by Bill Griffith Bill Griffith No Comments

When to Update Beneficiary Forms

A good time to review and update your beneficiary forms is near the end of the year or after a significant life event.

Beneficiary Designations

A beneficiary is typically a person named or designated to receive proceeds from a life insurance policy or benefits from a retirement plan or IRA after the account owner or insured dies.

If you are contributing to a 401 (k) or 403 (b) plan at work or other retirement plan, such as a traditional or Roth IRA, then you may remember choosing a beneficiary when you enrolled in the plan.

But over the years, many things can happen in life that might require changes to your beneficiary designations, such as a marriage, divorce, birth of children, or death.

Spouse Versus Non-Spouse Beneficiary

Typically, a married couple will name each other as the primary beneficiary of their life insurance policy and retirement plans.

After the first spouse dies, the survivor should change the beneficiary on their life insurance policy and retirement accounts as soon as possible. It’s easy to forget about this. After the funeral, everyone goes back to work and living life and sometimes these things don’t get done.

Know the Rules

Different rules apply to spouses and non-spouse beneficiaries of individual retirement accounts (IRAs). The SECURE Act and SECURE Act 2.0 changed the rules for taking distributions from IRAs. The rules impact spouses and non-spouse beneficiaries differently.

Also, there is a deadline for splitting inherited IRAs if there is more than one designated beneficiary.

There are many choices when you inherit an IRA. Making a mistake when inheriting assets could trigger a huge tax bill and cause you to lose out on an opportunity for many years of tax deferred growth.

Marriage, Death, or Divorce

Naming a beneficiary is not something that you should do once and forget about. In fact, anything that affects your future financial security and that of your family is something that you should review and update regularly.

Imagine a surviving spouse finding out that a former spouse is still named as the primary beneficiary of a decedents 401 (k) plan. The consequences could potentially ruin a survivors’ retirement plan, especially if it was a sizable account.

Unfortunately, this type of thing happens more often than it should. Don’t let it happen to you. Changing the beneficiary after divorce will ensure that a life insurance benefit from a company plan will be paid out to the person you desire.

Working with a CFP® practitioner

If you are working with a CFP® practitioner, he or she should keep copies of your beneficiary forms on file and review them with you at least once each year and/or after significant life events.

If you are not working with a CFP® practitioner, contact us today and we will take care of this for.

Better yet, find out if your overall retirement and estate plan is on solid ground and sign up with us online.

by Bill Griffith Bill Griffith No Comments

Financial Planning After a Family Member Dies

Financial planning is important all through life but even more so after a family member dies. Having someone you trust can help you through the process and relieve stress.

After the Funeral

Dealing with the death of a loved one is stressful enough but not knowing what to do with Social Security, insurance policies, wills or trusts, ongoing bills and living expenses, and transfers of accounts and funds from financial institutions to beneficiaries poses an additional burden on a family.

Did you know there is over twenty-one things to consider doing in just the first month after the funeral?

Most people know about contacting the Social Security Administration and ordering certified copies of the death certificate. But few people know what to do after they receive the certified copies.

In addition to taking care of everything for your loved one, you might also want to seek advice from a Certified Financial Planner® practitioner and consider creating or updating your own financial plan.

This is especially important if you are the spouse or other beneficiary.

Avoid Mistakes

Making a mistake when inheriting assets could trigger a huge tax bill and cause you to lose out on an opportunity for many years of tax deferred growth.

Mistakes can happen even before a loved one dies when trying to retitle real estate and other property to avoid the probate process. If done incorrectly, you could potentially miss out on significant tax benefits.

Benefits of Financial Planning

Financial planning is a 7 step collaborative process of outlining how your income, savings, investments, and other assets can work to help meet your goals.

The cost of hiring a Certified Financial Planner® practitioner may be less than you think. For example, our One-Month Starter Package is $500. This is a good way for you to get started working with a Certified Financial Planner® practitioner. We’ll talk over the phone or meet in person one or more times over the course of one month to answer your questions, discuss your situation, and propose recommendations.

For example, you may have questions like those listed below:

  • How do I transfer and title assets that I just inherited?
  • Do I have enough assets to last in retirement?
  • I’m interested in moving. Can I make this happen?
  • How can I take advantage of Roth conversions?
  • How can I save for my child’s education?
  • How should I pay down my debt?
  • Do I have enough insurance if I were to pass away?

After we’ve decided upon a course of action, we’re available to help you implement your decisions and answer follow-up questions. After the first month, you can decide if you want to continue with an ongoing financial planning relationship.

For those desiring a continuing relationship where we can help implement your plan and monitor your progress over time, our ongoing financial planning fee is $400.00 per month.

                                             Get started today.  

by Bill Griffith Bill Griffith No Comments

Required Minimum Distribution (RMD) After Death

What is the required minimum distribution (RMD) that must be taken if an IRA owner dies on or after the required beginning date?

For the purposes of this article, we will be discussing traditional IRAs.  More specifically, we will be discussing the required minimum distribution (RMD) that must be taken for the year that an IRA owner dies.

If your loved one passed away in 2019, you will need to know what the options are when inheriting an IRA.

Required Beginning Date

First, what is the required beginning date?  Any discussion about retirement topics or IRAs typically includes a reference to the required beginning date. 

The required beginning date is simply the deadline for taking the first required minimum distribution (RMD).  The deadline is April 1 of the year following the year that you become age 70 ½.

For example, an IRA owner who turned 70 in February 2017 was 70 ½ in 2017.  The required beginning date will be April 1, 2018.  An IRA owner who turned 70 in November 2017 did not reach 70 ½ until 2018.  The required beginning date was April 1, 2019.

If IRA Owner Dies on or After the Required Beginning Date

An IRA owner who dies after the required beginning date should have been taking RMDs.  If not, he or she would have been subject to a 50% penalty tax on the amount not withdrawn.

A required minimum distribution must also be taken for the year of death just as if the IRA owner was still living.  The questions are, how is the RMD calculated and who must take it?

Calculating the RMD

The RMD for the year of death is calculated the same as if the IRA owner was still living.  In most cases, the Uniform Lifetime Table is used unless the beneficiary is a spouse and more than 10 years younger than the IRA owner.

For example, the RMD for a person who dies in 2019 at the age of 72 would be calculated by using a distribution period of 25.6.   

Who Takes the Required Minimum Distribution?

It is very important to know who must take the RMD for the year of death.  This depends on whether the IRA owner already took the RMD in the year of his or her death.  If the IRA owner did not take the RMD in the year of death, then the beneficiary must take it. 

For example, if your spouse died in 2019 before taking the RMD, then you will take the RMD if you are the named beneficiary.

If you are the named beneficiary of your parent’s IRA, then you must take the RMD for the year of death.

IRA Rules Can Be Confusing

There are many rules regarding IRAs. Sometimes, the rules and deadlines can be confusing. 

Hopefully, you now have a better understanding of the rule regarding the required minimum distribution (RMD) that must be taken if an IRA owner dies on or after the required beginning date.

As always, do not sign any beneficiary claim forms until you fully understand the company’s contractual and/or IRS tax ramifications.  A mistake could trigger a huge tax penalty. And make sure that you contact your advisor (estate attorney, CPA, CFP®) for professional advice.

by Bill Griffith Bill Griffith No Comments

Correcting an Excess IRA Contribution

The deadline for correcting an excess IRA contribution for the 2018 tax year is coming up. If the excess amount is not removed according to a special formula, a penalty tax of 6% will accrue on excess amounts that remain in the owner’s IRA.  

An excess IRA contribution occurs when an IRA owner contributes more than the statutory limit to their IRA in a given year.  For the year 2018, the IRA contribution limit was the lesser of $5,500 or 100% of earned income.  An additional catch up contribution of $1,000 is available for individual’s age 50 or older.

An excess contribution can occur when an IRA owner simply contributes too much to their IRA in one tax year, such as by contributing more than the lesser of $5,500 or 100% of earned income. 

For example:  Say that in 2018, Mr. Smith, age 62 and single with earned income of $5,000 and rental income of $34,500, contributed $6,500 to his traditional IRA.  Mr. Smith has made an excess contribution of $1,500 to his IRA ($6,500 minus the $5,000 limit). The contribution limit is the lesser of $6,500 or 100% of earned income.  In this case, the rental income of $34,500 is not earned income.

Correcting an Excess IRA Contribution After Due Date

Individuals who contribute too much to their IRA have until their tax-filing deadline, including extensions, to correct any excess contribution.  Individuals who file their tax returns by April 15th and file for an extension have six months to remove the excess amount, which for calendar year taxpayers is October 15, 2019. 

If the excess amount is not removed according to a special formula, which determines the amount of the excess contribution plus interest or other income earned on the excess contribution, a penalty tax of 6% will accrue on excess amounts that remain in the owner’s IRA.