Ultimate IRA Guide: A Compilation of IRA Guides for 2023 (PDF Download)
  • Ultimate IRA Guide: A Compilation of IRA Guides for 2023 (PDF Download) (Publication)
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    What’s New for 2023

    • Quick Reference: Substantially Equally Periodic Payments/SEPP/72(t): 

    Quick reference Guide          

    The IRS issued Notice 2022-6, in which they provide guidance on distributions made under a substantially equal periodic payment (SEPP)/72(t) program.

    Distributions taken under a SEPP/72(t) program are exempt from the 10% early distribution penalty that applies to early distributions from IRAs and employersponsored retirement plans.

    Notice 2022-6 applies to SEPP/72(t) payments that commence on or after January 1, 2023, and may also be applied to those that commence in 2022.

    Notice 2022-6 restates some of the previously existing SEPP/72(t) rules and explains what has changed.

    • IRA Beneficiary Options: Eligible Designated Beneficiary & Designated

    Beneficiary under the SECURE Act, as explained by the proposed RMD regulations that were published on February 24, 2022.

    On February 24, 2022, the IRS issued proposed amendments to the income tax regulations (proposed regulations) that govern required minimum distributions (RMDs) for IRAs and accounts/benefits under employer plans. These regulations propose to update RMD regulations to reflect the amendments made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), enacted on December 20, 2019. While it was expected that the regulations would include clarifications, it has a few surprises that make it necessary for advisors to revise related advice to their clients.

    Interpretations by the Proposed RMD Regulations

    The proposed RMD regulations include a few surprises such as requiring designated beneficiaries to take annual RMDs when the account owner dies on or after the RBD. Confirmation that certain provisions of the existing regulations still apply was also provided. Changes that affect the guides in this publication are reflected accordingly.

    • IRS Notice 2023‐53: IRS Waives Excise Tax for 2021 and 2022 RMDs for beneficiaries subject to the 10‐year rule

    The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) introduced a new 10-year rule for certain beneficiaries who inherit IRAs after 2019. Language from the SECURE Act suggested that distributions during the first nine years after the account owner’s death were optional, though the entire balance must be distributed by the end of the 10th year. However, the proposed RMD regulations, published in February of 2022, explain that some beneficiaries must also take annual life expectancy RMDs under this new 10-year rule. In response to complaints from beneficiaries subject to the 10-year rule plus the annual life expectancy RMD requirement but did not take RMDs for 2021 and 2022, the IRS published Notice 2022-53, under which they waived the 50% excise tax that would otherwise apply.

    You benefit from this waiver only if you are one of the following two types of beneficiaries:

    a. You are a designated beneficiary who inherited an IRA from the owner in 2020 or 2021, and the IRA owner died on or after their required beginning date (RBD). The RBD is April 1 of the year that follows the year the IRA owner reached age 72 (70 ½ if they reached age 70 ½ by December 31, 2019). Generally, a designated beneficiary is a beneficiary who is a person or a qualified see-through trust.

    b. You are a successor beneficiary of an IRA for which the original beneficiary is an eligible designated beneficiary taking annual life expectancy distributions, and you inherited that beneficiary IRA in 2020 or 2021.

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    Category: Retirement Planning

About The Author

About the Author

Denise Appleby, MJ, CISP, CRC, CRPS, CRSP, APA, is a retirement plans consultant to financial, tax, and legal professionals. She is also a retirement plans trainer, freelance writer, editor, and owner of Appleby Retirement Plans Consulting, located on the Internet at www.applebyconsultinginc.com and the consumer free Website www.RetirementDictionary.com . Denise’s retirement-plans-related experiences include working as a retirement plans product manager, training manager, compliance consultant, technical help desk manager, and writer. She has written over 500 articles for many financial newsletters, including Leimberg Information Services (LISI), Investopedia, Pershing LLC's Sixty Something, The Pershing Press, Ed Slott's IRA

Advisor and as a Contributor at www.Forbes.com .

Denise is a frequent speaker at seminars, where she explains the rules and regulations that govern IRAs and qualified plans—including how to prevent paying avoidable taxes and penalties on distributions from retirement plans. Ms. Appleby has appeared on CNBC's “Business News,” Fox Business Network, and numerous radio shows, as well as being quoted in the Wall Street Journal, Investor's Business Daily, CBS Marketwatch's Retirement Weekly, The Street, and other financial publications, where she gave insights on the rules and regulations that govern retirement accounts.

She received a Master of Jurisprudence (MJ) in Employee Benefits from The John Marshall Law School and a B.A. in Sociology from Rutgers State University. She has earned the following professional designations: The Accredited Pension Administrator (APA) from the National Institute of Pension Administrators; the Certified IRA Services Professional (CISP) designation from the Institute of Certified Bankers; the Chartered Retirement Plans Specialist (CRPS) designation from the College for Financial Planning; Certified Retirement Services Professional (CRSP) designation from the Institute of Certified Bankers; and the Certified Retirement Counselor (CRC) designation from the International Foundation for Retirement.

She is a contributing author of the following books:

  • Roth IRA Answer Book.
  • Quick Reference to IRAs.
  • Adviser's Guide to Retirement Plans for Small Businesses.
  • SIMPLE, SEP, and SARSEP Answer Book.

Table of Contents

Contents

General Disclaimer and Copyright ................................................................................................................  a

About the Author ...........................................................................................................................................  c

What’s New for 2023 ..................................................................................................................................... 1

  • Quick Reference: Substantially Equally Periodic Payments/SEPP/72(t): Quick reference Guide .....  1
  • IRA Beneficiary Options: Eligible Designated Beneficiary & Designated Beneficiary under the SECURE Act, as explained by the proposed RMD regulations that were published on February 24, 2022. ....................................................................... 1
  • IRS Notice 2023‐53: IRS Waives Excise Tax for 2021 and 2022 RMDs for beneficiaries subject to the 10‐year rule......... 2

Reminders- Recent Changes to IRA Rules and Regulations ....................................................................... 2

Changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) .......................... 2

A Summary of the CARES Act’s Provisions for RMD Waivers, Coronavirus Related Distributions and Loans............................ 4

IRS Form 1099‐R and Form 5498 Changes ......................................................................................... 9

IRS Publishes New RMD Tables: These are effective 2022 and after ................................................ 10

1. Summary of Operational Procedures for Setting Up Your IRA ....................................................... 11

How to set up your IRA ........................................................................................................................ 11

Your Right to Revoke Your IRA ........................................................................................................... 13

Funding Your IRA ................................................................................................................................. 13

2. Checklist: Designating your beneficiary for your IRA ...................................................................... 14

3. 2023 Limits for IRAs & Employer Plans .......................................................................................... 16

IRA and Salary Deferral Contribution limits if you are under age 50 as at year‐end 2023 ................... 17

IRA and Salary Deferral Catch‐up contribution if you are at least age 50 as at year‐end 2023 ............ 17

2023 MAGI limits for deducting regular contributions to Traditional IRAs ......................................... 18

2023 MAGI limits for making a regular contribution to a Roth IRA .................................................... 19

2023 AGI limits for eligibility for saver’s credit: salary deferral and IRA/Roth IRA contributions ..... 19

4. Traditional IRA Features and Benefits: Quick Reference Guide ........................................................ 20

5. Traditional IRA Funding Options: Quick Reference Guide ................................................................ 23

Regular Traditional IRA Contribution ..................................................................................................... 23

Spousal Traditional IRA Contributions ................................................................................................... 24

Recharacterization of Contribution Made to Roth IRA ........................................................................... 26

Deemed Traditional IRA Contribution ..................................................................................................... 26

Payroll Deduction IRA ............................................................................................................................. 27

Employer‐Sponsored IRA ........................................................................................................................ 27

Rollover from qualified plans [401(a) and 403(a)], 403(b) and governmental 457(b) plans

   [Not a Designated Roth Account (DRA)] ............................................................................................. 27

6. Traditional IRA Deductibility: Quick Reference Guide ....................................................................... 30

Eligibility to deduct regular Traditional IRA Contribution ...................................................................... 30

Determination of “Who Is an Active participant” in an Employer Sponsored Plan .......................... 32

7. Roth IRA Features and Benefits: Quick Reference Guide ............................................................ 34

8. Roth IRA Funding Options: Quick Reference Guide ..................................................................... 36

Regular Roth IRA Contribution .......................................................................................................... 36

Spousal Roth IRA Contributions ......................................................................................................... 38

Recharacterization of Contribution Made to Traditional IRA ............................................................. 38

Deemed Roth IRA Contribution .......................................................................................................... 39

Payroll Deduction IRA ........................................................................................................................ 39

Employer‐Sponsored IRA ................................................................................................................... 39

Conversion from Traditional IRA, SEP IRA and SIMPLE IRA ......................................................... 40

Retirement plan rollovers from qualified plans [401(a) and 403(a)], 403(b) and

   governmental 457(b) plans [non‐Roth] ............................................................................................ 41

Designated Roth Accounts (DRA)

   [Roth 401(k), Roth 403(b) and Roth Governmental 457(b)] Rollovers ........................................... 43

Military Death Gratuities and Service Members’ Group Life Insurance (SGLI) Payments ................ 44

9. Roth IRA vs. Traditional IRA: Quick Reference Guide ................................................................... 45

Regular IRA Contribution Limits ......................................................................................................... 45

Contribution eligibility ......................................................................................................................... 45

Deadline| Regular IRA Contribution .................................................................................................... 46

Eligibility to deduct contributions ........................................................................................................ 46

Age Limitation ..................................................................................................................................... 48

 

Saver’s Credit ....................................................................................................................................... 48

Treatment of earnings ........................................................................................................................... 48

Distributions | Optional Vs. Required ................................................................................................... 49

10. Saver’s Credit: Quick Reference Guide .......................................................................................... 50

Eligibility Requirements ....................................................................................................................... 50

Eligible Contributions ........................................................................................................................... 50

Credit Amount ....................................................................................................................................... 51

Reduction of Eligible Contributions ..................................................................................................... 52

11. Checklist for Your Regular Traditional and Roth IRA Contribution .............................................. 53

12. The Transfer/Rollover Lingo: Recommend when communicating with financial institutions

  and plan trustees ................................................................................................................................. 56

13. Rollover and Transfer Permissibility: Quick Reference Guide ..................................................... 59

Summary of rollover/transfer permitted between different type of accounts ...................................... 60

Rollover and Transfer Limitations for IRAs and Employer Sponsored Plans: Quick Reference ....... 62

14. Rollover and Transfer Rules for Nonspouse Beneficiaries: Quick Reference .............................. 68

15. Early Distribution Penalty Exceptions: Quick Reference Guide .................................................. 71

Exceptions to the 10% Early Distribution Penalty ‘by Type of Account’ ........................................... 71

16. Quick Reference: Substantially Equally Periodic Payments/SEPP/72(t): Quick reference

Guide 74

SEPP Guidance ................................................................................................................................... 78

17. Roth IRA Distribution: Tax and Penalty Treatment: Quick Reference.......................................... 81

Quick Reference # 1: Amounts Subject Income Tax and/or the 10% Penalty .................................... 81

18. Tax and Penalty Determination on Nonqualified Distribution from a Roth IRAs:

     Quick  Reference ........................................................................................................................... 84

19. Required Minimum Distributions ................................................................................................ 86

Accounts Subject to RMDs................................................................................................................. 86

RMD Deadlines for Account Owners ................................................................................................ 87

RMDs and Portability: Summary........................................................................................................ 89

RMD Aggregation Rules .................................................................................................................... 90

RMD Related Definitions ................................................................................................................... 91

IRA RMD Calculation Formula .......................................................................................................... 93

Uniform Lifetime Table: Effective 2022 and After ............................................................................. 94

20. IRA Beneficiary Distribution Options: When the IRA Owner Died on

    or before December 31, 2019   .........................................................................................................95

Traditional IRA Beneficiary Distribution Options .............................................................................. 95

When the IRA Owner Dies before the Required Beginning Date (RBD) ........................................... 96

When the IRA Owner Died on or after the Required Beginning Date (RBD) .................................... 97

Roth IRAs: Beneficiary Distribution Options ..................................................................................... 98

21. IRA Beneficiary Distribution Options: When the IRA Owner Dies

      After December 31, 2019  .............................................................................................................. 99

New 10‐Year Rule for Designated Beneficiaries ................................................................................. 99

10‐Year Rule for eligible Designated Beneficiaries ............................................................................ 100

When the IRA owner Dies before 2020 and the beneficiary dies after 2019 ...................................... 100

IRA Beneficiary Options: under the SECURE Act ............................................................................. 101

Beneficiary is an Eligible Designated Beneficiary: Spouse. The options are: ‐ .................................. 101

If the IRA owner died before the RBD, the options are ...................................................................... 101

If the IRA owner died on/after the RBD, the options are (N/A For Roth IRA) .................................. 101

A. Own account: Treat as own IRA or rollover to own IRA/other eligible retirement account ......... 101

A. Own account: Treat as own IRA or rollover to own IRA/other eligible retirement account ......... 101

B. Beneficiary IRA: Life expectancy rule: Annual distributions over the longer

     of (a) spouse beneficiary’s recalculated life expectancy or (b) the decedent’s

     remaining nonrecalculated life expectancy, beginning by 12/31 of the year that follows

     the year in which the IRA owner died. If the life expectancy of the of the decedent is used,

     the IRA must be fully distributed by the end of the calendar year in which the life expectancy

     factor would have been less than or equal to one if it were determined using the beneficiary's

     remaining life expectancy. .......................................................................................................... 101

Please note: Taking a distribution of the entire IRA balance at any time is always an option. ....... 101

Beneficiary is an Eligible Designated Beneficiary: Nonspouse. The options are: .......................... 102

If the IRA owner died before the RBD, the options are ................................................................... 102

If the IRA owner died on/after the RBD, the options are (N/A For Roth IRA) ................................ 102

A. Beneficiary IRA: Life expectancy rule Distributions over the beneficiary’s nonrecalculated life

expectancy, beginning 12/31 of the year that follows the year in which the IRA owner died. ....... 102

If beneficiary is a minor child of the IRA owner, then the inherited IRA must be fully distributed by

the end of the 10th year after the year in which the child reaches age 21 or dies, whichever is earlier.

.......................................................................................................................................................... 102

If beneficiary is a minor child of the IRA owner, then the inherited IRA must be fully distributed by

the end of the 10th year after the year in which the child reaches age 21 or dies, whichever is earlier

........................................................................................................................................................... 102

B. Beneficiary IRA: Simple 10‐year rule ......................................................................................... 102

Please note: Taking a distribution of the entire IRA balance at any time is always an option. ....... 102

Beneficiary is a Designated Beneficiary who is not an Eligible Designated Beneficiary. The options

are: ‐ .................................................................................................................................................. 103

If the IRA owner died before the RBD, the options are ................................................................... 103

If the IRA owner died on/after the RBD, the options are (N/A For Roth IRA) ............................... 103

Beneficiary IRA: Simple 10‐year rule .............................................................................................. 103

Beneficiary IRA: Simple 5‐year rule. ............................................................................................... 103

Successor Beneficiary Options ......................................................................................................... 104

Notes for Quick Reference Guides for Beneficiary Distributions .................................................... 106

22. Qualified Charitable Distributions .............................................................................................. 109

General Rules and Requirements for Qualified Charitable Distributions ......................................... 109

QCD and RMDs ................................................................................................................................ 111

QCDs and Basis Amounts.................................................................................................................. 113

QCDs and Deductible Traditional IRA Contributions: No Double Dipping for Tax‐Free ................ 114

23. Tax Reporting Forms and Requirements for IRAs ....................................................................... 117

IRS Form 1099‐R, Distributions from Pensions, Annuities, Retirement or Profit‐Sharing Plans, IRAs,

Insurance Contracts, etc., ................................................................................................................... 117

IRS Form 5498, IRA Contribution Information ................................................................................ 118

IRS Form 990‐T, Exempt Organization Business Income Tax Return .............................................. 118

IRS Form 1042‐S, Foreign Person’s U.S. Source Income Subject to Withholding ........................... 118

Form W‐8CE, Notice of Expatriation and Waiver of Treaty Benefits ............................................... 119

IRS Form 8606, Nondeductible IRAs ................................................................................................ 119

IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax‐Favored

Accounts ............................................................................................................................................ 120

IRS Form 8880, Credit for Qualified Retirement Savings Contributions ......................................... 120

Appendix A. Life Expectancy Tables: Effective 2022 and After ....................................................... A

Single Life Expectancy‐For Use by Beneficiaries: Effective for 2022 and after ............................... A

Uniform Lifetime Table: For use by Unmarried Owners, Married Owners Whose Spouses Are Not

More Than 10 Years Younger, and Married Owners Whose Spouses Are Not the Sole Beneficiaries

of Their IRAs): Effective for 2022 and after ...................................................................................... D

Appendix B: IRS’ Guide to Distribution Codes for IRS Form 1099‐R, as provided to IRA

Custodians/Trustees by the IRS. ......................................................................................................... E

Table 1. Guide to Distribution Codes ................................................................................................. E

Appendix C: Transactions Reported on IRS Forms 1099‐R and 5498 .............................................. K

Recommended IRA Resources ........................................................................................................... L

SIMPLE, SEP, and SARSEP Answer Book ....................................................................................... M

Roth IRA Answer Book ...................................................................................................................... M

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