Offer Your Skills From EA CPE to Aid Surviving Spouses With Inherited IRAs
There are many tax rules to master for passing the enrolled agent examination. One subject involving several potential taxpayer scenarios is IRAs. Possessing expertise on tax issues relating to IRAs makes your enrolled agent practice stand out.
You easily gain clients in the tax business by offering advice in addition to preparing tax returns and dealing with the IRS. Demonstrating a high level of competence with IRAs in particular gives you plenty of opportunities to properly advise taxpayers.
Inherited IRAs are a common situation encountered with clients as well as when completing your enrolled agent continuing education. Your advice can help a spouse IRA beneficiary save significant income tax liability. That’s because spouses have several options when inheriting an IRA.
Spouse beneficiaries are entitled to rollover inherited IRAs to their own IRAs. They are then able to follow the same distribution rules for the inherited portions as with their contributed parts of the accounts. A rollover permits a spouse to defer taking distributions and thus incurring tax liability until required at age 70AÃ¯Â¿Â½.
Alternatively, spouse beneficiaries can treat inherited IRAs as their own accounts instead of completing rollovers. They can then take distributions just like non-spouse beneficiaries.
The enrolled agent course basics about distributions from a regular IRA state that early distributions are subject to tax penalty. An IRA withdrawal is an early distribution when taken before age 59AÃ¯Â¿Â½. However, beneficiaries are permitted to take penalty-free distributions at any age based upon their life expectancy. These distributions must equal any required minimum annual distribution the decedent was already taking before death.
These same distribution rules apply to spouses who don’t roll over an inherited IRA. However, rolled over IRAs are subject to restrictions regarding distribution just like regular contributory IRAs.
Spouses who inherit IRAs need to act quickly. This is something to emphasize in your work as an enrolled agent. Spouses lose the rollover option if they make contributions to an IRA they inherited. In addition, if the decedent was already receiving IRA distributions, these can’t be rolled over if received by a spouse beneficiary.
Factors dictating the type of advice you give a spouse inheriting an IRA include the income requirements and age of the beneficiary in addition to whether the deceased spouse was already taking IRA withdrawals. Sound advice for spouses who inherit IRAs permits them to make the right tax decisions. Therefore, maintaining your knowledge about this subject with EA CPE gives you a tool to build your credentials as a trusted tax professional.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.