Attention Retirement Savers: Retirement Accounts Are Different! Part 2

In my last blog post, “Attention Retirement Savers: Retirement Accounts Are Different! Part 1”, I briefly spoke about the fact that retirement accounts are different.  In this post I’m going to dive into those differences further.

Some of the differences are they:

  • Do not pass through the will (unless payable to an estate)
  • Are not subject to probate (unless payable to an estate)
  • Receive no capital gains treatment
  • Receive no step up in cost basis up death
  • Cannot be gifted (in most cases)
  • The title cannot be transferred to a trust
  • Are subject to special rules, called Required Minimum Distributions

IRA accounts are perhaps the only assets in your estate that will require you to take out a minimum distribution. Also, please remember that by placing a title of an IRA into a trust, you may cause immediate taxation. Once again, IRA or retirement assets are different!

Through proper planning, you can set up your IRA so that your heirs, whether they are your children, grandchildren or anyone else, can receive what is called an Inherited IRA. There are various tax laws, regulations, rules and even private letter rulings that may effect the decisions you make in setting up these Inherited IRAs. Investors should note that stretch or inherited IRAs are designed for individuals who will not need the money in the account for their own retirement needs.

In planning your retirement account, it is imperative that you review the importance of choosing the right beneficiary/beneficiaries. An informed decision can help you better understand your options, when considering tools like Roth IRAs, which were created by the Taxpayer Relief Act of 1997 and further modified by the IRS Restructuring Reform Act of 1998. Remember, Roth IRAs are significantly different than traditional IRAs and need proper planning as well.

Keeping current with new tax laws is another essential ingredient for successful retirement planning. In fact, The Pension Protection Act of 2006 (PPA) made some significant changes for retirement accounts.

The bottom line is retirement account distribution and planning, while it may look simple on the surface, is something that should be taken seriously and work through with knowledge of the rules, regulations and tax code. Sometimes even people in the financial arena or savvy investors are not familiar with these complicated tax laws.

Whatever you do, make sure you or who you are working with is familiar with the tax laws regarding retirement distribution rules.

Still a little unsure about some of the topics discussed?  Let us help you.  Please give our office a call today, we’d be glad to assist you and address your needs! 412-521-2732

– Jim Lange