3 Reasons Why IRA Upkeep is Important

Umbrellas | Blog | Mountai West IRA
1.Required Minimum Distributions
If you are age 70½ or older. it is required for you to take minimum distributions (RMDs) from your IRA. You need to take your RMD before December 31 each year. The one exception is for first year that minimum distributions are required, in which you have the option of waiting until April 1 of the following year. Keep in mind that utilizing that option means that you will have to take two distributions in that year, which may shift you into a higher tax bracket. The penalty for failing to take your RMD is a 50% tax on the amount you were required to take, in addition to income tax.

2. Fair Market Valuation
Assets that are held in your IRA must be valued every year for the IRS. The value of a publicly traded stock is much easier to attain than calculating the FMV of an alternative asset which can be more challenging. It is important that any IRA holder with a self-directed IRA or 401(k) plan which owns alternative assets, such as real estate, acquire an independent valuation of the asset. This could be in the form of acquiring an independent valuation from a professional or expert in that market, or even something as simple as tax assessment records from the county or state. This is particularly important if you are over the age of 70 ½, and are subject to the IRS’s required minimum distribution rules. If you will be taking the asset as an in-kind taxable distribution as the value of the IRA asset(s) has a direct correlation to the amount of tax you will pay. If the value of that asset is wrong, you could potentially be charged penalties for under-reporting your income, or you could be paying more tax than required.

3. Estate planning
Calculating your plan contributions is important, everyone wants to be able to retire at some point in their life. Most would like to live comfortably at an earlier age. In order to retire comfortably you will need to calculate the amount and how often these contributions are required for you to retire. Creating a budget for your future is essential, not only for you, but your beneficiaries. It is recommended that you always designate your IRA beneficiaries. The foremost reason for naming beneficiaries is to avoid probate. Probate is the long and often expensive process of reviewing your estate and assets to determine proper distribution upon your death. Making sure your beneficiaries are exactly who you want them to be is very important because your named beneficiaries override any distribution requests you may make in a will.