Retirement Planning, continued…..

A couple of days ago I started a discussion about retirement planning. Coordinating retirement plans with wealth transfer planning can be challenging. This is primarily because retirement accounts are driven by income tax laws designed to encourage Americans to accumulate wealth for retirement, not for transferring wealth upon death.

We started examining some of the fundamentals to understand why naming a trust as beneficiary may be the only way to accomplish some of the client’s planning objectives.

This topic is especially important now as the baby boomer generation begins retiring. At the end of 2010, IRAs and qualified retirement plans held nearly $17.5 trillion, accounting for 37% of all household financial assets. And because of how lifetime minimum required distributions are calculated, IRAs and qualified retirement plans may be the largest assets held at death.

The second fundamental we need to discuss is Minimum Required Distributions, otherwise referred to as MRDs.

Minimum Required Distribution for the Year of Death
If a retirement plan participant has not yet taken the entire MRD for the year in which he/she dies, the beneficiary must withdraw the remaining amount of the participant’s MRD by before the end of that year. If there are multiple beneficiaries, the MRD rules are satisfied as long as the beneficiaries, in the aggregate, take the balance of the year-of-death MRD and it does not have to be pro rata.

Minimum Required Distributions after Death
After the participant’s death, MRDs apply to the beneficiary and normally begin the year after the year of the participant’s death. The after-death MRD rules are more complicated than the lifetime MRD rules, and are based on three factors:

(1) Whether death occurs before or after the participant’s required beginning distribution (RBD) for that IRA or qualified retirement plan;
(2) Who, or what, is the beneficiary; and
(3) For qualified retirement plans, what the plan allows.

Note: The rules are different if the spouse is the sole beneficiary; that will be covered later.

Planning Tip: If you are a participant in a qualified retirement plan, make sure you review and understand what the plan will allow as a part of any planning, because, in many cases, plan rules trump the general rules.

If you have questions, give us, or your neighborhood financial planner a call. If you don’t have a neighborhood financial planner, get one you trust. It will be the best move you ever make. If you need help finding one, give us a call. We’ll help you look.

As for all the details about retirement planning, we won’t bury you with details here, but will continue the discussion in future postings. If you would like to keep updated. Subscribe to the blog so that you will receive additional suggestions.

As always, good luck and good hunting.

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3 Responses to Retirement Planning, continued…..

  1. client retires at 65 and starts receiving social security. how much is he allowed to make over his ss and still not be taxed on the ss income?, if he starts taking income out of his Roth IRA, does that income effect the amount of ss he could be taxed on or since it’s tax-free income, it wont effect the ss income at all?

    • Randy Fisher says:

      As of now, distributions or “income” taken from a ROTH IRA is not counted in the provisional income calculations requirement from Social Security. Thus income from a ROTH would not create additional income tax on social security benefits. But before you take our word on this, please consult a CPA or your own tax specialist. We do not intend to provide income tax advice.

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