Not understanding the basics rules for inheriting an IRA can cost the beneficiary of an IRA money. The below information summarizes the key points of inheriting an IRA.
Inheriting Traditional IRA as Spouse When a spouse inherits an IRA they first need to retitle the IRA into their own name. By doing this they are avoiding any tax consequences. Spouses with inherited Traditional IRAs can keep assets in the account until they reach the age of 70-1/2 when “Required Minimum Distributions” begin.
Inheriting Roth IRA as Spouse When a spouse inherits a Roth IRA from the deceased spouse they are not required to ever take distributions from the inherited Roth IRA. If they choose to take distributions from the account, they have reached age 59 ½ those distributions are tax free.
Inheriting Traditional IRA for Individual other than Spouse When an IRA is inherited by a non-spouse it cannot be rolled/combined with another of the beneficiary’s pre-existing IRAs. It remains separate and titled as an inherited IRA. An owner of an inherited IRA must make a minimum distribution based on their age and the distribution will be taxed. Required withdrawals continue every year until the IRA has a $0 balance. Minimum required distributions (RMDs) start December 31 of the year following the death of the original owner of the IRA.
Inheriting Roth IRA for Individual other than Spouse The IRA must be retitled in the recipient’s name and cannot be combined with an existing Roth IRA account. If the Roth IRA was funded longer than 5 years prior to inheriting it, required distributions are tax free. Minimum required distributions (RMDs) start December 31 of the year following the death of the individual in which you inherited the IRA. The recipient of an inherited Roth IRA may take withdraw more than the minimum amount up to the entire account balance if they choose to do so within a 5-year period. All of the above-mentioned withdrawals are tax free.
– Wyatt Swartz
– Contributions by Bryant Goacher
– 5/30/2018
529 plans are saving accounts for children’s education that offer tax benefits. The growth of investments in the 529 plan is withdrawn tax-free for approved education/college expenses. The plan can be used for any accredited college or university. Under the new tax law, there have been multiple changes to 529 college savings plans.
A potential new downside is that an individual/household can no longer deduct 529 contributions on their federal tax returns. Contributions are still deductible on state tax returns in the majority of states. Savers are not limited to only contributing in a 529 account in their home state. It is possible to open accounts in multiple states that offer deductions for 529 contributions.
The biggest change in 529 plans from the Tax Cuts and Jobs Act is the ability for parents to use money from the account for K-12 private education. Before this change, parents could only withdraw money for college education expenses, but under the new plan, you can withdraw up to $10,000 per year for private elementary and secondary education. Withdrawals for college expenses are not capped.
Another change that will affect 529 plans, is the new limit on gifts without triggering the gift tax. This is set at $15,000 for 2018. Meaning any family member can donate $15,000 to all children with a 529 plan without paying a gift tax. Contributors can avoid the gift tax by front-loading a 529 plan by making up to five years’ worth of contributions at once, $75,000 to each child. The contributor won’t be able to make any new contributions for 5 years, but the account has more years to benefit from compound returns on the savings and grow the investment faster.
There are still tax penalties involved with making non-education withdrawals from 529 plans. Withdrawals for any other purpose are subject to federal income tax, and a 10% early withdrawal penalty.
– Wyatt Swartz
– Contributions by Eli Perlmutter
– 2/22/2018
“I love a good correction. It weeds out the weaker investors” A former coworker of mine used to say that when markets were volatile. It’s a great line, and I’ve used it more than twice. It is true statement. Average investors drastically underperform markets, and many of those average/weaker investors underperform because they scared off by volatility.
Since we aren’t average investors, we embrace volatility. We as astute investors see volatility as evidence that stocks will continue to perform much as they have the last ~100 years, i.e. be a superior long-term asset class combining the best combination of ROI (return on investment) and liquidity, while at the same time being wildly volatile over short-term periods.
Looking at our above and below charts we can see that stocks as judged by the Vanguard Total World Stock ETF (ticker: VT) hit correction territory on 2/9/2018, -10.53% from previous highs.
When there is a sharp, sudden, seemingly out of nowhere pullback in the markets investors should ask themselves one big question.
What is fundamentally different about the market environment looking forward than before the pullback began?
If the answer to the above question is nothing, then it is very likely that this is a correction and not the early stages of a bear market.
Market corrections historically have occurred almost every twelve months. They are normal, they are volatile, and they are impossible to forecast on the front end. However, they are recognizable in the moment.
When faced with downward market volatility i.e. a correction, the best course of action is to wait, hold, and/or put sidelined cash to work.
– Wyatt Swartz
– 2/15/2018
