What Is A Trustee-To-Trustee Transfer?

 “Trustee” is a legal term, for the purposes of investing, that identifies an institution or financial services entity that holds other people’s money. Employers, banks, brokerage houses and insurance companies can all be trustees. Account holders who seek to move money from one institution to another can elect to do so without taking physical possession of their money. That is, a paper check is never cut for the funds — they simply direct the transfer of their money electronically to a different retirement account. That process is called a trustee-to-trustee transfer. Trustees or custodians are generally not retirement distribution specialists and may not be able to properly inform you of your options or tax liabilities!

RMDs and Multiple Retirement Accounts

Most people with retirement accounts are aware that they must take RMDs, required minimum distributions each year after they turn 70½.  What happens if you have multiple retirement accounts, how are required minimum distributions (RMDs) calculated?

IRA Aggregation Rule

The basic RMD calculation is simple, using the appropriate IRS life expectancy table (which can be found in IRS Publications 590-A and 590-B) you divide the adjusted market value of your IRA balance as of December 31^st of the prior year with your life expectancy factor.  This simple formula calculates your RMD amount.

If you have more than one IRA, your RMDs must be calculated separately for each IRA.  However, if you have multiple IRAs of the same type, you can aggregate your RMD amounts and take all or a portion of your RMD from one, some or all of your IRAs of the same type. 

How can this rule benefit you?  Assume you have SEP IRA Alpha that is steadily growing or contains funds that are protected from market risk.  Assume you also have SEP IRA Beta, with investments that are not doing very well.  Using the aggregate rule, you may choose to withdraw your entire RMD from SEP IRA Beta, that has not been performing very well, thereby maximizing your assets in SEP IRA Alpha while satisfying your minimum distribution requirement. 

 401(k)s and Other Employer Plans

RMDs for other plans such as 401(k)s and defined contribution plans are separate.  For each plan you must calculate your RMD and take a distribution.  The exception is if you have more than one 403(b) plan – these plans qualify for the aggregation rule.  You must separately calculate the RMD for each 403(b) but you may take your total RMD from one or a combination of your 403(b) plans. 

Inherited IRAs

The aggregation rule is only applicable to IRA beneficiaries if the same type of IRA is inherited by the same beneficiary from the same decedent.  For example, if your Aunt Sarah named you as the primary beneficiary of both her traditional IRA held at ABC Bank and her traditional IRA held at Custodian XYZ, you can use the aggregation rule with respect to these IRAs.  You cannot include your own IRA with the inherited IRAs (even if they are the same type) for purposes of the aggregation rule.

Have questions about the IRA aggregation rule?  Your America’s Tax Solutions™ retirement distribution specialist can assist you and answer your IRA aggregation questions.  

The Battle Over Retirement Accounts: Spousal Waivers and IRAs

You are married and have an IRA. You know you need to name a beneficiary for those funds. But what if you do not want to name your spouse as the beneficiary? Are you required to name him or her? Under federal law, and IRAs are governed mostly by federal law, you are not required to name your spouse as your IRA beneficiary. You can name anyone you want as the beneficiary. They don't even have to be a relative.

State law will have some impact here, though. If you live in a community property state, you will most likely need to have your spouse sign a waiver before you can name a non-spouse beneficiary for your IRA funds. In some states, you can “disinherit” your spouse by naming someone else on the beneficiary form, but the spouse could have the last laugh. Some states allow a disinherited spouse to make a right of election against the estate and the spouse would then end up with some of your assets. He or she could then laugh all the way to the bank.

In most employer plans, if you are married and want to name someone other than your spouse as the beneficiary of your plan benefits, you must have your spouse sign a waiver.

Be careful who signs the waiver. It must be a spouse. Documents signed by a fiancé, such as a pre-nuptial agreement, do not count. Once a spouse signs a waiver, update the beneficiary form. You should do both steps to ensure that your assets go to the beneficiaries that you select.

Divorce decrees also don’t count. A spouse can waive rights to retirement benefits in a divorce decree, but as long as a beneficiary form naming the spouse remains in place, that spouse – now the ex-spouse – will, in most cases, end up with the retirement benefits. Always update beneficiary forms after a divorce.

Beneficiary form reviews should be a key component of your financial plan, whether you are your own planner or you have a professional doing this for you. You can see how something that seems so simple can quickly become complicated.

What Is A Multi-Generational IRA?

Thanks to the salutary effects of tax-free growth, the miracle of compound interest and tax breaks aimed at saving spendthrift Baby Boomers from themselves, many people are going to accumulate more money in IRAs, pensions, profit sharing plans, 401(k)s, and similar plans than ever before. Why?

THE MULTI-GENERATIONAL IRA (MGIRA)

Some retirees may be able to sustain their lifestyles, meet obligations and still leave some percentage of their IRAs to their heirs. These individuals may want to pass on the unused portion of an IRA to a spouse, children, grandchildren or other individuals. Creating a Multi-Generational (MGIRA) or “stretch” IRA can result in substantial distributions being made over the life expectancies of the owner, the owner’s spouse and their children. Consider, for example, a 72-year-old married man with three children who has accumulated $2,550,000 for retirement. By making the most of Multi-Generational IRA planning, total distributions from a $2.5 million retirement nest egg could exceed $11 million!

Unfortunately, putting together a successful Multi-Generational IRA takes careful planning, as there are plenty of potential traps and pitfalls. As Forbes® Magazine explained, “The rules covering inherited IRAs are the most complex that ordinary taxpayers ever encounter; even the IRS hasn't filled in all the gaps.”

The biggest obstacle to an IRA legacy strategy, believe it or not, is the Federal Government. Congress created IRAs to encourage Americans to plan for their retirement. However, it never intended for them to accumulate funds and defer taxes indefinitely. Unless an IRA owner takes specific steps to continue to defer tax liability, the IRS stands to take 35 to 80% of those hard-earned IRA funds upon the death of the owner.

THE SOLUTION?

Your America’s Tax Solutions^TM retirement distribution specialist will gladly describe for you in greater detail how an MGIRA works, provide a detailed diagnostic review of your current accounts, and help you decide whether or not this powerful legacy option is suitable for you.