IRAs have been around for more than half a century and an entire cottage industry has sprung up concerning the rules for contributions and distributions.
No IRA contribution extension. The deadline for filing federal income tax returns for 2017 is April 17th, but procrastinators can obtain an automatic six-month filing extension from the IRS. This allows some small business owners to take more time to contribute to a SEP-IRA for the 2017 tax year. Caveat: The extension doesn’t apply to traditional or Roth IRA contributions. The deadline for these contributions is April 17th – no extension allowed.
Fall-out from a break-up. Generally, distributions from an IRA are taxable, but there are a few exceptions, including one for payouts pursuant to a divorce. In a new case, a taxpayer who was ordered to pay $100,000 from his IRA to his ex-wife withdrew the money and paid her cash. The Tax Court said that the transfer didn’t qualify for the exception (Kirkpatrick, TC Memo 2018, 2/22/18). Adding insult to injury: This dire tax result could have been avoided if the taxpayer simply re-titled his IRA or transferred the funds directly to his ex’s IRA.
Don’t be a tax fool. The IRS is reminding taxpayers who turned age 70½ in 2017 that they have until April 1st – April Fool’s Day –to take required minimum distributions (RMDs) from traditional IRAs and qualified employer-based plans for the 2017 tax year (IR-2018-56, 3/15/18). Then they must take another RMD for the 2018 tax year by December 31. The IRS also noted that RMDs from qualified plans aren’t mandatory for individuals who are still working, but this exception doesn’t apply to IRAs.
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