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[If you are looking for information about Joe Cislowski, click here.]
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NOTE: On
January 11, 2001, the IRS issued a new set of proposed regulations
dealing with IRAs.
The new regulations make major changes in the required distribution
rules (both during life and after death of the IRA owner).
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Does My IRA
Really Say That?!?!
Many people, recognizing that Social Security won’t
be enough, have worked hard to develop additional ways to
pay their costs of living during retirement. A principal tool
for many has been the Individual Retirement Account (IRA),
a tax-deferred account created by Uncle Sam to encourage us
to save for retirement. A large part of the savings of many
older adults is held in IRAs.
Why IRAs Are
So Valuable
Your IRA is a great way to hold onto your retirement savings
longer, by deferring payment of income taxes. Basically, so
long as the money stays in your IRA, no income tax is due.
And, not only can you defer paying income taxes on IRA money
during your lifetime, your beneficiaries may also be able
to defer paying income taxes on that money after your death.
The Paperwork Jungle
If you have an IRA, you know that there were forms that you
signed when you set up your account. Those forms were provided
to you by the bank, mutual fund or other financial institution
(the IRA Trustee) that you deposited your IRA money with.
Those forms contained lots of small print, and included the
IRA Custodial / Trustee Plan. In those forms, you may or may
not have named one or more beneficiaries for your IRA.
Many people have never read their IRA forms, or (if they
did) didn’t know what they meant or what to look for.
Forms are Substance
Your IRA forms matter. They need to be reviewed. Why look
at all that paperwork? A few of the reasons:
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Your
IRA forms (together with the IRS Regulations) set the
rules that determine what will happen with your IRA. |
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The
language in IRA forms is not "standard." It
differs from one IRA Trustee to another IRA Trustee to
another IRA Trustee. |
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Your
IRA forms may make your IRA less flexible than the IRS
Regulations would allow. |
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The
language in your IRA forms may produce results you didn’t
expect or don’t want. |
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You
may be able to take corrective action now. |
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Yes, This Could Happen
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Joe,
a widower whose principal asset is his IRA,
dies at age 69. |
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Janet,
Joe’s financially-struggling only child, is
named in Joe’s IRA as his only beneficiary. |
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Janet
checks with Joe’s IRA Trustee. She learns that
Joe’s IRA forms require Janet to distribute
100% of the IRA in the year of Joe’s death. |
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As
a result, Janet loses any chance at continuing
the tax-deferral benefits of Joe’s IRA, and
is pushed into a higher income tax bracket by
distributing Joe’s IRA all in one year. |
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This
result is very unfortunate, compared to what
could have happened under different IRA forms.
And Joe could have changed his forms during
his life. |
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The
IRS Regulations would have allowed Joe’s IRA
forms to provide Janet two much more flexible
choices: either distribute Joe’s IRA within
roughly five years after Joe’s death; or, on
making a timely special election, distribute
Joe’s IRA over Janet’s life expectancy (42.5
years). |
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How Should You Start?
You’ve worked hard to create the savings held in your
IRA – to have them for your retirement, for your spouse,
for your beneficiaries. You want to protect this important
asset.
For starters, pull together a full set of the forms that
you’ve signed, and any other documents that make up your
IRA documents. Check your files. Request a complete set from
your IRA Trustee, for each IRA that you have.
Examine the forms, and ask questions of your IRA Trustee.
Your IRA Trustee may have written explanations to go along
with the forms. Get answers in writing from your IRA Trustee.
Find out what your IRA forms say about things like:
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Who
have you named as beneficiaries, and when? |
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If
your named beneficiaries die before you, who will be your
beneficiary? |
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If
you die after your RBD, what options will your beneficiaries
have? It’s lingo time: "RBD" is short for
"required beginning date." For most people,
their RBD is the April 1 following the calendar year in
which they turn 70˝. |
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If
you die before your RBD, what options will your beneficiaries
have? |
Once you’ve pulled this information together, you’re
on the road to understanding your IRA, protecting your IRA
investment, and making it match your long-term goals.
More Information
The subject of IRAs, what they mean, how they work, what
to watch for, etc. is quite extensive. We’ve only sought
to help you start out in the right direction. You may want
to obtain the assistance of a qualified professional to help
you analyze your IRA and your options. There following are
additional articles concerning IRA's on this web site:
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