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dottiertax
New Member

Tax sheltered account used for funeral expenses

I'm filing for my deceased mother.  She was 86 years old.  She had a tax sheltered account that she had always said was for funeral expenses.  It turns out that it was just an ordinary retirement annuity and that she was supposed to start withdrawing by 70 1/2.  Will she get penalized because she did not draw out earlier?
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Accepted Solutions
MichaelDC
New Member

Tax sheltered account used for funeral expenses

Nonqualified annuities (those held outside a retirement account) generally have no requirement to withdraw your funds at any age unless required by the annuity contract itself. Some contracts force distributions or annuitization to begin at a certain age, generally from age 85 to 100. A few contracts do not require distribution of the proceeds until death. 

Your 1099-R issuer is required to follow RMD rules and regulations, so if you received a distribution and you're at least 70 1/2 years young, you can be almost certain you received an RMD. Check with your plan administrator if you're still not sure.

Required Minimum Distribution (RMD) rules apply to all employer-sponsored retirement plans such as pensions, profit-sharing, 401(k), 403(b), and 457(b) plans, as well as Traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. However, RMDs are not required for Roth IRAs while the owner is still alive.

A qualified retirement plan is an employer's plan to benefit employees that meets specific Internal Revenue Code requirements. These plans may qualify for special tax benefits, such as tax deferral for employer contributions. Your contributions may also qualify for tax deferral.

Qualified retirement plans can include:

  • A qualified employee plan such as a section 401(k) plan
  • A qualified employee 403(a) annuity plan
  • A 403(b) tax-sheltered annuity plan for employees of public schools or tax-exempt organizations
  • An individual retirement account under section 408(a) or an individual retirement annuity under section 408(b) (IRAs)

To determine whether your plan is a qualified plan (most but not all plans are), check with your employer or the plan administrator.

Additionally, regarding IRS RMSs: the aggregate total of  traditional IRA RMDs can be satisfied by distributions from any combination of your traditional IRA accounts.   If you took distributions from some of your traditional IRA accounts that were in excess of the RMD amounts required for those particular accounts, the amounts distributed beyond the RMDs required for those accounts applies toward the RMD of a traditional IRA account from which you distributed less than the RMD required of that particular account.  (Note that, should you have any, RMDs for qualified retirement plans such as 401(k) plans cannot be aggregated with your IRA RMDs.)

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1 Reply
MichaelDC
New Member

Tax sheltered account used for funeral expenses

Nonqualified annuities (those held outside a retirement account) generally have no requirement to withdraw your funds at any age unless required by the annuity contract itself. Some contracts force distributions or annuitization to begin at a certain age, generally from age 85 to 100. A few contracts do not require distribution of the proceeds until death. 

Your 1099-R issuer is required to follow RMD rules and regulations, so if you received a distribution and you're at least 70 1/2 years young, you can be almost certain you received an RMD. Check with your plan administrator if you're still not sure.

Required Minimum Distribution (RMD) rules apply to all employer-sponsored retirement plans such as pensions, profit-sharing, 401(k), 403(b), and 457(b) plans, as well as Traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. However, RMDs are not required for Roth IRAs while the owner is still alive.

A qualified retirement plan is an employer's plan to benefit employees that meets specific Internal Revenue Code requirements. These plans may qualify for special tax benefits, such as tax deferral for employer contributions. Your contributions may also qualify for tax deferral.

Qualified retirement plans can include:

  • A qualified employee plan such as a section 401(k) plan
  • A qualified employee 403(a) annuity plan
  • A 403(b) tax-sheltered annuity plan for employees of public schools or tax-exempt organizations
  • An individual retirement account under section 408(a) or an individual retirement annuity under section 408(b) (IRAs)

To determine whether your plan is a qualified plan (most but not all plans are), check with your employer or the plan administrator.

Additionally, regarding IRS RMSs: the aggregate total of  traditional IRA RMDs can be satisfied by distributions from any combination of your traditional IRA accounts.   If you took distributions from some of your traditional IRA accounts that were in excess of the RMD amounts required for those particular accounts, the amounts distributed beyond the RMDs required for those accounts applies toward the RMD of a traditional IRA account from which you distributed less than the RMD required of that particular account.  (Note that, should you have any, RMDs for qualified retirement plans such as 401(k) plans cannot be aggregated with your IRA RMDs.)

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