Spousal Rollover When RLT is Beneficiary

Is a spousal rollover available when the beneficiary of an IRA is a revocable trust? Surprisingly, in some cases, the IRS says yes.

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Estate Planning for Retirement Assets in a Nutshell

When the owner of an IRA or 401(k) plan dies, the plan must pay out over some period of time. This is true regardless of whether the IRA/401(k) is a traditional account or a Roth account. The only exception is when the surviving spouse is named a beneficiary. In that case, the surviving spouse has the option of rolling over the decedent’s account to his or her own account. Amounts distributed from a retirement plan–excluding Roth distributions–generally constitute taxable income to the recipient. From an income tax standpoint, the best result is to “stretch out” payments for as long as possible. This is desirable even with a Roth account, because amounts remaining in the account continue to grow tax-free. The tax rules […]

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Forms of Asset Protection

Ownership by the Other Spouse–It is not uncommon for a spouse with high liability exposure to transfer assets to his or her spouse with a lower risk profile. Tenancy by the Entirety (TBE)–TBE refers to assets titled in the name of husband and wife. A creditor of one spouse may not reach TBE property unless and until the non-debtor spouse dies or the TBE is severed by the divorce of the parties. Retirement Assets–State law protects IRAs from the creditors. Federal law protects qualified plans such as 401(k)s. This protection applies to the account owners. Whether it extends to beneficiaries who inherit the accounts is an open question. According to the Supreme Court, the answer is no, at least in […]

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2018 HSA Limits Announced

The IRS has announced the maximum amount an individual can contribute to a Health Savings Account (HSA) in 2018. For individuals with self-only coverage, the HSA limit will be $3,450. For individuals with with family coverage, the limit will be $6,900. In order to qualify for an HSA, you must be enrolled in a “high deductible health plan.” For calendar year 2018, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage. Earlier posts about HSAs: Are HSAs Protected […]

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2017 Probate Omnibus Bill: What’s Missing?

The 2017 probate omnibus bill is notable not just for what it contains, but also for what it does not contain. The original version of the bill was HB 0567. It contained several sections that addressed the effect of divorce or annulment on an estate plan. Under current law, divorce/annulment, by itself and without any further action of the testator revokes any disposition or appointment of property made by the will to the former spouse, any provision conferring a general or special power of appointment on the former spouse, and any nomination of the former spouse as executor, trustee, conservator or guardian, unless the will expressly provides otherwise. Similarly, a decree of annulment, divorce, dissolution of marriage, or legal separation revokes […]

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RMDs after Primary Beneficiary Dies

Father, the primary beneficiary of an inherited IRA, dies before the account is exhausted. His Child becomes the beneficiary. Are RMDs now based on Child’s life expectancy? No: If the individual beneficiary whose life expectancy is being used to calculate the distribution period dies after September 30 of the calendar year following the calendar year of the employee’s death, such beneficiary’s remaining life expectancy will be used to determine the distribution period without regard to the life expectancy of the subsequent beneficiary. September 30 of the year after the original IRA owner’s death is referred to as the “Designation Date.” RMDs are determined based on the life expectancy of the person who is the beneficiary of the IRA as of the […]

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PLR Sheds Some Light on the Identifiable Beneficiary Issue (maybe)

Consider the following the scenario: Decedent establishes a trust under his will. Under the terms of the trust, Decedent’s daughter is entitled to all net income. In addition, the trustee, a financial institution, is authorized to distribute trust principal to Daughter and Daughter’s descendants for health, education, support, and maintenance. Upon Daughter reaching the age of 50, the trust will terminate and be paid to Daughter outright. However, if Daughter dies prior to age 50, the trust addresses a variety of contingencies: Daughter’s children are next in line as beneficiaries; If any of Daughter’s children are under the age of 21, his or her share will be held in further trust; If a child of Daughter dies after Daughter but prior to 21, his or […]

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Retirement Assets Payable to Trust: the Identifiable Beneficiary Issue

When naming a trust as beneficiary of an IRA or other retirement asset, it is critical that the trust be recognized as a “qualified trust.” This allows the trustee to stretch out payments from the IRA in a tax-efficient manner, namely over the life expectancy of the oldest beneficiary. If a trust is not a qualified trust, the IRA must be paid out in a tax-inefficient manner: within (a) 5 years or (b) the account owner’s remaining life expectancy, depending on whether the account owner died before or after age 70 1/2. In order for a trust to be qualified, it must, among other requirements, have identifiable beneficiaries, all of whom are individuals. However, determining who the beneficiaries of a trust […]

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Are HSAs Protected from Creditors?

Yes: Except as provided in subsection (c), any funds or other assets payable to a participant or beneficiary from, or any interest of any participant or beneficiary in, a retirement plan which is qualified under §§ 401(a), 403(a), 403(b), 408 and 408A, or an Archer medical savings account qualified under § 220 or a health savings account qualified under § 223 of the Internal Revenue Code of 1986, as amended, are exempt from any and all claims of creditors of the participant or beneficiary, except the state of Tennessee. All records of the debtor concerning such plan and of the plan concerning the debtor’s participation in the plan, or interest in the plan, are exempt from the subpoena process. The […]

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HSAs for Retirement Planning

Although many people think of Health Savings Accounts (HSAs) as simply a vehicle to pay current medical expenses, they can also be a valuable component of retirement savings. Contributions can be invested like a 401(k), and the growth inside the account is not taxed currently. Prior to age 65, distributions for qualified medical expenses, long-term care insurance, COBRA coverage, and health coverage while receiving unemployment compensation are tax-free. Other distributions are subject to tax, as well as a 20% penalty. Starting at age 65, distributions for Medicare premiums for Part A, B, or D and for Medicare HMO are tax-free. Other distributions are taxable, but are not subject to the 20% penalty. Thus, much like an IRA, you can defer income […]

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Five Ways Assets Pass at Death

Operation of law (e.g., joint tenancy with right of survivorship) Beneficiary Designation (life insurance, retirement assets, annuities) Will Trust (revocable or irrevocable) Intestacy (no will) In a properly designed estate plan, Items 1, 2, 3 and 4 will be coordinated so that all of your assets pass to your intended beneficiaries in the most tax-efficient manner. Income taxes are a particular issue with respect to Item 2. Item 5 is the product of (a) failing to plan altogether, (b) improper design (e.g., the will does not dispose of all your assets), (c) faulty execution of the will (e.g., no witnesses or signatures in the wrong place), or (d) lost documents.  Intestacy often leads to assets passing in undesirable ways, such as to […]

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New Case Underscores Need to Update Beneficiary Designations After Divorce

Husband and Wife were in the midst of divorce proceedings when Wife died. Prior to her death, the parties executed a separation agreement dividing their marital assets. Under the agreement, Wife was to retain the couple’s residence in Tennessee, as well as an IRA. Husband was to receive the couple’s residence in Georgia and a financial account. The parties had neither finalized the divorce nor fulfilled the terms of the separation agreement at the time of Wife’s death. Thus a legal battle ensued between Wife’s estate and husband regarding the proper disposition of the Wife’s assets, particularly those that were titled jointly with her husband, as joint assets normally pass to the surviving spouse by operation of law. The separation […]

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Contribution Limits for Retirement Plans Remain the Same in 2017

Source: IRS Notice 2016-62 Posted by Joel D. Roettger, JD, LLM, EPLS

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