By Sarah Brenner, JD
Good morning! I am hoping you can provide some direction for an issue we have encountered.
In December of 2016, we changed our broker-dealer. A particular client had not completed the transfer paperwork and had to mail a check to the IRA custodian directly for their 2016 contribution. The client had mailed the check prior to April 18, 2017, which was the deadline for the 2016 IRA contribution. The check was dated for 04/18/2017. The custodian has incorrectly coded the check for the current year (2017), and it should have been for prior year 2016. The custodian is not allowing the coding to be corrected, which the client is stating they are now subject to fines. Is there a way this client can dispute this issue, or can you please offer any advice? Thank you!
There is good news and bad news. First, here is the good news. The regulations are clear that an IRA contribution made for the prior year can be accepted by the custodian even if it is received after tax-filing deadline as long as it has a timely postmark. This is often referred to as the “mailbox rule”. So, as long as the check was mailed on or by April 18, 2017, the rules clearly allow the custodian to accept it as a prior year contribution.
Here is the not-so-good news. When making a prior year contribution, the IRA owner should make a written designation that the contribution is for the prior year. If the IRA owner fails to do so, the regulations allow the custodian to assume for reporting purposes that the contribution is for the current year. So, if the client failed to make this designation, the custodian would be within their rights to assume the contribution was for the current year (2017). You may want to check the paperwork and see if a tax year designation was clearly made for the contribution.
With a Traditional IRA I’m able to establish multiple IRA’s for the client and then select which IRA to take the clients RMD from.
By using that system, I’ve been able to avoid taking distributions from investments which have performed poorly in the recent year.
Typically, I use a growth portfolio and a small Bank CD IRA which has very favorable liquidity.
Is that same strategy acceptable with Inherited IRA’s.
Example being this:
Client has a 2 Inherited IRA’s.
Does the client need to specifically take the RMD from each inherited IRA or can the entire RMD be taken from one or the other IRA.
I’ve spoken to other experts and nobody knows for sure.
Aggregation of RMDs is an area where we get a lot of questions. It can be especially tricky when inherited IRAs are involved. Aggregation of RMDs from inherited IRAs is possible but there are limits. First, the IRAs must be the same type. In other words, you cannot aggregate an RMD from an inherited traditional IRA with an RMD from an inherited Roth IRA. The inherited IRAs must also be inherited from the same deceased IRA owner. For example, if you inherited two traditional IRAs from your uncle, you could aggregate RMDs from those inherited IRAs. However, if one IRA was inherited from your uncle and another from your aunt, aggregation would not be possible. Finally, the IRAs must be inherited by the same beneficiary for aggregation to be possible. If you inherited IRA funds directly from your uncle and you also are the beneficiary of trust that your uncle named as the beneficiary of another IRA, aggregation would not be possible. This is because you are the beneficiary of one IRA, but the trust is the beneficiary of the other.