In life there are deadlines that are firm (many involving the IRS) and those that are not (for example, deadlines for blog posts). In the estate and tax planning world there are many firm deadlines of which you should be aware. Here are a few, in chronological order:
- Happy 65th Birthday! Several months before you turn 65 you should begin to investigate Medicare coverage and how to sign up. For most people, unless you sign up for Medicare within the 7 month period surrounding and including the month you turn 65 you will pay higher premiums for Medicare coverage forever. More information on this and all other Medicare topics can be found at medicare.gov.
- Happy 70th Birthday! If you have an IRA, 401k, 403b or other retirement account, you must begin taking minimum required distributions (MRDs) from your retirement accounts no later than April 1 following the year in which you turn age 70 ½ . In subsequent years, the MRD must be taken by December 31. Roth IRAs do not require minimum distributions during the account owner’s lifetime. The minimum amount you must withdraw from these accounts on an annual basis is based on the total value of the accounts and your life expectancy. The custodian of your IRA or the plan administrator may calculate the MRD for you, or you can do the calculation yourself. Find more information about MRDs and how to calculate them here. If you forget to take your MRD in any given year you will have to pay a penalty of 50% (yes – 50%!) of the amount not taken.
- Disabled At Any Age – If you have worked but are no longer able to do so because of a disability you may qualify for Social Security Disability Insurance (SSDI) benefits. There are complex rules for determining whether you will qualify for SSDI. In terms of timing, it is important not to wait too long after you stop working to apply for disability benefits or you may no longer be eligible. If you are disabled, call your local Social Security office to determine how long you have to apply for benefits.
- You Can’t Take It With You – If assets owned by a deceased person are in excess of $1 million in value (including taxable gifts made during life), a Massachusetts estate tax return must be filed within 9 months of the date of death, and any estate tax due must be paid by that time. For federal estate tax purposes the 2014 filing threshold is $5.34 million, scheduled to increase to $5.43 million in 2015.
- MRDs, Part II – If you are named as the beneficiary of an IRA or other retirement plan you must keep two dates in mind: (1) if the deceased account owner did not take his MRD for the year of his death before death, the beneficiary must take that MRD by December 31 of the year of the beneficiary’s death; and (2) a non-spouse beneficiary must begin taking minimum required distributions (MRDs) from the inherited retirement account by December 31 of the year following the account owner’s death. There are post-death MRDs required from both traditional and Roth IRA accounts as well as other types of retirement accounts. The post-death MRDs are calculated differently than the MRDs required during the account owner’s lifetime, although the 50% penalty for failure to take a required MRD remains. More information on the post-death MRD rules can be found here and here.
*From the lyrics of a song sung by the White Rabbit in Disney’s Alice in Wonderland.
Published October 2014