Focus
on - Who is Your Beneficiary
Question
of the Month
News,
Rulings and Other Updates
Retirement
Planning Tip
Ed
Slott's IRA Advisor - December Issue
Resources
Expert
Professional
Assistance
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December
Focus - Who is Your Beneficiary?
We
are noticing an increase in the number of individuals who
thought they were beneficiaries of retirement accounts,
only to find out at the death of the account owner that
someone else was the named beneficiary and not them. We
are also seeing a large number of beneficiaries who miss
out on tax-reduction and asset accumulation strategies because
the retirement account owners failed to spend a few minutes
to make necessary and proper changes to their beneficiary
designations. The following are some tips to help you get
your beneficiary designation forms in order.
Check
Your Beneficiary Form
When
is the last time you checked your retirement plan beneficiary
form? Your beneficiary may be someone entirely different
from who you think it is. There are many cases of former
spouses coming forward to claim retirement accounts because
the IRA owner forgot to remove their name from a beneficiary
form. There are also cases where an individual may have
intentionally left a former spouse's name on a beneficiary
form, only to have it challenged by current spouses and
children who argue that such a situation was due to an oversight.
This usually results in the funds being tied up until the
issue can be resolved in court and may end up with the beneficiaries
having to bear significant costs in the form of legal expenses.
To avoid this or other potential issues, you should update
your beneficiary form after every life-changing event. These
events include marriage, divorce, remarriage, births and
deaths. In the event that you want your former spouse to
remain as the beneficiary of your retirement account, make
sure that fact is abundantly clear to everyone by completing
a new beneficiary form after the divorce has been finalized.
Sometimes
Your Spouse Must Be Your Beneficiary Unless A Waiver is
Provided
You
may want to name someone other than your spouse as your
beneficiary for various reasons. For instance you may feel
that your spouse has already been adequately provided for
financially or there is a benefit to naming someone else
as beneficiary on your retirement account. However a beneficiary
designation form that names someone other than your spouse
as a primary beneficiary may be invalid, unless your spouse
gives written consent to this designation, and, if necessary,
it is properly witnessed. This rule applies to:
- All
qualified plan accounts, such as 401(k)s, profit sharing
plans and pension plans
- ERISA
403(b) accounts
- Non-ERISA
403(b) accounts where the owner resides in a community
or marital property state
- IRAs,
where the owner resides in a community or marital property
state
For
community and marital property states, state law determines
the share that must go to the spouse.
If
you desire that someone other than your spouse be a primary
beneficiary for one of these accounts, be sure to obtain
your spouse's consent and also consult with the plan administrator
or IRA custodian to determine the operational requirements.
The plan document or state law may require that the consent
is notarized or witnessed by a plan representative.
Is
Your Beneficiary Killing the Stretch?
One
of the biggest tax advantages available to beneficiaries
is the ability to preserve the tax-deferred (or tax-free
in the case of a Roth IRA) status for retirement accounts
that they inherit. However, this opportunity can be lost
if your beneficiary is required to distribute the account
in five years or less, or if they are required to use a
short life expectancy. This is usually the case if a non-person
is named as one of multiple beneficiaries
or if your
assets are in a qualified plan or IRA that does not permit
the stretch. In many such cases beneficiaries are able to
resolve this issue by working with a financial planner knowledgeable
in the area of beneficiary strategies. However, the need
for this kind of posthumous planning can be prevented by
taking simple steps such as setting up a separate retirement
account for the assets that you want the non-person - such
as a charity - to inherit. If your assets are in a qualified
plan and the plan does not permit the stretch, talk to your
financial advisor to determine if it makes sense to rollover
the assets to an IRA as soon as you are eligible to make
a withdrawal from the plan.
Conclusion
One
slight oversight or mistake can end up in substantial monetary
costs to your beneficiaries. To prevent that from occurring,
check your beneficiary designation forms to ensure that
they are in keeping with your proposed estate plan. If you
are unsure of how they should be completed, consult with
your financial planner.
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Question
of the Month
Question:
I
have two 403(b) accounts and two traditional IRAs. Can I
take my required minimum distribution (RMD) for all four
accounts from one of my traditional IRAs?
Answer: No.
You cannot take the RMD for your 403(b) accounts from your
IRA. You must calculate the RMD amounts separately for each
retirement account. However, your distribution options are
as follows:
- Take
the calculated RMD amount from each account
- Aggregate
the RMD for the 403(b) accounts and take it from one or
both 403(b) accounts
- Aggregate
the RMD for the IRAs and take it from one or both of the
IRAs.
If
you would like to take your RMD for future years from one
account, you will need to rollover the 403(b) accounts to
a traditional IRA. Should you decide to rollover the 403(b)
accounts, you must take your RMD for the year from the 403(b)
accounts before completing the rollover.
News,
Rulings and Other Updates
New
Form 4972 Issued: The
IRS has issued an updated version of Form 4972,
Tax on Lump Sum Distributions. If you are making
a lump-sum distribution this year, be sure to
review the new form which is available at http://www.irs.gov/pub/irs-pdf/f4972.pdf.
Bill
to Suspend RMD, Plus Other Provisions
The
Worker, Retiree, and Employer Recovery Act of
2008 has been introduced by Senators Max Baucus
(D-MT), Mike Enzi (R-WY), Charles Grassley (R-IA),
and Edward Kennedy (D-MA). This proposed legislation
includes retirement plan related provisions such
as:
- A
one year moratorium on required minimum distributions
for 2009
- Requiring
that all qualified plans permit rollovers for
non-spouse beneficiaries
- Rollovers
from Roth 403(b)s and Roth 401(k)s are not subject
to the modified adjusted gross income limit
of $100,000
We
will keep you posted if any of these proposals
become law.
December's
Retirement Planning Tip: Review
your Asset Allocation
For
many investors who suffered huge losses of their
retirement savings due to the recent poor performance
of the stock market, it can be argued that those
losses are attributable to lopsided portfolios.
This is not to say that individuals with more
balanced portfolios did not experience market
losses also, but with balanced portfolios, the
losses are usually minimized through diversity,
that is their funds are invested in various instruments
which carry different levels of risk. Young investors
have the ability to re-build their accounts over
time. For pre-retirees and retirees, there is
less time to restore their portfolios to their
pre-market slump value, which makes it more challenging.
Retirees and pre-retirees should work with their
financial planners in order to rebalance their
portfolios as often as needed. This can help to
ensure that their asset allocation is properly
balanced for risk, growth and income.
Highlights
from Ed Slott's IRA Advisor Newsletter - December 2008 Issue
The
December 2008 issue of Ed Slott's IRA Advisor is
now available online. The areas covered include the following:
Looking
for the latest info on a certain topic, IRA strategy, recent
ruling or tax law change? It's
all in here. Each
year in the December issue, we include our annual index
of articles. This is so you can find everything that we
covered during the year.
In addition, our Guest IRA Expert for this month is Natalie
Choate whose article "Strategies for Leaving IRA Funds
to Charity" includes showing you how to craft an
estate plan for clients who wish to leave some or part of
their IRA to charity, use a trust and split beneficiary
strategies.
WHAT'S INSIDE?
Featured Article
Natalie B. Choate, JD Nutter McClennen & Fish LLP
Strategies for Leaving IRA Funds to Charity
- Leaving
IRA Funds to Charity Saves Taxes
- Naming
the Charity as IRA Beneficiary
- Split
Beneficiaries
- IRA
Beneficiary Options
- Leaving
IRA Funds to Charity Through a Trust
- Spouse
First, and Then Charity as IRA Beneficiary
- What
if the Spouse Needs More?
- Additional
Charitable IRA Points
- Advisor
Action Plan
- 2008
Index of Articles
- 2008
IRA Experts
- Year-End
IRA Wash Sale Alert
If
you do not already subscribe to Ed Slott's
IRA Advisor Newsletter, you may do so by clicking here and
providing the required information, or by
calling 800-663-1340. Each issue is 8 full
pages of must-have tax information. Individuals
who subscribe to the online version of the
Ed Slott's IRA Advisor Newsletter, receive
access to back issues at no additional cost.
Ed
Slott and Company-100 Merrick Road, 200 East, Rockville
Centre, NY 11570
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