Who Gets Your IRA?

Do you have a will, a trust, and retirement accounts? Who will get your retirement assets?

Let’s say that your will says that everything goes to your spouse, your trust says that everything goes to your children, and the beneficiary form for your IRA says that everything goes to your spouse and your children equally. Who gets your IRA? It will go to your spouse and your children equally.

IRAs pass to beneficiaries through the beneficiary form. They don't pass by way of your will unless you name your estate as your beneficiary or sometimes, in what should never be the case, if you fail to name any beneficiaries at all. They also never get to your trust unless you name your trust as your beneficiary. You could have the best trust in the world in place to receive distributions from your IRA after your death, but if you don’t file a beneficiary form naming that trust as your beneficiary, it will never see any IRA distributions.

Whenever there are changes in your family situation, you need to think about whether your beneficiary forms need to be updated. This is especially true after a divorce or a remarriage. If you do not want retirement benefits going to an ex-spouse, then you probably have to update your beneficiary forms. If retirement benefits are meant to go to children and not to a newly married spouse, then you may need to have the new spouse sign a waiver of his or her rights to your retirement benefits. Without a waiver, the benefits might go automatically to your new spouse, cutting out your children. This is almost always true for employer plan benefits.

When there is no beneficiary form on file, you are really taking your chances. Now your retirement assets will go to whoever the company has named for you in the default language in the documents for the account. It could be a spouse; it could be your estate.

Do your loved ones a favor and make sure your retirement assets are going to the right person - the one you planned on receiving the benefits. Check those beneficiary forms.

-By Beverly DeVeny and Jared Trexler

Read More

Spousal Waivers and IRAs

You are married and have an IRA. You know you need to name a beneficiary for those funds. But what if you do not want to name your spouse as the beneficiary? Are you required to name him or her? Under federal law, and IRAs are governed mostly by federal law, you are not required to name your spouse as your IRA beneficiary. You can name anyone you want as the beneficiary. They don’t even have to be a relative.

State law will have some impact here, though. If you live in a community property state, you will most likely need to have your spouse sign a waiver before you can name a non-spouse beneficiary for your IRA funds. In some states, you can “disinherit” your spouse by naming someone else on the beneficiary form, but the spouse could have the last laugh. Some states allow a disinherited spouse to make a right of election against the estate and the spouse would then end up with some of your assets. He or she could then laugh all the way to the bank.

In most employer plans, if you are married and want to name someone other than your spouse as the beneficiary of your plan benefits, you must have your spouse sign a waiver.

Be careful who signs the waiver. It must be a spouse. Documents signed by a fiancé, such as a pre-nuptial agreement, do not count. Once a spouse signs a waiver, update the beneficiary form. You should do both steps to ensure that your assets go to the beneficiaries that you select.

Divorce decrees also don’t count. A spouse can waive rights to retirement benefits in a divorce decree, but as long as a beneficiary form naming the spouse remains in place, that spouse - now the ex-spouse - will, in most cases, end up with the retirement benefits. Always update beneficiary forms after a divorce.

Beneficiary form reviews should be a key component of your financial plan, whether you are your own planner or you have a professional doing this for you. You can see how something that seems so simple can quickly become complicated.

-By Beverly DeVeny and Jared Trexler

Read More

3 Unexpected Ways Your Retirement Account Could Cost You

When managing your retirement account, you should be aware of the unexpected ways those employer-sponsored or IRA accounts could actually COST you. Jeffrey Levine details 3 of those situations in the article below.

Student Aid
If you have a child who is already a college student or is quickly approaching that age, chances are you’ve noticed the extravagant costs that have come to be associated with post-secondary education. In today’s world, a four-year degree at even the most affordable of state-run colleges can easily run into the tens of thousands. It should come as little surprise then that students and parents alike go to great lengths to seek out any financial aid they qualify for to help with the cost. But can your IRAs impact your (or your child’s) ability to claim financial aid?

Well, thankfully there’s some good news here. Retirement accounts can generally be excluded from your assets when you’re filling out the free application for federal student aid (FAFSA). This includes your IRAs and Roth IRAs, as well as your company sponsored retirement accounts. It’s not all roses though. Although you can generally exclude these accounts from a FAFSA application, certain colleges and universities do look at these accounts when determining who qualifies for their own student aid programs. Plus, the FAFSA application includes questions on your income, which can be increased when you take distributions from your retirement accounts or make Roth conversions.

Medicare Premiums
What in the world does your IRA have to do with your Medicare premiums? Nothing, provided your money stays in an IRA. Start taking taxable distributions from your IRA or other tax-deferred retirement accounts though, and suddenly, your IRA can have a lot to do with your Medicare premiums.

That’s because Medicare Part B premiums are income based. For 2013, the “standard premium” is $104.90 per month. However, depending on your income, you could pay more than three times that amount! Those with the highest incomes must pay an additional $230.80 per month in 2013. Ouch! That income could be from continued employment, interest, dividends or other sources, including IRA distributions and Roth conversions.

Here’s the weird thing about the Medicare Part B premiums you need to know. They are generally based off of your tax return from two years prior. So that means that if you make Roth IRA conversion now, in 2013, you might not finish really paying for it until 2015! Some of you may be finding this out first hand this year, as Medicare Part B premiums for 2013 might be increased thanks to the additional income reported on your 2011 tax return from your 2010 Roth IRA conversion (remember, a special rule in 2010 allowed Roth converters to split income evenly over 2011 and 2012).

Taxation of Social Security
If you are currently receiving Social Security benefits, the amount of those benefits included in your gross income and subject to income tax depends on your “combined” - a.k.a. “provisional” - income. This calculation is a little complicated, but needless to say, it includes taxable income from your IRAs and other retirement accounts, as well as Roth conversions. If your income is low enough, you won’t pay tax on any of your Social Security benefits, but if your income is higher, you could pay tax on up to 85% of your benefits. If you’re planning on taking an IRA distribution or making a Roth conversion and receive Social Security benefits, you should factor in any impact it might have on the taxation of your Social Security benefits first.

-By Jeffrey Levine and Jared Trexler

Read More