Archive Articles

Avoid Retirement Account Mistakes
in a Divorce in 5 Easy Steps

Retirement accounts and divorce
When a divorce occurs, the financial assets of a couple, including their retirement accounts, are often split. If mistakes are made during this process, the stress of a divorce can be compounded when one or both spouses find that they are subject to unnecessary taxes or penalties.

1. IRAs in divorce.
To properly divide an IRA as a result of a divorce, specific language on the structure of “who gets what” should be included in the marital settlement agreement (MSA) or other divorce agreement. A copy of this executed agreement should be given to the IRA custodian. The money should NOT simply be withdrawn from the IRA and given to the other spouse, as this would be treated as a taxable distribution for the IRA owner. The funds should instead be transferred to the receiving spouse’s IRA.

2. Qualified plans in divorce.
Qualified plans can’t be split by an MSA or divorce agreement. They require a special court order, known as a Qualified Domestic Relations Order (QDRO). Once a QDRO has been issued, it should be sent to the qualified plan’s administrator. The terms of the plan will determine when the spouse receives the funds. In some plans, a lump-sum distribution will be available immediately, while in other plans, benefits may not be payable until the ex-spouse retires.

3. What to do with the received funds.
If you are receiving a portion of an IRA, you will likely want to move the funds over to your own IRA to avoid incurring tax and possibly the 10% early distribution penalty. However, If you are receiving a distribution pursuant to a QDRO, you will want to consider if you will be using any of the funds prior to age 59 1/2. Funds received directly from a plan under a QDRO are exempt from the 10% penalty. If you roll those funds over to an IRA and later take a distribution prior to age 59 ó, the 10% early distribution penalty will apply.

4. Name new/update beneficiaries.
One of the most common mistakes after a divorce is the failure to properly update beneficiary forms. This is NOT something that should be overlooked. There have been many documented cases where a failure to properly update beneficiary forms led to an ex-spouse receiving funds that were intended for children or even a new spouse. DON’T let this happen to you.

5. Reassess retirement preparedness.
For many, a divorce is an emotionally draining and traumatic event. But for some, the emotional impact is compounded by a significant change to personal finances. So just like any other major life event, it’s beneficial to reevaluate your retirement and financial plans to determine the best course of action.

AdTrax # 1108733.4  © 2015 Ed Slott and Company, LLC

Securities offered through Securities America, Inc., Member FINRA/SIPC.  Margreta H. Swanson, Registered Representative.  Advisory Services offered through Securities America Advisors, Inc., Margreta H Swanson, Financial Advisor.  MH Swanson & Associates and the Securities America companies are not affiliated.

Ed Slott’s Elite IRA Advisor Group™ is for investment services only. Ed Slott's endorsement does not extend to the financial planning or investment advisory services offered by the representative. Ed Slott’s Elite IRA Advisor Group™ members pay a fee for the educational programs that allow them to be included in the Ed Slott’s Elite IRA Advisor Group™.  Membership does not guarantee investment success. 

"Securities America and its representatives do not provide tax or legal advice.  Please consult the appropriate professional regarding your specific situation."


Use Your Tax Refund to Fund an IRA in 5 Easy Steps

What does the basic process entail?
An income tax refund can be directly deposited to an IRA up to the annual contribution limit. The contribution limit is $5,500 ($6,500 for individuals age 50 or older) for 2016 and 2017. It can also be split among multiple accounts.

1. It is tax time! Prepare your tax return for the year.

2. Determine the refund amount. Once you know how big your refund will be, decide how much, if any, you would like to contribute to your IRA or Roth IRA up to the maximum annual contribution allowed.

3. One, two, three. A refund going to only one account can be done directly on IRS Form 1040. Prepare IRS Form 8888 to direct the refund to up to three accounts.

4. Watch out! If you use Form 8888, pay attention to the six cautions provided by the IRS on the instructions to ensure that you do not fall into any of those traps. The form can be found on the IRS’ website (www.irs.gov).

5. Follow-up, follow-up, follow-up. If the IRA deposit is meant to be for the prior year, make sure the institution will code it that way, and that it is received in time. If the refund amount is adjusted for math errors or tax adjustments, check which accounts on the form are affected. You may need to do an amended return if the IRA deposit is adjusted. Refund offsets can be done against any accounts receiving the refund. Again, you may need to do an amended return. If the funds go into the wrong account, deal with the institution to get the funds credited to the correct account.

AdTrax# 1107442.8    © 2015 Ed Slott and Company, LLC

 


Did you know that the Department of Motor Vehicles has an emergency contact program?

Virginia’s Emergency Program gives law enforcement a way to notify your family or friends in the event of a serious crash or other emergency that leaves you unable to communicate. You can use their  form to list up to two emergency contacts with the Virginia Department of Motor Vehicles (DMV).

Click this link to download a copy of the DMV form. http://www.dmv.state.va.us/webdoc/pdf/dmv281.pdf The Emergency Contact Program is free and available to people with a valid Virginia driver’s license, identification card, learner’s permit, commercial driver’s license or temporary driver’s license. Participation is voluntary. The DMV form states that they will securely store your information and it will only be available for use by law enforcement in an emergency.

The MH Swanson & Associates team takes great pride in helping to make our clients lives more secure.

# 1453457.1


Avoiding Charitable IRA Beneficiary Mistakes in 5 Easy Steps

Can IRAs be used to benefit a charity?Ed Slott's IRA Advisor Group
IRAs can be a great source of funds to provide a benefit for a favorite charity, but using these funds can create a number of traps that must be avoided in order to maximize benefits to both the charity and other IRA beneficiaries.

1. Name the charity directly on your beneficiary form. The money will go directly to the charity, avoiding both the time and expense of probate. Additionally, the distribution to the charity will not be considered income to the estate of the deceased IRA owner.

2. Set up separate accounts. Consider transferring the portion you intend to leave to charity into a separate IRA account. If other beneficiaries inherit the same IRA as a charity and the charity’s portion is not “cashed out” or split within the IRS prescribed time frames, the stretch IRA for the living beneficiaries will be lost.

3. Reverse your bequests. If you have made provisions for certain charities under your will and also have retirement plans, an effective tax strategy would be to reverse the bequests with non-retirement assets. This way, the charity receives the same amount that you were going to leave them in your will, but your heirs will end up with more, because the money they will inherit will not be subject to income tax, as the retirement plan would be.

4. Don’t convert assets you plan to leave to a charity. Many charitable organizations and religious groups are structured tax-exempt organizations. When an IRA is left to one of these charities, the charity does not have to pay income tax on the distribution as other beneficiaries would. As a result, if you intend to leave your IRA to charity, converting it to a Roth IRA is generally not a wise move. Why pay income tax on the conversion when the money will be going to the charity tax free anyway?

5. Beware of naming a charity as a trust beneficiary. A charity is known as a “nondesignated beneficiary,” because it does not have a life expectancy. In general, trusts are also non-designated beneficiaries. Certain trusts, known as see-through (or lookthrough) trusts allow for post-death distributions to be stretched based on the trust beneficiary with the shortest remaining life expectancy. Since a charity has no life expectancy, if it is named as a beneficiary of a trust that is also inheriting an IRA, it can eliminate the stretch for the remaining trust beneficiaries.

Securities offered through Securities America, Inc., Member FINRA/SIPC.  Margreta H. Swanson, Registered Representative.  Advisory Services offered through Securities America Advisors, Inc., Margreta H Swanson, Financial Advisor.  MH Swanson & Associates and the Securities America companies are not affiliated.

Ed Slott’s Elite IRA Advisor Group™ is for investment services only. Ed Slott's endorsement does not extend to the financial planning or investment advisory services offered by the representative. Ed Slott’s Elite IRA Advisor Group™ members pay a fee for the educational programs that allow them to be included in the Ed Slott’s Elite IRA Advisor Group™.  Membership does not guarantee investment success. 

"Securities America and its representatives do not provide tax or legal advice.  Please consult the appropriate professional regarding your specific situation."

© 2015 Ed Slott and Company, LLC


 

Avoiding 60-Day Rollover Mistakes in 5 Easy StepsEd Slott's IRA Advisor Group

Reprinted with permission from ED Slott and Company, LLC, America's IRA Experts

What is a 60-day rollover?

A 60-day rollover is the distribution of funds from a qualifying retirement account payable to the account owner who then has 60 days to redeposit the funds into another qualifying retirement account.

1. Do trustee-to-trustee transfers instead. The best way to avoid making a 60-day rollover mistake is to avoid 60-day rollovers! Transfer your funds directly to another retirement account. Not only does a direct transfer avoid any 60-day time problems, but if the rollover is coming from a 401(k) or other qualified plan, it will also avoid the mandatory 20% withholding requirement.

2. Make checks payable to new IRA custodians. Sometimes the only way a custodian will distribute an IRA or other retirement account money is in the form of a check. There is a special rule that allows a distribution by check to qualify as a direct rollover (and avoid the 60-day rules) when the check is made payable to the new IRA. For example, your check might read “Custodian X f/b/o (for benefit of) John Doe IRA.”

3. Keep track of when you receive your distribution. Few people know when the 60-day clock actually begins. It starts when you receive the distribution. The few days between when the check was issued and when you actually received it may make all the difference in the world.

4. Check to make sure the funds were deposited into the correct account. A common mistake occurs when funds are accidentally deposited into a non-retirement account. Once you’ve deposited the funds or sent them to your financial institution, take five minutes out of your day to make sure they have arrived at their intended destination. If the mistake is discovered within 60 days it can be corrected.

5. Be aware of the once-per-year IRA rollover rule. You are limited in the number of 60-day rollovers you can make in a 365-day period. The once-per-year rollover rule applies only to 60-day rollovers from IRA to IRA or from Roth IRA to Roth IRA. Under the rule, once funds have been rolled over as a 60-day rollover, no other 60-day rollovers can be done by the account owner within the next 365 days. For this rule, IRAs and Roth IRAs are counted together.

 

Securities offered through Securities America, Inc., Member FINRA/SIPC.  Margreta H. Swanson, Registered Representative.  Advisory Services offered through Securities America Advisors, Inc., Margreta H Swanson, Financial Advisor.  MH Swanson & Associates and the Securities America companies are not affiliated.

Ed Slott’s Elite IRA Advisor Group™ is for investment services only. Ed Slott's endorsement does not extend to the financial planning or investment advisory services offered by the representative. Ed Slott’s Elite IRA Advisor Group™ members pay a fee for the educational programs that allow them to be included in the Ed Slott’s Elite IRA Advisor Group™.  Membership does not guarantee investment success. 

"Securities America and its representatives do not provide tax or legal advice.  Please consult the appropriate professional regarding your specific situation."

© 2015 Ed Slott and Company, LLC

 


 

 

Inheriting a Spousal IRA

What are my choices if I inherit a spousal IRA?
As the spouse of an IRA owner who has named you as the beneficiary, it’s critical that you—and the owner of the IRA—understand the rules that govern IRA inheritances.

If you inherit your spouse’s IRA there will be no estate or income taxes due, no matter how large the inheritance.

You have three choices regarding how to treat this IRA inheritance.

1) Roll the inherited IRA assets into your existing IRA or one you have just established.

2) Transfer the inherited IRA assets into an Inherited IRA account. If your spouse was age 70½ or older, you are required to take mandatory distributions by December 31st of the year following your spouse’s death. If your spouse was younger than age 70½, you are able to delay distributions until your spouse would have turned age 70½.


3) Disclaim all or part of the IRA inheritance within nine months of the IRA owner’s death. You will not be able to choose who is next in line to receive the disclaimed property. The assets will pass to the IRA’s contingent beneficiary. This could be your children, another relative, a trust, or a charity. Since the assets will now be passing onto a non-spouse, estate taxes may be owed based on the value of the IRA