Oftentimes with these articles, I compare certain retirement account rules to arbitrary items. A creative metaphor or simile can help the reader grasp a concept. For instance, past entries have referenced revolving doors, hurricane preparedness, Bloody Mary cocktails, Charlie Brown’s Halloween costume, genies in lamps and even Indiana Jones. But I was struggling. No single comparison seemed to carry the weight necessary to create an entire Slott Report submission. So, here is a 6-pack of random summertime similes and other retirement account comparisons.
In her June 28, 2023 Slott Report post, Sarah Brenner discussed several reasons why it pays to roll over your retirement plan savings to an IRA. Another option is to keep your funds in the plan. Keep in mind, though, this may not always be possible. Sometimes your plan may force you to take your dollars out, for example when you reach the plan’s retirement age (normally, age 65) or if you have a small account balance.
Question:In 2021, my wife inherited an IRA from her sister who was 4 years younger. My wife therefore is an EDB (eligible designated beneficiary). Her sister was 66 years old at date of death. My wife has been taking RMDs based on her own age. What happens when my wife dies? Do all the following beneficiaries have 10 years to deplete the inherited IRA? Are there RMDs that need to be taken each year for those beneficiaries? If so, is the RMD based on the factor that my wife was using?
When you file for bankruptcy, one thing you usually don’t have to worry about is protecting your IRA funds from creditors.That’s because, in just about every case, all of your IRA (and Roth IRA) monies are off limits. Under the federal bankruptcy law, IRA assets up to a certain dollar limit cannot be reached by creditors. That dollar limit is indexed every three years based on the cost-of-living. The current dollar limit is currently $1,362,800, but on April 1 it goes up to $1,512,350 until March 31, 2025.
One question that continues to come up is whether company retirement plan dollars are protected from creditors. This becomes an issue if you are forced to declare bankruptcy or you owe money after a legal action is brought against you.
Suppose you inherit 401(k) (or other ERISA plan) funds and then file for bankruptcy before receiving those funds. Can you lose those 40(k) dollars to your bankruptcy creditors? According to a recent decision of a Bankruptcy Court in North Carolina, you don’t have to worry.
Question:Your newsletter is so helpful, and your book was a great resource to me when my mom passed away 5 years ago and I inherited her IRA.I am 76 and have not taken my RMD for 2021. Should I pass away and my wife age 69 transfers my IRA to hers, must my RMD for 2021 be taken first?Thanks much. A columnist in the Chicago Tribune led me to you years ago.F. Perry
With the recent economic downturn, you may be more concerned than ever about keeping retirement plan funds safe from creditors.If you participate in a plan covered by the federal Employee Retirement Income Security Act (ERISA), you can sleep well at night. Your plan accounts are completely shielded from creditors – whether or not you’ve declared bankruptcy. (Not surprisingly, there is an exception allowing the IRS to recoup unpaid taxes.)
One of the greatest benefits offered under ERISA are the anti-alienation provisions, which provide that benefits under a pension plan cannot be assigned or alienated. While there are some statutory exceptions, ERISA essentially prevents retirement assets from being joined in any legal process to collect a commercial debt. These actions include garnishment, attachments, and other similar legal devices. There are some exceptions to this rule, the most obvious being divorce or legal separation.
This week's Slott Report Mailbag examines ERISA creditor protection differences for 401(k)s and IRAs and answers a consumer's question on funding a Roth IRA.
