1. IRA Distributions Judith A. Dorian FIRMA Annual Conference April 7, 2008

2. Agenda Age Related distribution Issues Allowable and Mandatory Age-Related Distributions Exceptions to Early Withdrawal Penalty Minimum Required Distributions - traditional IRAs Distributions After owner’s Death Penalties Roth Distribution Issues

3. Permitted IRA Withdrawals Anytime, subject to 10% early withdrawal penalty Over-contributions, without penalty before tax filing deadline - including extensions Income or interest subject to tax if not subject to Exception Rule Equal amounts during owner’s lifetime

4. Early Distribution Penalty 10% Tax on amounts withdrawn from IRA prior to owner reaching 59 1/2 years of age 10% Tax imposed in addition to ordinary income except in cases where exception applies

5. Penalty Exceptions 10% Penalty not applicable when distribution is for: Unreimbursed medical expenses more than 7.5% of AGI Distribution is not more than cost of medical insurance Disability Payment to the beneficiary of a deceased IRA owner

6. Penalty Exceptions Distributions received in form of annuity Distributions are not more than cost of qualified higher education expenses Distributions used to buy, build or rebuild 1st home $10,000 cap, $20,000 if married Distribution due to IRS levy of qualified plan Distribution is qualified reservist distribution

7. Required Minimum Distributions First withdrawal must be taken for year in which IRA owner attains age 70 1/2 Can be taken in that calendar year or no later than April 1 of following year If taken at later date, 2 distributions required in that year

8. Required Minimum Distributions May be taken in installments If IRA owner has multiple IRAs, all must be aggregated to calculate RMD amount, but distribution may be taken from only one, or some of the accounts Traditional IRA distributions are normally taxable at ordinary income rates

9. Qualified Charitable Distributions Non Taxable distribution made directly by IRA Trustee to an organization eligible to receive tax deductible contributions IRA owner must be at least 70 1/2 when distribution is made

10. Qualified Charitable Distributions Acknowledgement from charity required Same as for deductible charitable contribution Maximum amount of $100,000, but cannot be more than amount of distribution that would have been includable in income Distribution will count toward RMD

11. RMD Amount Calculation Tables Table I - Single Life Expectancy Beneficiaries Table II - Joint Life and Last Survivor Expectancy Spouse more than 10 years younger Table III - Uniform Lifetime Most distributions No Table Designated beneficiary is not an individual and owner died before RBD, entire account must be paid out by end of 5th year following owner’s death

12. IRA Owner Deceased Surviving Spouse - Sole Beneficiary May elect to be treated as owner and not beneficiary. In this case, RMD is determined as if owner in year they elected or were deemed to be the owner Can take deceased spouse’s RMD in year spouse died, if ownership acquired that year (If RMD required)

13. Multiple Individual Beneficiaries Beneficiary with shortest life expectancy will be designated beneficiary if: All beneficiaries are individuals and The account has not been divided into separate accounts or shares for each beneficiary

14. Trust as Beneficiary Trust cannot be designated beneficiary, even if it is a named beneficiary Beneficiaries of a trust will be treated as beneficiaries if all of the following conditions are met:

15. Conditions Valid trust under state law Irrevocable trust, or will become so upon death of owner Common beneficiaries of trust and IRA are identifiable from the trust instrument

16. Conditions IRA trustee, custodian or issuer is provided a copy of the trust instrument and it is agreed that within a reasonable time, copies of any amendments to the document will be provided to the administrator Or the administrator must receive all of the following:

17. Conditions A list of all the trust beneficiaries Certification that the list is complete, and the requirements of the first 3 conditions are met An agreement to provide corrected certification upon adoption of any trust amendments that impact the IRA beneficiaries An agreement to provide a copy of the trust instrument to the IRA trustee, custodian or issuer upon demand

18. Trust as Beneficiary Deadline for providing beneficiary documentation to IRA trustee, custodian or issuer is October 31 of year following year of the owner’s death Separate account rules cannot be used by the beneficiaries of a trust

19. Taxability Traditional IRA Distributions Fully taxable when received if only deductible contributions made Partially taxable if non-deductible contributions made Amt of non-deductible contributions is not taxable

20. Recognizing Losses Only possible when all amounts in traditional IRA have been distributed and total distributions are less than unrecovered basis Misc. itemized deduction Subject to 2% of AGI limit Schedule A, Form 1040

21. Reporting and Withholding Distributions reported on Form 1099-R Codes indicate reason for distribution Withholding Taken unless no withholding specifically requested Periodic payments based on marital status and # allowances Amount on non-periodic distributions usually 10%

22. Roth IRA Distributions Qualified distributions not includable in gross income Qualified Distributions : After 5-years after 1st taxable year after contribution was made and

23. Roth IRA Distributions Distribution is: Made on or after attaining 59 1/2 Made due to disability Made to a beneficiary or estate after death Meets first home exception as in traditional IRA rules

24. Roth IRA Distributions Early distribution 10% additional penalty applies when: Violation of 5-year rule when conversion contribution is involved Payable in year of distribution

25. Exceptions to Penalty Same as traditional IRA rules

26. Roth IRA Distributions Distributions are never required by owner at any age if the owner is alive Minimum distribution rules apply after death same as traditional IRAs as though owner died before required beginning date.

27. Distribution to Beneficiary 5 Year Rule applies unless paid over life expectancy of designated beneficiary If spouse is beneficiary: Delay distribution until decedent would have reached 70 1/2 Can treat IRA as their own

28. Non Qualified Distributions Includable in beneficiaries gross income Same treatment as would have applied to owner Conditions: Owner died within 5 year period after 1st contribution Owner died within 5 years of conversion from traditional IRA

29. Tax on Excess Accumulations 50% Excise tax applicable Distributions less than minimum required amount for year from Roth IRAs Same as traditional IRA rule

30. IRA Distributions Questions?