Q: I requested my 2016 RMD on December 30th but I just found out from my IRA custodian that I will get a 1099-R for 2017, not 2016…why?
A: The distribution year is determined by the processing date, which may differ from the date you make a request. It is important to know your IRA custodian’s deadline for processing distribution requests. Some custodians require that distribution requests be submitted no later than mid-December to ensure RMD processing satisfies the December 31st deadline. There is a 50% penalty imposed by the IRS for failing to take a timely RMD.
Q: I inherited an IRA from my sister who passed away in March 2016 at age 74. She passed away before taking her 2016 RMD so I took it in November 2016. Is the RMD reported on her estate tax return or my 2016 tax return?
A: Your tax return. Year of death RMDs are reported on the recipient’s tax return.
Q: May I deduct losses in my IRA on my 2016 tax return?
A: Generally no, unless you cash out all your IRAs of the same type. Losses and gains are not taken into account on your tax return while your IRA is still open. You may, however, deduct your Traditional IRA losses only if the total balance that you withdraw is less than the after-tax amounts (basis) in your TIRAs. Your basis is attributed to non-deductible contributions and rollovers of after-tax amounts from qualified plans, 403(b) accounts and 457(b) plans. You also must file IRS Form 8606.
Q: I retired and transferred all of my 401(k) assets, including highly appreciated employer stock, to an IRA last year. I recently discovered that a Net Unrealized Appreciation (NUA) strategy could give me a huge tax advantage. Since I haven’t filed my tax return yet, may I still elect to use an NUA strategy?
A: No. Unfortunately, once you transferred your highly appreciated employer stock to an IRA, the opportunity to use an NUA strategy was permanently eliminated. To preserve an NUA strategy opportunity, among other requirements, the shares must have been transferred in-kind to a taxable account.
Q: Social Security was my only source of income for 2016, is it taxable?
A: In general, if Social Security is your only income source, benefits are not taxable.