there are 3 questions that should be answered: 1. What type of account is it coming from regular vs. individual retirement account vs. employer plan? 2. Where is it going to a retirement account or a regular account or employer plan? 3. Does the account owner have access and use of the funds between the financial institutions? 13

27 Qualified Plan Rollovers 2017 Example: John Smith has worked for his company for 40 years. He is 65 and decides to retire and live the good life. His company s HR department hands him retirement package with his benefit statement showing a $100,000 balance in his 401(k). 28 QRP ROLLOVERS - SIX RED FLAGS 1. Rollover Certification/Election/Review Have the Client complete this form in addition to the contribution form to certify he/she is an eligible rollover recipient and all of the funds are eligible to be rolled over. 2. IRA Investment Make sure the incoming direct rollover funds are placed in an IRA product - not a regular account. 3. Rollover Code The incoming funds can sometimes be confused with an IRA-to- IRA transfer. Make sure funds coming directly from a QP are coded as a rollover - not as a transfer. 4. Nonspouse Beneficiary Beginning is 2007, a nonspouse beneficiary is allowed to do a direct rollover from an employer QP into an Inherited IRA. If the beneficiary instructs the company to make the check payable directly to the beneficiary (and not a financial institution), this rollover option is no longer available. Nonspouse must start single life death distributions beginning the year after death 5. Rollover to Roth IRAs Beginning in 2008, employer plan participants can choose to have their funds rolled into a Roth IRA without going through the Traditional IRA first, when coming from any employer plan to a Roth, the contribution code is rollover not conversion. 6. After-tax funds distributed should ALWAYS be rolled directly to a Roth IRA 14

29 QP ROLLOVER QUALIFICATIONS Must come from a Qualified Plan (401(k) 403(b), PROFIT SHARING, ESOP, GOV T 457 PLAN) Must be an eligible recipient: (participant, spouse beneficiary, ex-spouse under QDRO, nonspouse beneficiary to an Inherited IRA beginning 2007) Beginning in 2008, funds from a QP (both pre-tax and after-tax) may be rolled over directly to a Roth IRA. After-tax funds coming from a QP should NEVER be rolled into a Traditional only a Roth. Cannot rollover funds from a QP if paid out in more than a 10 year period or minimum distributions after age 70.5 30 QUALIFIED PLAN ROLLOVER QP DIRECT ROLLOVER VS. QP ROLLOVER ACCESS and USE 15

31 QUALIFIED PLAN ROLLOVER DIRECT VS INDIRECT DIRECT NO ACCESS Check is made payable to receiving institution Can be mailed to individual, to bank or wired to bank No federal income tax withholding required INDIRECT OWNER ACCESS Check is made payable to individual Check is given or mailed to individual Company required to do 20% mandatory federal income tax withholding on taxable portion 32 1099-R QP Distribution Reporting 16

33 IRS 1040 FORM 100,000.00 Rollover 0 34 5498 IRA Contribution Reporting 17

MOVING AN IRA 35 ROLLOVER VS TRANSFER IRA ROLLOVER VS IRA TRANSFER MOVING AN IRA 36 ROLLOVER VS TRANSFER IRA ROLLOVER VS IRA TRANSFER ACCESS and USE 18

IRA TO IRA ROLLOVER 37 FINANCIAL INSTITUTION INDIVIDUAL FINANCIAL INSTITUTION Check made payable to individual Must be rolled over within 60 days of receipt of the funds NEW RULE 1/1/2015 An accountholder can only do one tax free rollover from his/her total IRA plans in a 12 month period. 38 NEW IRA Rollover Changes Effective January 2015 Beginning January 1, 2015, an IRA accountholder will only be able to do one taxfree 60-day rollover from the total IRAs owned by the accountholder in a 12 month period beginning from the day of receipt of the funds regardless of how many IRA plans or plan types owned by the taxpayer. Any additional IRA distributions taken where the accountholder has receipt of the funds will be disallowed to be rolled over and will be considered taxable income and may also receive an IRS 10% penalty if under age 59.5. If an additional rollover occurs within the 12 month period and is not withdrawn before the tax filing deadline plus extensions, it will receive an additional 6% excess contribution penalty for each year it stays in the IRA. The IRA accountholder MUST CERTIFY the funds are eligible for rollover and that no other rollover has occurred in the last 12 months by completing the Rollover Certification or Rollover Review form provided by your forms vendor. It will be very important for IRA money to be moved only as IRA Direct Transfers if any IRA rollover has occurred within the last 12 months. This new rule does not apply to Qualified Plan Rollovers or Conversions from Traditional to Roth IRAs. 19

39 Past 60 day (late) rollover exceptions NEW IRA Rollover Changes Effective August 24, 2016 A new IRA Revenue Procedure 2016-47 allows financial institution to accept tardy rollovers after the 60 day period if the IRA Accountholder self-certifies the reason for the delay within 30 days or discovering the error. Some of the acceptable reasons are: (a) an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates; (b) the distribution, having been made in the form of a check, was misplaced and never cashed; (c) the distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan; (d) the taxpayer s principal residence was severely damaged; (e) a member of the taxpayer s family died; 40 Past 60 day (late) rollover exceptions (f) the taxpayer or a member of the taxpayer s family was seriously ill; (g) the taxpayer was incarcerated; (h) restrictions were imposed by a foreign country; (i) a postal error occurred; (j) the distribution was made on account of a levy under 6331 and the proceeds of the levy have been returned to the taxpayer; or (k) the party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer s reasonable efforts to obtain the information. 20

41 Late Rollover Self Certification 42 5498 Reporting Late Rollover 21

43 IRA TO IRA DIRECT TRANSFER FINANCIAL INSTITUTION FINANCIAL INSTITUTION Transfer Request Form is initiated by the receiving institution, signed by the IRA owner and the check made payable to the new custodian/trustee Unlimited transfers from IRA to IRA per year Not reported to IRS except in FMV on 5498 44 My To Ti Law 22

IRA Transfer/Rollover Comparison Chart 45 46 Direct transfer vs. direct rollover Check is made payable to receiving custodian/trustee Coming from a: DIRECT CUSTODIAN/TRUSTEE TRANSFER Going directly to a: NON-REPORTABLE: Traditional IRA Roth IRA SEP IRA SIMPLE IRA (after 2 years of participation) Traditional IRA Roth IRA SEP or Traditional IRA SIMPLE or Traditional IRA Transfer out/transfer In Transfer out/transfer In Transfer out/transfer In Transfer out/transfer In Coming from a: 401k 403b Profit Sharing/ESOP Gov t 457 Traditional IRA DIRECT ROLLOVER Going to a: Traditional/Roth/QP Traditional/Roth/QP Traditional/Roth/QP Traditional/Roth/QP Qualified Plan 1099-R and 5498 Direct Rollover out and in Direct Rollover out and in Direct Rollover out and in Direct Rollover out and in Direct Rollover out and in 23

47 Beneficiary Designations Primary Beneficiary Receives funds after IRA owner dies and primary is still alive Contingent Beneficiary Receives funds if primary beneficiary dies BEFORE the owner, or if the primary beneficiary disclaims the IRA. 48 Example #1 Owner Jack Primary - Susie (wife) Contingent - Caroline (daughter) Jack dies who gets the money? Susie Susie dies who gets the money? It depends on who Susie named when she took ownership of the funds. 24

49 Example #2 Owner - Jack Primary - Susie (wife) Contingent - Caroline (daughter) Susie dies and then Jack dies, who gets the money? Caroline. When the primary dies BEFORE the owner, the contingent gets the money. 50 SPOUSAL CONSENT / WAIVER If a spouse is not named as primary beneficiary of an IRA, is it required by law in your state that they must sign the spousal consent section of the beneficiary section? In most states the answer is NO for IRAs but YES for Qualified Employer Plans in all states. YES for spousal waivers on IRAs may also apply to community property states and other states who may have a case law precedent. 25

9 RED FLAGS OF BENEFICIARY PAYOUT 1. Receive a legal copy of the death certificate or other legal notification (not the Obituaries) 2. Put a hold on the decedent account until the beneficiary makes an Election of Payout 3. Make sure the bank is paying out according to the most recent beneficiary designation 4. Make sure the beneficiary signs a Beneficiary Election of Payment Form 5. Important: Payout to Nonspouse Beneficiaries Never make a check payable directly to a nonspouse beneficiary unless they have: (1) consulted their tax person, (2) signed your Beneficiary Election of Payment Form choosing an immediate lump sum, and (3) understand it will create an immediate taxable event for the distribution year and will ineligible to be rolled into any kind of IRA. 6. Never pay to a beneficiary unless you have the correct TIN for the 1099-R 7. Never give a beneficiary a check unless you KNOW the IRS reporting is going out in the beneficiary s name and TIN as a death distribution - not the deceased IRA owner. (Code 4 on the 1099-R) 51 9 RED FLAGS OF BENEFICIARY PAYOUTS 8. If the owner had not taken his/her total RMD in the year of death, it is the beneficiaries responsibility to meet at least the deceased owner s RMD before 12/31 of the death year. This remaining amount should be distributed AFTER the Inherited IRA is set up in the beneficiary s name and SSN, the decedent IRA has been transferred into it, and then the RMD (plus more if the beneficiary wishes) would be coded as a death distribution to the beneficiary not the deceased owner. If there are multiple beneficiaries, each beneficiary would take out their pro rata share of the RMD. In the year after death and beyond, the RMD should be calculated on the longer of the owner or beneficiary s single life expectancy reduced by one each year. 9. 99% of the time a spouse beneficiary should transfer the decedent spouse s IRA into this/her own name and treat it as his/her own. There are three exceptions to when the spouse may want to set up the Inherited IRA instead: 1. Surviving spouse treating it as his/her own may put them over the FDIC limit. 2. Spouse is under 59.5 and wants to take penalty free death distributions. 3. Surviving spouse is older than deceased spouse and wants to postpone RMDs until deceased spouse would be 70.5. This should be temporary and transferred into the spouse s own name in the year the deceased spouse would have been 70.5. That would result in better payout options for the spouse and also the spouse s named beneficiaries. 52 26

Beneficiary Options 53 BENEFICIARY PAYOUT OPTIONS SUMMARY Payout Options Spouse Individual Nonspouse And Qualified Trust Estate or Non-Qualified Beneficiary 1.Lump Sum Dist-ribution Yes, available by 12/31 of the year after owner s death Yes, available by 12/31 of the year after owner s death Yes, available by 12/31 of the year after owner s death 2. Five-YearPayout Yes, available within 5 year period Yes, available within 5 year period after after owner s death if owner not in owner s death if owner not in payout. payout. Yes, available within 5-year period after owner s death. Longest allowed if the owner was not in required payout at death and had no designated beneficiary on the IRA. 3. Payout over Single Life Expectancy From Inherited IRA Yes, available from the Inherited IRA at any time over the longer of Yes, payout may be taken from the Inherited IRA over the beneficiary s age, or the longer spouse s or deceased owner s of deceased owner s or beneficiary s remaining single life expectancy and divided into prior year-end remaining single life expectancy if the owner was in RMD. Single life is reduced by one balance. The distribution does not each year and divided into the prior yearend have to begin until the deceased owner would have attained age balance. Must begin no later than the year after the owner died. 70½. Yes, but only if the owner was in RMD when deceased. The payout must be calculated on the deceased owner s remaining single life expectancy the year the owner died, reduced by one each year and divided into the prior year-end balance. Must begin no later than the year after the owner died. 4. Transfer into Beneficiary s Own Name Yes, available at any time if the spouse is the beneficiary of the IRA No, never available into nonspouse beneficiary s own name, only into an Inherited IRA styling John Doe, beneficiary of Mom Doe Doe Trust, beneficiary of Mom Doe No, never available into nonspouse beneficiary s own name, only into an Inherited IRA styling Estate of John Doe, beneficiary of John Doe s IRA 54 INHERITED/BENEFICIARY IRA Multiple Beneficiaries Example All distributions to beneficiaries from Inherited IRAs are coded as death distributions IRS code 4 27

55 Look-through or See-through Trust Beneficiaries John Smith dies with Family trust as beneficiary. Four children are beneficiaries of the trust. Normal Payout to a Trust Set up Inherited IRA titled: Smith Family Irrevocable Trust beneficiary of John Smith IRA TIN: EIN for trust Payout Options: Trust can take RMDs based on oldest beneficiary s Single Life Expectancy reduced by one each year or faster Distributions to: The Trust Reporting Recipient Trust name and EIN as a Death distribution Taxable to: The trust although the trust may be able to pass income on to the beneficiaries via a K-1 or similar tax reporting Attorney or IRS Private Letter Ruling (PLR) determines trust is a look through or see through trust because beneficiaries have an unencumbered right to receive the funds. Set up 4 Inherited IRAs titled in each of the beneficiaries names and SSNs as follows: Beneficiary 1 as beneficiary of Smith Family Trust beneficiary of John Smith IRA - etc TIN: SSN for each beneficiary Payout Options: All beneficiaries must take RMDs based on oldest beneficiary s Single Life Expectancy reduced by one or faster Distributions to: Each Beneficiary Reporting Recipient Each beneficiaries name and SSN as a Death distribution Taxable to: Individual beneficiaries 56 Qualified Charitable Distributions / QCD Tax Exemption The Qualified Charitable Distribution (QCD) exemption was reinstated permanently as part of the Consolidated Appropriations Act of 2016 and signed into law by President Obama on Friday, December 18, 2015. IRA account owners and beneficiaries of IRAs who are 70.5 or older and want to take their RMD amounts or more up to $100,000/per year by December 31 st of the exemption year, will instruct the financial institution to make the bank check payable directly to a qualified charity and the clients may take a tax exemption on their taxes for that amount. The procedure for Issuing the check and IRS reporting is as follows: 1. The financial institution makes the bank cashier s check payable directly to the qualified charity. The check can be given to the accountholder to mail or the bank may mail it directly to the charity 2. The IRA distribution is reported on a 1099-R showing the full amount as taxable in box 2a in the accountholder s name and SSN as a normal distribution for the owner (IRS code 7) or death distribution for a beneficiary (IRS code 4 ) NOT a code F (Charitable Gift Annuity). 3. The accountholder shows the total distribution amount on line 15a of his/her 1040 form and subtracts the QCD amount from line 15b (Taxable Amount) with the letters QCD next to the line if any of the distribution was directed to a qualified charity. 28

57 Status of DOL Fiduciary Rules During the Obama years, the results of retirement savings studies revealed consumers lost over $37 billion worth of assets sometimes due to investors and advisors not acting in the best interests of their clients. Many of these funds lost were due to bad advice regarding Qualified Plan and IRA Rollovers. In 2016, the DOL Fiduciary law was passed and expected to be implemented in 2017 regarding disclosures and advisors acting with ethical practices for their clients even if it was not in the advisor s best interest. In June 2017, the Conflict of Interest part of the rules was rolled out mainly regarding advisors disclosing fees, commission, the types of investments and whether or not they owned any of these investments. The other part called Best Interest Contract Exemption or BICE was supposed to roll out in January 2018 but was being appealed in court On March 15, 2018, the 5 th Circuit Court of Appeals struck down the DOL fiduciary rules creating a split between the federal court system. The status of these rules is up in the air for now and may end up in the Supreme Court. 58 Where to Get More Information The IRA Red Book To purchase the complete 275 page 2017-2018 Sunwest Training IRA Training and Reference Manual for a price of $100, contact the Arkansas Bankers Association. 29