The “I” in IRA stands for individual. Many times it’s up to you to know things or keep track of information. So, to help you stay on track with your IRA, here are 7 things IRA custodians don’t do for you.
1. 60-Day Rollovers
An IRA custodian doesn’t remind you that you can only do one 60-day rollover in a 12-month period. In addition, you only have 60 days to complete a rollover. Custodians don’t have an obligation to give you information on rollovers.
To be eligible for rollover, the distribution is payable to you. You then have 60 days to deposit the money into another, or the same, IRA/Roth IRA. You can only do a 60-day rollover once in a 12-month period. IRAs and Roth IRAs are aggregated for the once-per-year rule.
2. Non-Spouse Beneficiary Cannot Roll Over
IRA custodians aren’t required to tell beneficiaries that a check made payable to them from an inherited IRA is taxable. In addition, if you’re a non-spouse beneficiary, you can’t do a 60-day rollover either. This means if you inherit a Roth IRA from someone other than your spouse, the distribution may not be taxable. However, you can’t roll it over. In either case, the IRA/Roth IRA is gone.
3. Non-Spouse Inherited RMDs
IRA custodians aren’t required to notify you or calculate the required minimum distribution (RMD) on an inherited IRA. If you inherit an IRA from someone other than your spouse, RMDs begin the year after the owner passes. This is true regardless of the account owner’s age. Furthermore, this requirement is the same if you inherit a Roth IRA. (The rules are different for spouse beneficiaries.)
4. Early Distribution Penalty Exception
If you take an early distribution from your IRA, the custodian isn’t responsible for determining if you qualify for an exception. Your custodian will create the 1099-R as an early distribution, no known exception. If you are eligible for one of the exceptions, it’s your responsibility to let the IRS know by filing Form 5329 with your tax return.
5. Qualified Charitable Distribution (QCD)
If you are 70 ½ or older, you qualify for a QCD. You can have funds sent directly from your IRA to a qualifying charity. This type of distribution satisfies your RMD. Just remember the maximum allowable QCD is 100,000 per person, per year.
The QCD doesn’t count in your income, but the IRA custodian reports the QCD as a normal distribution. It’s your responsibility to tell your tax preparer about the QCD who then reports the QCD amount on line 15a of Form 1040.
6. 5-Year Holding Periods for Roth IRAs
It’s up to you to track your 5-year holding periods. There is a simple reason behind this. You can have multiple Roth accounts and multiple custodians. There isn’t a way for one custodian to know about your accounts with another custodian. By tracking when you open each IRA, you can also calculate the 5-year holding period for each qualified Roth IRA distribution.
It’s also your responsibility to know when the 5-year holding period for each Roth conversion you’ve done ends. If you’re younger than 59 ½, you can take penalty-free distributions you’re your Roth account(s) provided you’ve held them at least 5 years. (Most tax preparation software can track this information.)
7. After-Tax Amounts in an IRA
For the same reasons noted above, you are responsible for tracking after-tax amounts of IRAs. File Form 8606 any year after-tax contributions are made, or distributions are taken. The form does the pro-rata calculation for your IRA distributions.