Know The Rules and. Avoid Costly Mistakes!

Transcription

1 Know The Rules and Avoid Costly Mistakes! Securities and Advisory Services offered through The Strategic Financial Alliance, Inc. ( SFA) Member FINRA, SIPC. Mark Keen is a Registered Principal and investment advisor representative of SFA, which is otherwise unaffiliated with Keen & Pocock.

2 TSP Participant Account Beneficiary Options Spouse Beneficiary Maintain a Beneficiary Participant Account Full Distribution Transfer to an IRA Payable to self Non-Spouse Beneficiary Full Distribution Transfer to a Beneficiary IRA Payable to self

3 TSP Beneficiary Participant Account Required Minimum Distribution Rules RMDs start by the later of: 12/31 of the year the TSP participant would have turned 70 ½, or 12/31 of the year following the year of the TSP participant s death Must use Single Life Table RMD based on TSP beneficiary participant s age Permitted to recalculate

4 TSP Beneficiary Participant Account Beneficiary Options Spouse Beneficiary (Remarried) Full Distribution Payable to self Non-Spouse Beneficiary Full Distribution Payable to self

5 IRA Account Beneficiary Rules Spouse Beneficiary Become owner of inherited IRA Transfer to Beneficiary IRA Full Distribution Non-Spouse Beneficiary Transfer to Beneficiary IRA Full Distribution

6 Spouse Becomes Owner of Inherited IRA Contributions are allowed if eligible Subject to 10% pre-59 ½ early withdrawal penalty Not required to take RMDs until reach age 70 ½ RMDs based on the IRS Unified Lifetime Table Beneficiary will be able to take RMDs based on their own life expectancy

7 Spouse Remains as Beneficiary of Inherited IRA No pre 59 ½ early distribution penalties Must take RMD by later of: 12/31 of the year the IRA owner would have turned 70 ½ 12/31 of the year following the year of the IRA owner s death Single Life Table, but permitted to recalculate

8 TSP Beneficiary Participant Vs. IRA Owner Required Minimum Distribution Comparison Spouse as TSP Beneficiary Participant Spouse as IRA Owner Year Spouse's Decedent's Life Expectancy Projected** Life Expectancy Projected**** Attained Age Attained Age Factor* Investment Balance RMD Amount Factor*** Investment Balance RMD Amount $250,000 $9, $250,000 $9, $252,920 $15, $252,920 $9, $249,273 $16, $255,544 $9, $244,851 $16, $257,840 $10, $239,722 $17, $259,771 $10, $233,857 $17, $261,300 $11, $227,225 $17, $262,384 $11, $219,800 $18, $262,980 $12, $211,716 $18, $263,104 $12, $202,802 $18, $262,650 $13, $193,225 $18, $261,640 $13, $182,996 $18, $260,031 $14, $172,336 $18, $257,779 $15, $161,068 $18, $254,840 $15, $149,456 $18, $251,166 $16, $137,555 $18, $246,710 $16, $125,429 $17, $241,542 $17, $113,151 $16, $235,632 $17,584 *The Decedent s current year RMD is the factor shown in Table III (Uniform Life). The Life Expectancy Factor is recalculated each year using Table I (Single Life), and is the greater of: (1) the factor for the Decedent s Attained Age as of his or her birthday in the year of death, and then reduced by one for each year following the year of death; and (2) the factor for the Beneficiary s Attained Age in each year.. **Projections begin in 2014 using an Investment Balance as of 12/31/2013 with distributions starting at the beginning of All values are future values. Note: You may elect to distribute the entire investment as an immediate lump sum, over your lifetime (as modeled), or rollover into a Traditional IRA. ***The Life Expectancy Factor is determined using Table III (Uniform Life) in Appendix C of IRS Publication 590. ****Projections begin in 2014 using an Investment Balance as of 12/31/2013 with distributions starting at the beginning of All values are future values. Table I (Single Life), Table II (Joint Life & Last Survivor), and Table III (Uniform Life) are defined in Appendix C of IRS Publication 590.

9 TSP Beneficiary Participant Vs. IRA Owner Required Minimum Distribution Comparison Spouse as TSP Beneficiary Participant Spouse as IRA Owner Year Spouse's Decedent's Life Expectancy Projected** Life Expectancy Projected**** Attained Age Attained Age Factor* Investment Balance RMD Amount Factor*** Investment Balance RMD Amount $250,000 $9, $250,000 $9, $252,920 $12,521 - $252,920 $ $252,419 $13,011 - $265,566 $ $251,378 $13,515 - $278,844 $ $249,756 $14,031 - $292,786 $ $247,511 $14, $307,426 $10, $244,599 $15, $311,577 $11, $241,073 $15, $314,975 $12, $236,796 $16, $317,944 $12, $231,836 $16, $320,452 $13, $226,163 $16, $322,447 $13, $219,750 $17, $323,876 $14, $212,569 $17, $324,681 $15, $204,751 $17, $324,874 $15, $196,130 $18, $324,324 $16, $186,868 $18, $323,047 $17, $176,975 $18, $320,988 $18, $166,667 $18, $318,088 $18, $155,770 $18, $314,283 $19, $144,540 $17, $309,506 $20, $133,030 $17, $303,692 $20, $121,302 $17, $296,918 $21,538

10 Non-Spouse Beneficiary Inherits IRA Distribution Rules IRA Owner Dies Before Required Beginning Date (RBD) Required Minimum Distributions By December 31 following year of death Based on beneficiary s life expectancy Five-Year Rule No RMDs required, but account must be depleted by 12/31 of the fifth year following year of death Lump-Sum Distribution IRA Owner Dies After RBD Required Minimum Distributions By December 31 following year of death Based on Beneficiary s life expectancy, or deceased owner s life expectancy, whichever is longer Lump-Sum Distribution

11 Non-Spouse Beneficiary Inherits IRA Required Minimum Distributions Single Life Table Based on age in first distribution year Non-Recalculating (Set Term) Only look up life expectancy for first distribution In subsequent years, subtract 1 from prior year s life expectancy

12 True Story: TSP Beneficiary Participant Dies Daughter (Age 48) inherits $250,000 Beneficiary Participant TSP Account Forced to take full distribution $65,000 Taxable income (Married Filing Joint = 15% bracket) Federal Tax Liability = $8,857 $65,000 + $250,000 = $315,000 (33% bracket) Federal Tax Liability = $80,263 Tax on TSP Distribution = $71,405 (29% average) If Beneficiary Participant transferred TSP to IRA RMD based on Single Table = $250,000 / 36 = $6,944 All taxed in 15% bracket = $1,042 Total tax assuming no growth and 36 years of distributions $37,512

13 Beneficiary IRA: Non-Spouse as Beneficiary RMD Projection Year Beneficiary's Decedent's Life Expectancy Projected** Federal Net Attained Age Attained Age Factor* Investment Balance RMD Amount Taxes RMD $250,000 $6,944 $1,042 $5, $243,056 $6,944 $1,042 $5, $236,111 $6,944 $1,042 $5, $229,167 $6,944 $1,042 $5, $222,222 $6,944 $1,042 $5, $215,278 $6,944 $1,042 $5, $208,333 $6,944 $1,042 $5, $201,389 $6,944 $1,042 $5, $194,444 $6,944 $1,042 $5, $187,500 $6,944 $1,042 $5, $180,556 $6,944 $1,042 $5, $173,611 $6,944 $1,042 $5, $166,667 $6,944 $1,042 $5, $159,722 $6,944 $1,042 $5, $152,778 $6,944 $1,042 $5, $145,833 $6,944 $1,042 $5, $138,889 $6,944 $1,042 $5, $131,944 $6,944 $1,042 $5, $125,000 $6,944 $1,042 $5, $118,056 $6,944 $1,042 $5,902 *The Life Expectancy Factor is the factor shown in Table I (Single Life) in Appendix C of IRS Publication 590 based on the Beneficiary's Attained Age in the year following the Decedent s death and is reduced by one for each year following the year of death. **Projections begin in 2014 using an Investment Balance as of 12/31/2013 with distributions occurring at the beginning of the calendar year. All values are in future dollars. Table I (Single Life), Table II (Joint Life & Last Survivor), and Table III (Uniform Life) are defined in Appendix C of IRS Publication 590. Note : You may elect to distribute the entire investment as an immediate lump sum, over your lifetime (as modeled), or annuitized over five years.

14 Beneficiary IRA: Non-Spouse as Beneficiary RMD Projection Year Beneficiary's Decedent's Life Expectancy Projected** Federal Net Attained Age Attained Age Factor* Investment Balance RMD Amount Taxes RMD $111,111 $6,944 $1,042 $5, $104,167 $6,944 $1,042 $5, $97,222 $6,944 $1,042 $5, $90,278 $6,944 $1,042 $5, $83,333 $6,944 $1,042 $5, $76,389 $6,944 $1,042 $5, $69,444 $6,944 $1,042 $5, $62,500 $6,944 $1,042 $5, $55,556 $6,944 $1,042 $5, $48,611 $6,944 $1,042 $5, $41,667 $6,944 $1,042 $5, $34,722 $6,944 $1,042 $5, $27,778 $6,944 $1,042 $5, $20,833 $6,944 $1,042 $5, $13,889 $6,944 $1,042 $5, $6,944 $6,944 $1,042 $5,902 $249,984 $37,498 $212,486 *The Life Expectancy Factor is the factor shown in Table I (Single Life) in Appendix C of IRS Publication 590 based on the Beneficiary's Attained Age in the year following the Decedent s death and is reduced by one for each year following the year of death. **Projections begin in 2014 using an Investment Balance as of 12/31/2013 with distributions occurring at the beginning of the calendar year. All values are in future dollars. Table I (Single Life), Table II (Joint Life & Last Survivor), and Table III (Uniform Life) are defined in Appendix C of IRS Publication 590. Note : You may elect to distribute the entire investment as an immediate lump sum, over your lifetime (as modeled), or annuitized over five years.

15 IRAs with Multiple Beneficiaries Inherited IRA should be split into separate accounts for each beneficiary If IRA beneficiaries are all designated beneficiaries Split into separate accounts by 12/31 of the year following the year of death If IRA beneficiaries include designated and nondesignated beneficiaries Split into separate accounts by 9/30 of the year following the year of death Or cash out non-designated beneficiary by 9/30 of the year following the year of death

16 IRAs with Multiple Beneficiaries Failure to split accounts by deadline If IRA beneficiaries are all designated beneficiaries All beneficiaries' RMDs will be based on oldest beneficiary s life expectancy If IRA beneficiaries include designated and nondesignated beneficiaries RMD rules for all beneficiaries fall under those for the non-designated beneficiaries

17 RMD Rules for Non-Designated Beneficiaries IRA owner died prior to RBD 5-year Rule account must be distributed by the conclusion of the 5 th year following the IRA owner s death IRA owner died after RBD RMDs will be paid out over owner s remaining single life expectancy, based on age in year of death less 1 for each future year s distribution

18 Thank you! Mark Keen, CFP Eaton Place, Suite 470 Fairfax, VA Ph: Fax: Securities and Advisory Services offered through The Strategic Financial Alliance, Inc. ( SFA) Member FINRA, SIPC. Mark Keen is a Registered Principal and investment advisor representative of SFA, which is otherwise unaffiliated with Keen & Pocock.