Monday, December 6, 2010

Are You an IRA Expert?

Welcome to this month’s installment of Are You an IRA Expert? Always thought you knew more than the next guy about IRAs and retirement accounts? Well now is your chance to prove it. Below are three questions, ranging from beginner to expert. Test your IRA skills by trying to get all three right!


Use the following information to answer the questions below:

John, age 57, died March 4, 2009. He left his sole IRA to his wife (50%) and his two sons, Bradley (25%) and Mark (25%).

Beginner: In order to be eligible for separate account treatment, John's beneficiaries must split the inherited account by what date?

Intermediate: Since John died with designated beneficiaries, but before his required beginning date, under the Tax Code his beneficiaries will have two options (an IRA custodial document can be more restrictive). What are they?

Expert: If John's wife transfers her share of the account by the deadline to receive separate account treatment (see question #1) and chooses to remain a beneficiary, when must she begin taking required minimum distributions?


Beginner: December 31, 2010. In order to receive separate account treatment, accounts must be split by December 31st of the year following the year of an IRA owner's death. Accounts may be split afterwards, but all beneficiaries will be “stuck” using the oldest beneficiary’s life expectancy and a spouse will not be able to take advantage of any special spousal distribution rules.

Intermediate: Distributions may be made over beneficiaries' life expectancies or the entire account may be emptied by December 31st of the fifth year following the year of death.

Expert: December 31st of the year John would have turned 70 ½. One of the special spousal distribution rules is that a spouse who remains a beneficiary does not need to begin taking RMDs until December 31st of the year the deceased spouse IRA owner would have been 70 ½. This is only available when a spouse is the sole IRA beneficiary or if they split the account before the deadline for separate account treatment.

So how did you do? Are you an IRA Expert? Unless the answer is a resounding yes, you may want to consider consulting with an advisor who has specialized knowledge and training in this area when you have these, or other IRA questions.

By IRA Technical Consultant Jeffrey Levine and Jared Trexler
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