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Income Taxes

The ABCs of RMDs

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When is your Required Beginning Date (RBD) to take the first RMD?  For traditional IRAs and most retirement plans, the RBD is April 1 of the year after reaching age 73, for those born from 1951 to 1959. Anyone who turned 73 in 2025 must take his first Required Minimum Distribution (RMD) by April 1, 2026.

For those born in 1960 or later, the RBD is April 1 of the year after reaching age 75.   

Who must take an RMD for 2025? For 2025, anyone who owns a traditional IRA, 401(k), 403 (b), or other qualified retirement account must take RMDs if he has reached the applicable RMD age. There is an exception if he is still working and the employer plan allows- see below.

IRAs vs Employer Plans

Traditional IRAs-An account owner must take his RMD by April 1 of the year following the year he reaches his RMD age, regardless of whether he is still working.

Employer plans (401(k) and 403(b))-If the plan allows, and you are still working and not a 5% owner, you can delay RMDs until April 1 of the year after you retire, if that is later than the year you reach RMD status.

Beneficiary of an IRA account? (Rules below apply to IRA owners who passed away after Jan. 1, 2020.)

An individual non-spouse beneficiary who is not an eligible beneficiary must distribute the entire account balance by the 10th calendar year after the account owner’s death.

If the IRA owner reached his required beginning date, the beneficiary must take annual RMDs based generally on his own life expectancy (using the IRS Single Life Expectancy Tables). These RMDs must begin by December 31 of the year after the owner’s death. Although the beneficiary must take annual RMDs, he will need to fully distribute the account within ten years from the owner’s date of death.

If the IRA owner passed away before his RBD, the RMDs are not required. However, the entire account balance must be distributed within ten years from the owner’s date of death.

Who is an eligible designated beneficiary? An eligible designated beneficiary (EDB) is: a surviving spouse, the account owner’s minor child, a disabled or chronically ill individual, or an individual who is not more than ten years younger than the decedent.

Eligible designated beneficiaries do not have to fully distribute the account within ten years.

If the account owner passed away before starting RMDs, EDBs can use their own life expectancy for RMDs.

If the account owner passed away after starting RMDs, the EDBs will take RMDs over the longer of the deceased owner’s life expectancy (had he lived) or his own life expectancy.

Special considerations for certain eligible designated beneficiaries. Surviving spouses may treat inherited IRAs as their own. Minor children follow the EDB rules until reaching the age of majority, at which point the ten-year rule applies.

If an estate is the beneficiary of an IRA, and the account owner reached his RBD, the estate must make distributions based on the remaining life expectancy of the IRA owner (using the IRS Single Life Expectancy Tables). If the IRA owner passed away before his RBD, the assets must be completely distributed within five years of the owner’s passing, but no annual RMD is required.

IRA owner passed away in 2025– If the IRA owner passed away in 2025 prior to taking this year’s RMD, the beneficiary, whether an individual or an estate must distribute the RMD by the end of 2025.

Want to save income taxes on the RMD? – Use a Qualified Charitable Distribution (QCD) in 2025 For IRA owners with charitable intentions, there is a substantial tax benefit by making a QCD. If the owner contributes all or part of his RMD to charity, the portion contributed to charity will not be taxed. QCDs can be made as early as age 70.5, even though minimum distributions are not required until age 73. A QCD may only be made by an original account owner, not by a beneficiary.

What happens if I don’t take the RMD in 2025? If an account owner fails to withdraw an RMD, the amount not withdrawn is taxed at 25%.

Confused? Everyone’s situation is different. Please consult with a tax advisor at Urbach & Avraham, CPAs, to analyze the impact on your personal situation.

March 4, 2025 Deadline to Reduce 2024 Estate & Trust Income Taxes

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If you are the executor of an estate or the trustee of a trust, you should know that egregiously high income tax rates apply to estates and trusts at very low levels of income.  In 2024, for estates and trusts, a 37% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $15,200 of income. That’s not very high.   For example, let’s say an estate has income of $215,200. The tax on the $200,000 (income in excess of the $15,200 threshold), at 40% equals a tax of $80,000. Ouch!

Suggestions?

There is hope!  Estates and trusts only pay tax on what’s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient’s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 10% – 24% on that $50,000 instead of 40%.  Potential tax saving could range from $32,000 to $60,000 depending on the individual tax bracket of each beneficiary.

What Can I Do Now?

It’s not too late. There’s a rule allowing distributions made in the first 65 days of the next year to be treated as if made in the preceding year. A special election must be made on the Fiduciary Income Tax Return.  This year’s deadline is          March 4, 2025. 

 

Estates don’t need to have a calendar year end.  For example, if a decedent died in June, the year end for the Estate can be May 31, in which case the 65-day rule would allow distributions until August 4th.    Executors should keep this in mind when planning distributions.  

Are there Other Factors to Consider? 

Yes.  In addition to financial considerations, there are other factors to keep in mind.  If a beneficiary is not financially knowledgeable and cannot manage money, or has a drug habit or is mentally unstable, you may not want to distribute the funds. These factors may outweigh the potential tax savings of larger distributions from a Trust or Estate.

Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.

March 5, 2024 Deadline to Reduce 2023 Estate & Trust Income Taxes

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If you are the executor of an estate or the trustee of a trust, you should know that egregiously high income tax rates apply to estates and trusts at very low levels of income.  In 2023, for estates and trusts, a 37% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $14,451 of income. That’s not very high.   For example, let’s say an estate has income of $214,451. The tax on the $200,000 (income in excess of the $14,451 threshold), at 40% equals a tax of $80,000. Ouch!

Suggestions?

There is hope!  Estates and trusts only pays tax on what’s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient’s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 10% – 24% on that $50,000 instead of 40%.  Potential tax saving could range from $32,000 to $60,000 depending on the individual tax bracket of each beneficiary.

What Can I Do Now?

It’s not too late. There’s a rule allowing distributions made in the first 65 days of the next year to be treated as if made in the preceding year. A special election must be made on the Fiduciary Income Tax Return.  This year’s deadline is          March 5, 2024. 

Estates don’t need to have a calendar year end.  For example, if a decedent died in June, the year end for the Estate can be May 31, in which case the 65-day rule would allow distributions until August 4th.    Executors should keep this in mind when planning distributions. 

Are there Other Factors to Consider?

Yes.  In addition to financial considerations, there are other factors to keep in mind.  If a beneficiary is not financially knowledgeable and cannot manage money, or has a drug habit or is mentally unstable, you may not want to distribute the funds. These factors may outweigh the potential tax savings of larger distributions from a Trust or Estate.

Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.

Need to take an RMD in 2023…Perplexed?

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When is your Required Beginning Date (RBD) to take the first RMD?  Your first RMD (required minimum distribution) must have been taken by April 1 of the year following the year in which you reached 72 for those who reached age 72 by Dec. 31, 2022. The first RMD for those turning 72 after Dec. 31, 2022 must be taken by April 1 of the year following the year you turn 73. After that, your RMDs must be taken by Dec. 31 of each year.

Beneficiary of an IRA account? (Rules below apply to IRA owners who passed away after Jan. 1, 2020)

An individual non-spouse beneficiary must distribute the entire account balance by the 10th calendar year after the account owner’s death. If the IRA owner reached his required beginning date, the beneficiary must take annual RMDs based generally on his own life expectancy. These RMDs must begin by December 31 of the year after the owner’s death. Although the beneficiary must take annual RMDs, you will need to fully distribute the account within ten years from the owner’s date of death.

If the IRA owner passed away before the RBD, the RMDS are not required. However, the entire account balance must be distributed within ten years from the owner’s date of death.

The IRS is providing relief to heirs of inherited IRAs who are subject to the 10-year rule, allowing them to skip required minimum distributions in 2023. However, there are reasons why one should take an RMD in 2023, although not required:

  • If he has high medical expenses, the medical expenses will offset the RMD income eliminating the income tax on the RMD
  • By taking an RMD in 2023, he will have a smaller balance to distribute in year ten, avoiding a bunched higher RMD at higher tax rates

If an estate is the beneficiary of an IRA, and the account owner reached his RBD, the estate must make distributions based on the remaining life expectancy of the IRA owner. If the IRA owner passed away before his RBD, the assets must be completely distributed within five years of the owner’s passing, but no annual RMD is required.

IRA owner passed away in 2023? If the IRA owner passed away in 2023 prior to taking this year’s RMD, the beneficiary, whether an individual or an estate must distribute the RMD by the end of 2023.

Want to save income taxes on the RMD? – Use a Qualified Charitable Distribution (QCD) in 2023 For IRA owners with charitable intentions, there is a substantial tax benefit using a QCD. The owner contributes all or part of his RMD to charity. The portion contributed to charity will not be taxed. QCDs can be made as early as age 70.5, even though minimum distributions are not required until age 73. A QCD may only be made by an original account owner, not by a beneficiary.

What happens if I don’t take the RMD in 2023? If an account owner fails to withdraw an RMD, the amount not withdrawn is taxed at 25% (reduced from 50% for missed RMDs prior to Dec. 31, 2022).

Still confused? Everyone’s situation is different. Please consult with a tax advisor at Urbach & Avraham, CPAs, to analyze the impact on your personal situation.

 

March 5, 2023 Deadline to Reduce 2022 Estate & Trust Income Taxes

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If you are the executor of an estate or the trustee of a trust, you should know that egregious high income tax rates apply to estates and trusts at very low levels of income.  In 2022, for estates and trusts, a 37% income tax rate as well as the 3.8% Net Investment Income (NII) tax kicks in at $13,451 of income. That’s not very high.   For example, let’s say an estate has income of $213,451. The tax on the $200,000 (income in excess of the $13,451 threshold), at 40% equals a tax of $80,000. Ouch!

Suggestions?

There is hope!  Estates and trusts only pay tax on what’s not distributed. Distributions lower the income tax for the trust and at the same time increase the recipient’s personal income tax. However, individuals do not pay the highest rates unless they are wealthy. In our example, if there are four beneficiaries and each receives $50,000 (one-fourth of the $200,000) many individuals will only pay 10% – 24% on that $50,000 instead of 40%.  Potential tax saving could range from $32,000 to $60,000 depending on the individual tax bracket of each beneficiary.

What Can I Do Now?

It’s not too late. There’s a rule allowing distributions made in the first 65 days of the next year to be treated as if made in the preceding year. A special election must be made on the Fiduciary Income Tax Return.  This year’s deadline is March 5, 2023. 

Are there Other Factors to Consider?

Yes.  Frequently, the main purpose for a trust is not to save taxes, but rather control. If a beneficiary can’t manage money, is a spendthrift, gambler, drug addict or is mentally unstable, you may not want to distribute the funds. These Factors may outweigh the tax savings of distributions from a Trust or Estate.

Please contact us for assistance with making distributions or any other tax related questions about managing a trust or estate.

File now for your NJ ANCHOR Property Tax Rebate

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Be Thankful for the NJ ANCHOR Property Tax Rebate

New Jersey recently launched the ANCHOR program to help homeowners and renters save on property taxes. It is an expansion of the Homestead Benefit Program. ANCHOR stands for Affordable NJ Communities for Homeowners and Renters. The current year ANCHOR program covers 2019.

Who is eligible for the 2019 Anchor program?

  • Homeowners with income of $150,000 or less will receive $1,500
  • Homeowners with income over $150,000 and up to $250,000 will receive $1,000
  • Renters with income of $150,000 or less will receive $450

You are considered a homeowner if you owned a house or condominium on Oct. 1, 2019 and paid property taxes. You are a renter if on Oct. 1, 2019 you rented an apartment, condominium or house.
How do I apply?
Homeowners need an ANCHOR ID and PIN to apply online on the NJ Division of Taxation website or by phone at 877-658-2972. Informational mailers with the ID and PIN numbers were sent the first week of Oct. 2022. If you didn’t receive the form, call the ANCHOR hotline at 888-238-1233. If you applied for the Homestead Rebate last year, you can get your ID and PIN online at ANCHOR ID and PIN .
Tenants can and should apply online at Tenant Online Filing. Tenants do not have an ID and PIN.
Owned a home in 2019 but recently moved?
If you did not receive a mailer, access the online ID and PIN Inquiry System   to retrieve your ID and PIN. Or call the ANCHOR hotline.

Paper applications
Some homeowners must file paper ANCHOR applications. They include:

  • You shared ownership of your home with someone who was not your spouse
  • You are a widow(er) and the deed lists both your name and the name of the deceased spouse
  • You are the executor filing on behalf of a deceased homeowner
  • You are filing for property held in trust
  • You are divorced- you should report your percentage of ownership

When will I receive the ANCHOR payment?
Payments will be sent out in late Spring 2023. ANCHOR payments will be paid in the form of a direct deposit or check, not as a credit to your property tax bill.
When is the ANCHOR application deadline?
The initial deadline was December 30, 2022. The new extended deadline is Feb. 28, 2023!
Eligible homeowners and tenants should file as soon as possible to anchor in their 2019 rebate. You’ll be happy when the rebate floats into your bank account in the Spring of 2023.