Use Pre-Tax Money to Buy Life Insurance

“Hey,” you think, why not buy the life insurance with my IRA money, and then I will be using pre-tax money.” Right you are. There’s only one problem. Life insurance is not an allowed investment in an IRA. It is a permitted investment in a qualified plan, however. Quickly thinking, you now want to know, […]

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The Pro Rata Rule

It’s not uncommon that people can have both pre-tax dollars and post-tax dollars in their IRAs or qualified plans. This happened under the following circumstances: Qualified plans allowed non-deductible contributions (i.e. the employee’s contributions had already been taxed). IRS rules allow contributions to IRAs that may not be tax deductible. Since these funds have already […]

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Exceptions to the 70½ Rule

If you work for a company and do not own at least 5% of the company, you don’t need to take distributions until April 1 of the year after you retire, regardless of your age. You can even be working part time. This exception applies only to the plan of the company for which you […]

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Exceptions to the 10% Penalty

Previously, we discussed Section 72t and the ability to remove funds from an IRA before age 59 ½ using substantial equal periodic payments. There are other ways to avoid the 10% penalty, and here is a list. IRC section 72(t) penalty exemption Major restrictions Distribution due to the disability of a participant. – Participant must […]

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Divorce

Given the rate of divorce, it’s critical to address how your retirement assets get handled. The question is “does your spouse have an interest in your retirement account?” Since the issues of marital property are governed by state law, you can only get a definitive answer from a divorce attorney in your state. The answer, […]

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Distribute the Policy from the Plan

This is called a linked distribution. You don’t cash in the policy. You have the insurance company change the ownership from your retirement plan to you, similar to taking shares of stock or any asset from your plan. This is a taxable event. How much tax do you pay? You pay income tax on the […]

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You Inherit an IRA, What Do You Do?

Here are the steps, and we’ll discuss them in order of priority: Separate your portion from other IRA beneficiaries. Retitle the IRA. Name a beneficiary. Move it to the location you desire (if permitted by the existing custodian). Invest the funds per your investment plan, keeping in mind the review of assets which should and […]

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If You’re a Spouse Beneficiary

The spouse has more options than a non-spouse beneficiary. Here are the four options: You can rollover the deceased’s IRA to your own. This is a good option if you are younger than the deceased and can further delay the required beginning date for distributions. It’s also a good option if you are past age […]

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Disclaimer

When people set up beneficiaries for their IRAs, they don’t know what the future holds. Assume a simple situation where the the IRA owner has two heirs—a spouse and a child. The IRA owner names a spouse as the primary beneficiary and their child as the contingent beneficiary. However, this may not be good if […]

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Yikes—Look at the Taxes!

“Once thought to be relatively obscure, IRD deductions are becoming more common. Big-ticket IRD items such as distributions from IRAs, 401(k)s, 403(b)s, and other tax-sheltered retirement plans of affluent baby boomers have been growing in past decades and will be worth millions when owners bequeath them to estate beneficiaries. Distributions from these plans constitute gross […]

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