Required minimum distributions (RMDs) are amounts you are required to take from qualified retirement plans and IRAs in order to avoid a 50% penalty on insufficient annual distributions.
Here are 5 things to know:
1. If you turned 70 1/2 in 2013, for example, you must take your first RMDs before the end of this year unless you postpone it until April 1, 2014. However, postponement means taking two RMDs in 2014 and that can adversely impact taxation of Social Security benefits in 2013 and result in increased Medicare premiums for Parts B and D in 2015.
2. If you are still working, you can postpone your RMDs from company retirement plans until you retire; this rule does not apply to IRAs.
3. RMDs for IRAs can be taken from one or more accounts. Total up all IRAs and then decide from which one or more accounts to take the required distribution amount. This rule does not apply to qualified retirement plans; separate RMDs are required from each type of retirement plan.
4. No lifetime distributions are required from Roth IRAs for the owner, but beneficiaries usually must draw down the accounts over their lifetime (a special rule applies to spouses).
5. The penalty for insufficient withdrawals can be waived if you ask the IRS to do so. You must explain why you failed to take RMDs and show that you remedied the situation as soon as you discovered the insufficiency.
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It’s the gift that keeps on giving. Remember the government shutdown that ended last week? It seems the effects of that little debacle are rippling through the American tax system.
The Internal Revenue Service says the shutdown – and the furlough of federal workers that it mandated – meant that the IRS lost valuable time it would have used to program and test its tax processing systems. So the official start of filing, which would have been Jan. 21, 2014, will now be pushed back one or two
weeks. That means filing won’t start any earlier than Jan. 28, and could start as late as Feb. 4.
Very Bad Timing.
About 90 percent of IRS operations were closed during the shutdown – and some major work projects were shut down entirely, putting the IRS nearly three weeks behind its timetable for the start of the 2014 tax season. The agency had big plans to add additional refund fraud and identity theft detection to the tax system, so there are extra training, programming and testing demands on the system this year.
Acting IRS Commissioner Danny Werfel says the delay simply gives the IRS the time it needs to get ready.
“Readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right,” Werfel said. “The adjustment to the start of the filing season provides us the necessary time to program, test and validate our systems so that we can provide a smooth filing and refund process for the nation’s taxpayers. We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.”
Early Birds Get No Worm. Werfel says taxpayers who attempt to send in paper returns before the announced start date will not get quicker attention. No returns will be processed before that new start date. In fact, the IRS is still digging out from the mountain of paperwork it got during the shutdown. The agency had about a
million items being processed before the government shutdown – and another 400,000 came in while workers were on furlough.
For now the bottom line is to use IRS automated systems whenever possible if you need assistance. The human-powered help lines are going to be very busy as they dig out of the shutdown’s backlog. Werfel urges patience. And that may be the best advice of all.
The shutdown of the federal government has left some tax delinquents defenseless against U.S. Internal Revenue Service asset seizures, tax professionals said on Wednesday.
Some IRS tax collectors who pursue individuals and businesses that are delinquent are working through the shutdown, but IRS staff who help these taxpayers defend themselves from collectors have been furloughed, lawyers said.
"The IRS can levy, but we can't get the help to stop the levy," said Diana Leyden, a tax lawyer and director of the low-income taxpayer clinic at the University of Connecticut. "This is a real problem."
Leyden said her group assists as many as 140 people a year in fighting IRS disputes.
Asked about the situation, a U.S. Treasury Department spokeswoman referred questions to the IRS's shutdown-contingency plan, which says the agency is continuing activities "necessary for the protection of government property," including "seizure cases." She declined to comment further.
An IRS spokeswoman said the agency's "shutdown plan is consistent with (its) legal requirements."
Under tax law, the IRS can seize property from Americans who have not paid their taxes. Known as levies, such seizures can target bank account balances, real estate or other assets.
With the shutdown two days old and continuing, other parts of the IRS are closed, including its customer-service phone lines and its staff of full-time taxpayer advocates. IRS walk-in taxpayer assistance centers are also closed.
The U.S. Tax Court, which handles about 90 percent of challenges by taxpayers to the IRS, is also closed.
Despite this, tax levies are still being mailed automatically and enforced by IRS agents who were not furloughed.
IRS levies can often be halted before a seizure occurs, but only when help is available, lawyers said.
In Little Rock, Arkansas, Alicia Mitchell said she has two clients who are losing about $150 a month from their Social Security checks because of IRS levies.
"That's the really frustrating part about the shutdown," said Mitchell, director of the low-income taxpayer clinic at the University of Arkansas that serves up to 150 clients a year.
"There's no access for people who are really suffering from levies," she said.
Levies are different from tax liens. A lien is a claim used as security for a tax debt, while a levy actually takes the assets or property to satisfy the tax debt.
The IRS has furloughed all Taxpayer Advocate Service staffers, according to the IRS' Sept. 30 shutdown plan. Created in 1996, this service offers free help to taxpayers facing problems with the IRS in all 50 states.
The Taxpayer Advocate Service did not exist in its current form during the last government shutdown in 1995-1996.
For the six-month period ending in March, the Taxpayer Advocate handled 4,261
levy cases, according to a June report.
The Internal Revenue Service has temporarily stopped sending out tax refunds, and the Tax Court has suspended operations during the federal government shutdown, as lawmakers in Congress continue their battle over delaying or defunding “Obamacare” for a year.
“Tax refunds will not be issued until normal government operations resume,” said the IRS. The IRS emphasized, however, that the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal.
“Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law,” said the IRS. “The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during this time. Taxpayers are urged to file electronically, because most of these returns will be processed automatically.”
In addition, the IRS noted that no live telephone customer service assistance will be available. However, most automated toll-free telephone applications will remain in operation. IRS walk-in taxpayer assistance centers will be closed, though.
While federal government offices are closed, people who have appointments with the IRS related to examinations and audits, as well as tax collection, appeals or Taxpayer Advocate cases should assume their meetings are canceled, the IRS noted. IRS personnel will reschedule the meetings at a later date once
the government shutdown ends.
In addition, IRS computer systems will continue to mail out automated notices to taxpayers, but IRS employees will not be sending any paper correspondence during the period when the federal government is shut down. The IRS provided some basic steps to follow during this period:
• Continue to file and pay taxes as normal. Individuals who have requested an extension of time to file should file their returns by Oct. 15, 2013.
• All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well.
• Taxpayers can file their tax returns electronically or on paper—although the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them.
• Tax refunds will not be issued until normal government operations resume.
• Tax software companies, tax practitioners and Free File will remain available to assist with taxes.
A number of IRS services will remain available, but in a limited way. For taxpayers and preparers seeking assistance, only the automated applications on the regular (800) 829-1040 telephone line will remain open.
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