Death and 72t
L1: Death and 72tWhat happens if someone dies at age 55 after having started a 72t withdrawal at age 54? Does the spouse beneficiary have to continue the 72t withdrawals to fulfill the deceased’s schedule, say to age 60? One source has suggested to me that the surviving spouse should take the balance of this year’s payments in a lump sum, pay tax on them and then rollover to her own IRA. Any thoughts? Thx.2009-06-23 17:56, By: DS , IP: [126.96.36.199]
L2: Death and 72tWhen someone dies with an IRA, 401(k), etc., the spouse has several options. The correct choice can get somewhat complicated, and it depends on several factors, especially the age of the surviving spouse and whether the surviving spouse needs to continue taking money from the decedent’s IRA. Before doing anything, get the help of a really qualified advisor to work through the best option which will include the financial needs of the beneficiary.
As to the 72(t), when the IRA owner died, so did the 72(t). It’s over and there are no remainingrequired SEPP Plan distributions. So the suggestion to take the balance of this year’s distributions in a lump sum is not required, but is one option. Death and disability are the two statutory reasons to terminate a SEPP Plan early and begin withdrawals without penalty. However, what the surviving beneficiary does will take some really, carefully thought out planning.
Is the spouse beneficiary older or younger than 59.5? If older then she / he probably will transfer the decedent’s IRA into her / his name because there are no withdrawal restirctions for someone age 59.5 or older. However, if she / he is younger than 59.5, then it is probably best to establish a “beneficiary / inherited IRA” which keeps the decedent’s name on the account along with the beneficiary’s name. In this situation the spouse beneficiary can make penalty free withdrawals eventhough younger than 59.5. NOTE that I said “probably” above.
I’ve given you some general guidance fora “spouse beneficiary. The rules are different for a “non-spouse beneficiary.” However, the exact action taken depends on many more factors and requires assistance from a qualified advisor. PLEASE don’t try to DIY this situation.
Jim2009-06-23 18:46, By: Jim, IP: [188.8.131.52]
L3: Death and 72tJim: Thanks for your reply. Here are more facts. The wife/spouse/beneficiary is under 59 1/2 and does not need the income her deceased spouse was taking via his 72t distributions. Does this help narrow down her options? Thx.2009-06-23 19:21, By: DS, IP: [184.108.40.206]
L4: Death and 72tYou must consider financial (cash needs) as well as the tax situation of the beneficiary. The previous response was very thorough.
Plan your needs thru your age 59 1/2. This is critical in deciding whether to transfer the IRA to your own IRA, or to use a “beneficiary IRA”. They each have different “lifetimes” to use for distribution calculation purposes until you reach 59 1/2.
Also, consider the fact that at age 60 you become eligible for “widow’s benefits under SS if you do not remarry before age 60, so that adds some complexity to the planning, which was also mentioned before as a reason to get QUALIFIED professional advice. Not all financial advisors understand the tax impact, and possibly not the SS either. Many CPAs do not understand all aspects of inherited IRTAs, or SS either. Find someone who understands all of the nuances.
In addition, consider if it would be worthwhile to consider utilizing a ROTH IRA full or partial conversion in 2009 or 2010, just to add another quirk into the mix.
If an advisor does not understand all of the above factors, then find someone who does.2009-06-23 19:51, By: dlzallestaxes, IP: [220.127.116.11]
L4: Death and 72tThe wife/spouse/beneficiary is under 59 1/2 and does not need the income her deceased spouse was taking via his 72t distributions. Does this help narrow down her options?
Yes, but only slightly, and not enough to make a definitive answer for this case.It seems a little strange that the husband was having to take 72(t) distributions but now the wife does not need the money. I’m sure there’s more to this story, but we don’t need those details. However, this only reinforces my point that the wife needs some really good, sound financial planning advice.
In addition to deciding whether to create an inherited IRA or to transfer to the wife’s IRA, the next biggie is how to structure the beneficiaries for the wife’s heirs. Also, does she only need one IRA or should she create individual IRA’s based on her desired beneficiaries? Now all of this is getting into some really heavy planning and is well beyond the scope of this discussion board, and is about all I have to say on the subject.Let mesuggest the following two resources for you to study:
On the upper left of this page go to “Website Sponsors” and then to “A Practical Guide.” This is Bill Stecker’s book which is the most definitive resource for 72(t)(q). It will answer all of your questioins on this subject. Bill posts here as “TheBadger.”
The second resource is Ed Slott, CPA,who is recognized in the industry as the expert on IRA issues. He has several books and they are all very useful. Follow this linkhttp://irahelp.com/to Ed’s website home page and look in the lower right for his books. I would start with “The Retirement Savings Time Bomb … and How to Defuse It.” Look for “Inherited IRA” and “Death” in the indexand you will have a better understanding of the beneficiary problems I have addressed. There is a link on this site to Ed’s website but it was easier to simply give you the link.
2009-06-24 13:29, By: Jim, IP: [18.104.22.168]
L5: Death and 72tAnother excellent reference is “J K LASSER YOUR INCOME TAX ” which is available at libraries, or at super book stores or super office supply stores for under $ 20. It discusses many aspects of inherited IRAs.2009-06-24 14:34, By: dlzallestaxes, IP: [22.214.171.124]