How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Christopher Phelps Your Own Question
Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
84937
Type Your Tax Question Here...
Christopher Phelps is online now
A new question is answered every 9 seconds

IRA and deferred compensation accounts

This answer was rated:

Are company sponsored deferred compensation and individual retirement plans considered seperate entites when it comes to establishing a withdrawal schedule. Must you withdraw funds from both by the age of 70 1/2

For purposes of calculating minimum required distributions (RMD) you are correct in that IRA accounts are segregated from qualified pension plans.


When calculating the RMD for IRA's you add up the fair market value (FMV) of all your IRA accounts as of the beginning of the year (starting with the year in which you turn 70 and 1/2). You then take that balance and divide by the appropriate divisor (depending on your beneficiary, if any) to determine your RMD. You may take your RMD from any IRA account (or combination of accounts) although you must calculate the RMD taking all IRA's into account.


Pursuant to Internal Revenue Code Section 401(a)(9) a plan is not a qualified plan unless it contains the necessary provisions to effect RMD's startng by the year in which a participant reaches age 70 and 1/2. Qualified pension plans calculate the RMD independently of IRA's and each other (if you participate in two or more plans).


Remember, Roth IRA's have no RMD requirements.

Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and 4 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Your original answer helped - next question - because I thought the two different plans could be combined I have not withdrawn from my IRA account and it is worth aprox. $50,000 - I will be 72 in July of this year - what do I do for a cure and how much must I withdraw and what will the penalty be. Thanks

You need to take all required distributions immediately. This means you calculate the distributions as normal for each year required (i.e. the year in which you reached 70 and 1/2 and following years) and take them immediately along with your normal distribution for this year.


The principal penalty for a failure to receive a required minimum distribution is an excise tax equal to 50% of the amount by which the required minimum distribution exceeds the amount actually distributed (i.e., the shortfall for the year). The excise tax may be waived or reduced by the IRS if you establish to the IRS's satisfaction that the missed distributions were due to reasonable error and that reasonable steps are being taken to remedy the shortfall. The IRS gives the following examples, "if the organization that sold an IRA to the taxpayer gave incorrect advice or if the taxpayer made a mistake in using or did not understand the required minimum distribution formula, he or she might request that the tax be excused". Your reasonable cause excuse would be that you were taking additional distributions out of your 401(k) to cover your IRA RMD requirements because of a misunderstanding of the RMD rules (i.e. you thought you added all tax-deferred accounts together). I would make a big issue of the fact that you took 401(k) distributions in excess of what you had too. I would even show the calculations you made that added all the accounts together (i.e. IRA and 401(k)) to determine the 401(k) distribution you took in satisfaction of what you thought were the RMD requirements.


The excise tax first must be paid using Form 5329, which must be filed along with the individual's income tax return for the year the distribution was missed. The taxpayer would attach an explanation of his or her failure to receive the required minimum distribution, showing the reasonableness of the error and the steps taken to correct the error. If the IRS agrees, a refund is sent to the taxpayer.


Accordingly, you are first required to report the underpayment, pay the additional tax and hope the IRS accepts your excuse and gives you a refund. Many taxpayers take the additional distributions and choose not to report or pay the excise tax. By reporting the distributions and paying the tax, you give yourself a chance to avoid the excise tax as well as underpayment penalties and interest (although the IRS may deny your request and apply penalties and interest if they do not like your excuse). By not paying you may avoid the excise tax (for now), penalties and interest, but if the IRS audits and discovers the underpayments, the penalties and interest could be larger. Also, depending on the size of the underpayment, it could be significant enough to extend the statute of limitations from the normal three years to six years.


I would recommend that you properly report the underdistribution and pay the penalty with Form 5329 along with your attached explanation.

Customer: replied 11 years ago.
Thank you so much for your answer - I will follow your advice immediatly. Sally Sterling

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Previous | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    577
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    577
    10 years experience
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    1245
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3882
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/TA/TaxRobin/2013-8-28_16186_femalebusinessprofessionalbinderhand11038485.64x64.jpg Robin D.'s Avatar

    Robin D.

    Senior Tax Advisor 4

    Satisfied Customers:

    11072
    15years with H & R Block. Divisional leader, Instructor
  • http://ww2.justanswer.com/uploads/YI/yirtual/2015-3-12_43754_egan.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    8621
    Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2884
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/FA/fastfile/2011-12-15_23139_Klein2011small.64x64.jpg R. Klein, EA's Avatar

    R. Klein, EA

    Enrolled Agent

    Satisfied Customers:

    1837
    Over 20 Years experience