IRA Distributions and IRS Penalties

Long Island attorney for estate and financial planningIf you have an Individual Retirement Account (IRA), once you reach the age of 70 ½ years, you must start making distributions out of the account each and every year. Should you fail to make these annual distributions, significant fines are triggered. These fines can equal up to 50% of the money which was supposed to be distributed in that year from the account. Individuals who have IRAs usually wait until the end of the year to make their minimum distributions. They take this action to maximize the interest rate returned on their funds. It is estimated that three-quarters of a million Americans hold IRAs which require distributions each year. It is estimated one-quarter of a million of these IRA holders miss the deadline for taking minimum distributions. The distributions amount to approximately $350 million dollars which triggers potential fines and penalties of up to $175 million dollars.

Bank Notification of IRA Distributions

The IRS has recently been cracking down on IRA holders who fail to make their minimum distributions. It is up to the financial institution that holds the IRA investments to notify you each and every year of the amount of required distributions to be made by the end of that year. The first year the minimum distributions are required to be made, you have until April 1st to make those distributions. Thereafter, in subsequent years, you have until December 31st to make distributions.

Death of the IRA Holder

In the event the individual who owned the IRA dies, the beneficiary of the IRA must make the deceased IRA holder’s distributions in the year of that individual’s death. Beneficiaries who are not the spouse of the IRA holder must continue making distributions in the year after the death of the IRA owner. Unfortunately, financial institutions do not provide these individuals with notice of the minimum distributions.

IRA distributions can be confusing. Seniors should make every effort to meet with their accountant or their attorney to determine what amount they need to distribute each and every year.

estate planning attorney on Long IslandElliot S. Schlissel is an elder law attorney. He drafts wills and trusts. He probates wills and represents beneficiaries of estates.

Retirement Savings Should Not Be Withdrawn Early

When individuals and families have financial problems, they often look to bail themselves out by borrowing and/or withdrawing funds from their retirement savings accounts. It is estimated in 2013, approximately a third of individuals who lost their jobs removed their money from their retirement savings accounts. Early withdrawal of funds from a retirement account causes you to pay income taxes on these funds in the year that they are withdrawn and in addition you must pay a ten percent penalty for the early withdrawal of funds from a retirement account.

The hidden problem in withdrawing funds from a retirement account is that the long term savings aspects of the account were designed to ease the individual into retirement and maintain his or her standard of living. Without these funds, the individual may not be able to retire and/or may be impoverished in his or her old age.

Retirement Savings Are Not Personal Unemployment Insurance

A report by the Vanguard Securities Company in 2013, found that workers who left their jobs, in approximately a third of the cases, cashed out their 401(k) plans. The Vanguard report stated “given the ongoing uncertainties in the employment market, we anticipate an increase in cash outs in the near term, under the assumption that planned savings are sometimes used as a personal form of unemployment insurance.” It is strongly suggested individuals losing their jobs should not immediately cash out their retirement funds. There are numerous implications of these early withdrawal of retirement funds.

Beth McHugh, Vice President of Market Insight at Fidelity Investments, recently stated “keep it in the plan for now, until you can make a more thoughtful decision.” Retirement savings accounts are designed to make sure you are advancing your retirement. You should not be set back every time you changes jobs, by taking money from retirement funds.


Saving money is hard. Retirement savings plans whether they are 401(k)s, 403(b)s, pensions or thrift savings plans, should not be dipped into unless it is an emergency. You will need these funds later in life and may regret that they don’t exist when you retire.

helping adults plan for retirementElliot Schlissel is an elder law attorney. For more than 35 years he has been drafting wills and trusts and probating wills for his valued clients.

Proposed Tax Credit

Steve Israel, a Democrat in the House of Representatives from Huntington, New York, has proposed that children who care for elderly parents should receive a $1,200 tax credit from the federal government. This would apply if the seniors are living on their own, or in an assisted living facility. Representative Israel claims if Congress approves this new statute, it would change what is currently “an act of discrimination in our tax code.” Representative Israel, at a recent news conference, stated the tax code “has to adjust to the realities of demographics.”

Under the current income tax code, individuals who file taxes can only take a tax credit for elderly parents or in-laws who are actually living with them. This is true even if the children are paying a significant amount of the money to maintain and take care of their elderly parents or in-laws.
Most children realize their parents will do better if they can be maintained at their home or the children’s home instead of being placed in a nursing home. There is concern that putting seniors in a nursing home will rob them of their individuality and dignity.


Representative Israel’s recommendation is wonderful. There is a growing senior population in the United States and sometimes the financial burden of maintaining the seniors falls on their children or other loved ones. This would help provide a reasonable tax benefit to children or other loved ones taking care of sick or infirm family members.

However, the reality of the current situation in Congress is this is unlikely to pass. The House of Representatives is controlled by Speaker John Boehner, who is a Republican. Representative Steven Israel is a Democrat. In most cases, the Republican majority is not going along with any of the significant suggestions made by Democrats, no matter how thoughtful or reasonable they may be.

estate planning help for seniorsElliot Schlissel is an elder law attorney representing seniors and their families regarding all types of estate planning, probate issues, and drafting wills and trusts.

Spinning the mindset of the retirees – Why should the baby boom end with a whimper?

Between the years 1946 and 1964, around 78 million Americans were born and this generation came to be termed as the baby boomers. Undoubtedly the hard work of the boomers contributed a lot to shape the US economy in the last 40 years but this entire generation is approaching their retirement age. It was in 2006 that the first few baby boomers crossed the age of 60 and immediately 4 million baby boomers are not set to turn to their retirement age (60) year after year throughout the next 2 decades. The way we thought about retirement was entirely changed by this huge population as majority of the safety programs which were there in place for the previous generations have all disappeared as the boomers are nearing their retirement. There was always a dire need of a new strategy for generating income, which should be strikingly different from that of the parents of the boomers. Read on the concerns of this article to know how retirement planning has shifted focus and some possible solutions to their issues.

Changing lifestyles might mean increased expenses for the retirees

Previously, retirees were satiated with simply “getting by” during retirement but now the boomers usually wait for their retirement so that they might get an opportunity to live the lifestyles that they’ve dreamt of and pursue their hobbies so as to get a steady source of income. There are many seniors who see retirement as the best time to indulge in shopping for gadgets, plan some trips with their family and also enjoy the money that they’ve earned. In a nutshell, nowadays, the baby boomers are more interested in leading an active and productive lifestyle. More activity will certainly mean more spending and this will need effective retirement planning.

Are the boomers living longer?

Yes, with the improvements in the medical facilities and the lifestyle that the boomers lead, the baby boomers who’ve reached 60 in the year 2007 might be predicted to live for another 23 years. In fact, there are instances when retirement lasts for 4 decades or even more. As the life expectancy has become longer, this would certainly mean that retirement income is needed to last longer lest the retirees fall in debt. The cost of living of the seniors has also increased and so the impending retirees require saving more. To avert the financial risks from ruining your retired life, you need to pay more attention to retirement savings and building your nest egg.

Transforming savings into income – The new retirement issue

Previously, both the baby boomers and the financial advisors have focused their efforts on accumulation of wealth. No previous generation has ever required to perform this feat of saving money and this is the reason behind this vexing issue among the boomers. The previous generations didn’t have to live solely on their savings and so there’s nothing from which the present generation boomers would learn the secret of transforming savings into income. The question that immediately comes to your mind is how much savings should you spend every year. Don’t scrimp too much as this will deprive you of living the life you’ve dreamt of but on the other hand, you shouldn’t overspend too. So what is the option?

Creating your own pension plan to make your retirement income last longer

In order to ensure that your income lasts throughout the entire retirement phase, you might consider having a steady source of income to fall back on. How about replacing the former company pension plan and replace it with a personal pension plan. Finding an advisor is perhaps the first step to income planning and there are improved models that will help you create a personal pension plan. Take into account your life expectancy, the cost of living and inflation, the tax obligations that you owe, the type of assets that you own and your lifestyle.

Low income, relying solely on Social Security benefits, making it to Medicare and continuing with some kind of job are what comprises the retirement age. Take the required steps to ensure leading your retired life in the best way possible. Avoid incurring debts and take debt relief steps to eliminate them as soon as you start accumulating.

Anjelica Cullin is an aspiring financial writer. A resident of Kansas city, Missouri. She has been contributing to many finance niche blogs and sites for last couple of years. Ms. Cullin is a guest contributory writer of our blog.