 In total revenue service, IRS tax news. IRS reminds those over age 72 to start withdrawals from IRAs, IRAs, and retirement plans to avoid penalties. Honestly, you've got to appreciate the IRS's tax strategy here with retirement plans. They're like, you know, it may not be a good idea to tax people too much when they're really young and healthy. I know. We can defer the tax until they're like old and feeble and then we'll strike. It'll be like taking candy from a baby. No, like taking a cane from a cripple, whether they can be walking or candy related. Either one. I mean, every politician knows the best age to rob somebody is when they're either helpless toddlers or weakening older people. Unfortunately, toddlers haven't yet accumulated anything that's worth taking. Hence the IRS's retirement plan tax policy. But first a joke, the hiring strategies at the White House are so high these days, it's ridiculous. In fact, their standards are doubled. Sorry, sir. Doing my best. Who made that man a gunner? I did, sir. He's my cousin. Even their hostage negotiation strategies have twice the standards. The celebration of Oscar. Oscar night. And I want it to be Oscar specific. No, no, I mean, not not because you're gay. Like the current administration has a message for all American citizens held hostage by hostile foreign countries. Don't get your hoax up unless you meet our twice high standards. The fact is, if you ain't gay, you're going to stay. Your gayness does not define you. I mean, honestly, like, if the United States had any leverage on the world stage these days, the WNBA could have negotiated their own problem without the help of the government at all. Your Mexicanness is what defines you to me. And I think we should celebrate Oscar's Mexicanity. So, Phyllis, I want you to go find firecrackers. Oh, she had some personal hash oil on her. I see where this is going. How much money do you want? Seems more or less how this would normally go. And a chihuahua. I mean, the fact that we traded an evil Russian agent whose actions actually inspired movie scripts for somebody who had some personal hash oil on them seems to show very weak negotiation skills. I'll trade you a bad poem. I mean, the fact that the government needed to be involved at all seems to exude extreme weakness. But what do I know? I am glad she's home. Why don't you have me writing in on a donkey into the office? I'll have to be a burro. Of course. If Oscar wants a donkey, let's get him one. IR 2022-217 December 12, 2022, Washington. The Internal Revenue Service today reminded those who were born in 1950 or earlier that funds in their retirement plans and individual retirement arrangements face important upcoming deadlines for required minimum distributions to avoid penalties. So a quick recap of kind of the taxation of the retirement plans, noting that we as individuals are not typically very good at the long term type of decisions such as saving for retirement. We are generally fairly good at the short term types of decisions. And therefore the IRS, the government decided to kind of step in and try to incentivize us to be saving for the retirement with these kind of tax benefits for retirement plans. Now remember, the IRS didn't make anything like new in terms of investment tools. They just have kind of like an umbrella which has tax implications with regards to the investment tool. So in other words, even if there were no like IRS or 401k plans or whatnot, we would still be putting money away for retirement in the form of usually mutual funds investing in stocks and bonds or savings accounts and CDs and that kind of stuff. But we wouldn't get the tax benefits. So the government is giving us a tax benefit to put it under the umbrella of say an IRA. There's pros and cons to that or a 401k planner, similar kind of strategies. The benefit is that you get the benefit upfront. That's what the hope is to kind of nudge you from an economic standpoint to put money into the IRA at the point in time that you get the benefit. But the downside is of course that now it's locked in there until retirement age. And if you pull it out early, then you could have a penalty on top of having to pay the taxes with it. So that's the general strategy. We put the money in, we get the deferral for it, we get the tax benefit upfront, and then we have to lock the money in place until retirement. And then at retirement, at some point the IRS is going to say, well, now your past retirement age, and we actually want to force you to take it out so that you're taxed at that point in time before you die, right? Because if you go, if you die, then you've got the whole thing. Now it was in a retirement plan. No one got taxed on it. And you've got inheritance tax. They kind of, what are you going to do with that as well as what does it do to the inheritor and so on and so forth. They try to get the money to get the tax withdrawn before you die. And that's kind of what we're talking about here with the required minimum distributions. So a required minimum distribution or RMDs are minimum amounts that many retirement plan and IRA account owners must generally withdraw annually after they reach age 72. Account owners can delay taking their first RMD until April 1st following the latter of the calendar year that reached age 72 or in a workplace retirement plan retire. RMDs are taxable income and may be subject to penalties if not timely taken. The RMDs require minimum distribution. Rules require traditional IRA. There's a link to that here and SEP, S-E-R-S-E-P and simple IRAs. These are all kind of variants of a retirement plan generally aimed at the simple and the SEP, for example, small income or small businesses that instead of putting in place a 401K might use something like this so they don't have to deal with the more burdensome rules of managing a 401K. So holders begin taking distributions at age 72 even if they're still working. Account holders reaching age 72 in 2022 must take their first RMD by April 1st, 2023 and the second RMD by December 31st, 2023 and each year thereafter. Retirement plans. You got the 401K, the 403B and the 457B plans, profit sharing and other defined contribution plans and defined benefit plans. The first RMD is due by April 1st of the calendar, April 1st of the latter of the year they reach age 72 or the participant is no longer employed if allowed by the plan. A 5% owner of the employer must begin taking RMDs at age 72. RMDs may not be rolled over to another IRA or retirement plan. So the general idea of rolling these things over would be oftentimes like if you're going from one 401K to another because you changed employers and you're not at retirement age. For example, then you're oftentimes or even if you were, but the idea would be that you're trying to avoid the penalty and taxation that would happen by pulling the money out so that you could put it back into another kind of plan. That's what a rollover is for. So the rollover is not designed to avoid the taxes that you would owe by reaching retirement age of 72 when the government is trying to force you to take the money out. So you can't take the money out in other words and just put it back in to another retirement plan in order to avoid the taxation because the whole point is to force you to pay the taxes on it. So the RMD comparison chart, there's a link to that here that highlights some of the basic RMD rules that apply to IRAs and defined contribution plans. Roth IRAs do not require distributions while the original owner is alive. So a Roth IRA is kind of a reverse IRA. You can imagine the situation where you're earning money and either saying, hey, look, I'm not paying much tax right now because maybe I don't earn a lot of money, but the government still wants to incentivize you to put money into a retirement plan. So maybe you use a Roth IRA so you don't get the benefit now, but you get the benefit of the accumulations not being taxed at the point you take it out. Or a situation you might think, well, I think that the things are going downhill possibly and that they're going to taxes at like 95% at some point in order to try to solve the problems that are accumulating. So I would rather not get taxed at the retirement age and pay whatever tax I have now, which although it could be high, maybe you're thinking that you'd rather just pay it at this point. So those are some reasons you might use a Roth IRA. But the government doesn't have the same kind of incentive to force you to take the money out from the Roth as the normal retirement plans due to the fact that you didn't get that huge tax benefit when you put the money in. RMD calculations and 50% on missed distributions. So an IRA trustee or plan administrator must either report the amount of the RMD to the IRA owner or offer to calculate it. An IRA owner or trustee must calculate the RMD separately for each IRA owned. They may be able to withdraw the total amount from one or more of the IRAs. However, RMDs from workplace retirement plans must be taken separately from each plan. So now you've got these required minimum distributions, the question being, how do you calculate those things? And hopefully the person managing the plan, the institution can do that because you want to make sure that you pay the required minimum distribution otherwise the government gets upset and could penalize you. So not taking a required minimum distribution or not withdrawing enough could mean a 50% excise tax on the amount not distributed. So a large tax, 50%, like getting divorced or something. So the IRS has a worksheet to calculate the RMD and payout periods. And then you got inherited IRAs. So an RMD may be required for an IRA retirement plan account or Roth IRA inherited from the original owner. Retirement topics beneficiary has information on taking RMDs from an inherited IRA or retirement account and reporting taxable distributions as part of gross income. So now you've got the issue of what if someone dies and the government didn't force them to take the money out of the IRA and now there hasn't been any tax on it. So what happens is you've got now the final return that they have to file what's going to be the taxes at the point of death in that year that they died. What's going to happen to any estate taxes if there is an estate kind of situation due to how much money they have. And what's going to be the tax situation to the inheritor at that point in time? Because normally the inheritor doesn't have any taxes because it would have been taxed at the estate level if there's going to be any tax at all. But this is weird because it's in a retirement plan so then you get all these problems. I won't get into more detail but you can see the situation here. Publication 559, survivors, executors and administrators can help those in charge of the estate complete and file federal income tax returns and explains their responsibility to pay any taxes due on or behalf of the decedent or person who has died. Then you've got the 2020 coronavirus related distributions. Since 2020 RMDs, required minimum distributions were waived and account owner or beneficiary who received an RMD in 2020 had the option of returning it to their IRA or other required plan to avoid paying taxes on that distribution. So you can see this is one of the problems with the retirement plan distribution is that your money is locked up now. So you can see this situation, you're like, okay, government, you forced me to stop working. You told me I cannot go to work and I don't have any money. But I do have all this money in my retirement plan. But if I pull it out because I'm not of retirement age, you're going to tax me and you're going to hit me with a penalty. So now the government in order to compensate for that has to say, okay, I understand that it's not just an emergency. We made the emergency on you, we shut you down. So yeah, maybe we'll give an exception. You could take your own money out of your own account without us hitting you with a penalty, right? So now you've got all this work around kind of stuff for the emergency situation. So a 2020 RMD that qualified as a coronavirus related distribution may be repaid over a three-year period or have the taxes due on the distribution spread over three years. A 2020 withdrawal from the inherited IRA could not be repaid to the inherited IRA, but may be spread over the three-year for income inclusion. For more information, see the coronavirus relief for retirement plans and IRA's page. There's a link to that here. So if you're in that situation, then check out that for more details on it. So taxpayers can find forms, instructions, publications, frequently asked questions regarding required minimum distributions. There's a link to that here. And other easy to use tools at irs.gov, irs.gov, irs.gov, v for victory over taxes. So there'll be a link to this in the description.