Times are tough. Unemployment is high and bills are piling up for many. These realities have forced a lot of people to look for sources of extra cash. For many Americans, their IRA is their biggest, or maybe only, savings available. It may be tempting to consider tapping into it in these challenging times. Distributions taken before age 59 ½ are subject to a 10% early distribution penalty.
Question:
Hi there!
I have a quick question, so I thought I’d reach out to you to get your take on this. This year, IRA RMD’s have been waived, even for inherited IRA’s. That said, if a non-spouse inherits an IRA this year – and the new RMD rules dictate a 10-year withdrawal – but this year’s RMD is waived – does this year (2020) still count as year 1?
An argument could be made that the easiest financial document to complete is the IRA beneficiary form. Yet somehow this basic information consistently gets overlooked, mishandled, lost or fouled up. It’s not rocket science. Don’t complicate things. Keep it simple if you can.
Case in point: an attorney drafted a fancy addendum to a beneficiary form with all the necessary legalese and important letterhead and flourishing signatures.
Think of a top hat, and you’ll likely conjure up images of Franklin Delano Roosevelt or the temporarily-deceased Mr. Peanut or Rich Uncle Moneybags from Monopoly. But a “top hat plan” is also the informal name of a type of section 457(b) plan for management employees (hence the name “top hat”) of private tax-exempt companies such as hospitals. A top hat plan is different from the more common type of 457(b) plan for state and local government workers.
Question:
Ed and team,
I am sure my question has been asked by others. Now under the SECURE Act with no more stretch features to an inherited IRA, if a person dies and leaves his IRA to a child and that child waits 9 years and 11 months after the year of death and named his children (taxpayer’s grandchildren) as his successor beneficiaries, do they have only one month to clean out the IRA or does the 10 year period begin all over.
A significant percentage of IRA assets will ultimately go to nonspouse beneficiaries. When these beneficiaries inherit the funds, special rules kick in. Inherited IRAs are not like other IRA accounts. Here is what you need to know if you inherited an IRA from someone who is not your spouse:
1. You should consider all your options before doing anything with your inherited IRA. If you inherit an IRA, you need to move cautiously. You have time to make decisions, so don’t rush. You will want to notify the IRA custodian of the death of the IRA owner if that has not already happened.
Gradually, the IRS is clarifying sections of the SECURE Act that require further guidance. In Notice 2020-68, released September 2, the IRS addressed a number of items in a Q&A format. For example, “Is a financial institution that serves as trustee, issuer, or custodian for an IRA required to accept post-age 70½ contributions in 2020 or subsequent taxable years?” Surprisingly, the answer is No. Financial institutions do not have to accept post-age 70 ½ IRA contributions even though such contributions are permitted by the SECURE Act. (Why an institution would refuse these deposits is beyond me.)
Question:
Does the SECURE Act have any implication to Roth IRA account inheritance longevity? Please let me know. Thank you.
Regards,
Vikram
Answer:
Hi Vikram,
The SECURE Act does affect inherited Roth IRAs in the same way it affects inherited traditional IRAs. Most beneficiaries who inherit a Roth IRA in 2020 or later will be subject to a 10-year payout period.
In Notice 2020-68, issued September 2, 2020, the IRS gave limited guidance on certain retirement provisions of the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”). The SECURE Act was signed into law on December 20, 2019.
Notice 2020-68 does not address one of the most significant SECURE Act changes: the elimination of the stretch IRA for most non-spouse beneficiaries and its replacement with a 10-year payout period.
Question:
Good Afternoon Ed Slott and Company, LLC,
I was inquiring about a recent situation with a client that came up and if you could be of any assistance. We recently had a client pass away who was the account holder of an inherited IRA from his mother. This client died in July 2020. The deceased listed his wife as 100% primary beneficiary of his inherited IRA and she will inherit this second-generation IRA once the new account is opened.
