Inherited Retirement Plans

Transcription

1 FPA-NCA Inherited Retirement Plans Presented by: Helen Modly, CFP, CPWA Focus Wealth Management, Ltd. These Rules Apply For: 401(k), 403(b), 457(b) IRA, SEP-IRA, SIMPLE IRA ROTH 401(k) ROTH IRA (after owner dies) Terms to Know RBD Required Beginning Date RMD Required Minimum Distribution Distribution/Direct Transfer vs. Roll over 1

2 Beneficiaries Designated Natural person Group of natural persons Qualifying trust Non-Designated Non-natural entity Estate Charity Non-qualifying trust Naming Beneficiaries Named on beneficiary form By Default in Custodial Agreement Affirmative election by surviving spouse Qualified Disclaimer Otherwise identifiable Qualifying Trust 1. Valid under state law 2. Irrevocable or becomes so 3. Underlying beneficiaries are identifiable 4. Copy provided by 10/31 year following year of death 5. Your custodian accepts it! 2

3 Qualifying Trust: Trust becomes owner of inherited account Trust collects Required Minimum Distributions (RMD) Conduit or Accumulation Important Dates Year of Death Year after Year of Death September 30th October 31st December 31st December 31st RMD due in year of death? Beneficiary must take if: Owner reached RBD on or before date of death Did not take full RMD in year of death Must take by 12/31 of the year of death 3

4 Determination Date September 30 th of the year following the year of death Deadline for disclaimers Cash out any non-designated beneficiaries or all will be non-designated Multiple Designated Beneficiaries Create separate IRA accounts for each: Preserves special spousal options Preserves option of separate account treatment Deadline: December 31 st of year following year of death Owner dies anytime Spouse as sole beneficiary (by 12/31 year following): Treat as own (same rules as for all living owners) Applies to Inherited Roth IRAs 4

5 Owner dies Before RBD Spouse as Designated Beneficiary Inherited IRA Distributions began later of Decedent s RBD, or 12/31 of year following year of death Single life-recalculated (Also use if spouse may needs $$ before age 59 ½) ~ Or 5 Year Rule (Applies to Inherited Roth IRAs) 5 Year Rule Entire account distributed By 12/31 of the year containing the 5 th anniversary of death Owner dies Before RBD Non-Spouse as Sole Designated Beneficiary Inherited IRA Beneficiary s life expectancy: Use age as of 12/31 year following year of death. Single life minus 1 Must begin by 12/31 year following year of death Or 5 Year Rule (Applies to Inherited Roth IRAs) 5

6 Non-spouse is NOT sole beneficiary: Were separate accounts created by 12/31 of year following year of death? YES Each beneficiary uses own life- Age in year after year of death Single life minus 1 No Use age of oldest beneficiary- Age in year after year of death Single life minus 1 Owner dies on or after RBD Spouse as designated Beneficiary Use deceased s remaining life expectancy (age at birthday in the year of death) Single Life minus 1, by 12/31 year following ~or~ Use own life expectancy (age at birthday in the year following year of death) Single Life recalculate, by 12/31 year following Owner dies on or after RBD Non-Spouse as Sole designated Beneficiary Use deceased s remaining life expectancy (age at birthday in the year of death) Single Life minus 1, by 12/31 year following ~or~ Use own life expectancy (age at birthday in the year following the year of death) Single Life minus 1 by 12/31 year following 6

7 Non-spouse is NOT sole beneficiary: Were separate accounts created by 12/31 of year following year of death? YES Each beneficiary uses own life- Age in year after year of death Single life minus 1 No Use age of oldest beneficiary- Age in year after year of death Single life minus 1 Owner dies before RBD Non-Designated Beneficiary: 5 Year Rule: Distribute by 12/31 of 5 th year following year of death Only time this rule applies unless custodial agreement mandates it. Applies to Inherited ROTH IRAs Owner dies on or after RBD Non-Designated Beneficiary: Use deceased s remaining life expectancy (age at birthday in the year of death) Table I, minus 1, by 12/31 year following 7

8 Inheriting Employer Retirement Plan Assets Spouse Non-Spouse Alternate Payee Direct Transfer to plan Direct Transfer to Inherited IRA Direct Transfer to IRA Missed RMDs: Penalty is 50% undistributed amount Mea Culpa Form 5329 Take missing distribution first Brief explanation and request for waiver File asap-3 year statute of limitations 8

9 Thorny Stuff: 1 st Beneficiary dies before account is empty: If new beneficiary named: RMD still based on original beneficiary s remaining life expectancy, not successor beneficiary No new beneficiary named: RMD still based on original beneficiary but paid to the estate of the original beneficiary More Thorny Stuff: Husband inherits his father s IRA Husband names marital trust as beneficiary of inherited IRA Husband dies Really Thorny Stuff 9

10 Questions? Thank you! 10