Monday, August 24, 2015

The ONE Inherited 401(k)/IRA Mistake that Could Be Your Worst IRS Nightmare

The One Inherited 401(k)/IRA Mistake that Could Be Your Worst IRS Nightmare

As the proverbial saying goes, “life happens.” And as part of the natural progression of life, sooner or later, we are all bound to lose someone near and dear  – and that person may have listed us as a non-spouse beneficiary of his/her 401(k), traditional IRA, or another kind of qualified plan.

 No, Im not trying to suggest what you should do with your inheritance. That will be totally up to you. However, if you intend to roll over money left to you in a qualified plan by someone other than your spouse, you must tread cautiously. And thats because the manner in which you go about it could land you in some very hot waters with the IRS.

Let me use this recent case involving one of our clients to illustrate my point. She recently lost her mom, of whose IRA she was the beneficiary. The custodian of the IRA sent her a check made out in her (the clients) name and explained to her that insofar as she deposited it in an IRA within 60 days, she would avoid having to pay taxes on the entire check, come tax time.

While that may sound like a pretty standard thing, it’s completely wrong, untrue, and inapplicable in this situation. The so-called “60-day-indirect-rollover” rule does not apply if you are a non-spouse beneficiary. What’s more, there’s no exception under the Tax Code – Section 408(d)(3)(c) – for non-spousal beneficiaries who accept checks made out in their names, even if you turn around and deposited it into an inherited IRA the very next moment.

So, but for the fact that my client has a pretty sharp advisor who knows what hes talking abouthey, its OK for yours truly to take some credit every now and thenshe would have been set up for a very nasty surprise come next April 15th when the IRS came knocking: that she would have to pay tax on her entire inheritance check. 

It was pretty obvious to me that whoever gave her the erroneous information was unfamiliar with the IRS rules, so I got on the phone with the custodian to get the situation sorted out and have a new check issued directly to the new custodian.

In a nutshell, heres what you should keep in mind. If someone other than your spouse leaves you money in a qualified plan and you intend to spread the tax burden over the longest possible time allowed by the IRS, your ONLY option is a direct-custodian-to-custodian rollover. And by the way, you should probably get yourself a pretty darn knowledgeable financial advisor, too!
________________ 
If you are ready to have a real conversation about how to start planning for your future  even if you haven't saved a penny yet  visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation. You'll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you're ready, we're here to help. 

Monday, August 10, 2015

Are You in Denial About Your Retirement?

Are You in Denial About Your Retirement?

According to the 51-page Retirement Security Report released by the Government Accountability Office (GAO), as recently as June 2015, among households headed by someone age 55 or older, about 29 percent don't have a retirement savings of their own or any form of employer pension. Just to reiterate, these forks have absolutely no savings whatsoever, anywhere.

And the situation is not much better among those 55+ households who do have some form of savings. On average, those between 55 and 64 have about $104,000 in savings, while those between 65 and 74 have about $148,000 saved for retirement. These balances translate into a monthly annuity payment of $310 and $649, respectively.

No matter how you look at it, these are very grim scenarios.

Of course these folks knew all along that they weren't going to keep working forever, even if that was what they were somehow hoping to do. In fact, I’d even bet that every single one of these well-meaning folks never intended to enter their retirement years in total financial disarray.

So what happened?

Obviously, there could be a million and one reasons why these folks are in the bind they find themselves at the latter end of their lives. But what you must realize is that although they intended for the best and hoped it would play out just as they wished, hoping and intending weren’t enough because they didn’t back them up with the right amount of action.

So how much importance do you attach to your retirement planning? Is retirement even that crucial to you? Do you have a specific plan in place to measure your progress in this regard? Or you are simply saving a little here and there and hoping that things will just turn out OK?

While most of us would agree that retirement planning in one of the things that should be at the top of our to-do list, unfortunately the evidence in real life, as seen by the GAO report I referenced earlier, proves otherwise. A staggering number Americans are increasingly relegating retirement planning to the bottom of their to-do lists and are not taking it seriously enough. I’m hoping you hear this message loud and clear, because the last thing you want to be is a broke retiree.

Happy retirement.
________________ 
If you are ready to have a real conversation about how to start planning for your retirement  even if you haven't saved a penny yet  visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation. You'll be paired with an experienced financial professional who can help you plan for a secure retirement, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If you're ready, we're here to help.