Retirement planning here at LNWM usually includes strategies for IRA accounts – not just where to invest IRA assets but just as importantly, how the IRA can be used most effectively in retirement and estate planning.
The questions are many: how to best consolidate accounts; what to consider rolling over into a Roth IRA; and how to deal with the impact of required minimum withdrawals at age 70 ½. According to Kristi Mathisen, head of the LNWM tax team, here are two recent changes to IRA rules that are affecting how we advise clients:
(1) Tax-free use of IRA money for up to 60 days is now allowed just once a year. In the past, you could take money out of an IRA and do with it what you wished, as long as you returned the money back to the original IRA or another IRA within 60 days. Due to a 2014 Tax Court ruling, you can do this sort of transfer just once every 365 days, otherwise you incur taxes and withdrawal penalties.
Note that this does not apply to trustee-to-trustee transfers. If you have an IRA at Vanguard, for instance, and want to transfer this to your Schwab account, you can do this in addition to taking some money out of the account and replacing it within 60 days.
(2) IRAs passed on to your children or someone other than your spouse are not exempt from creditors. The U.S. Supreme Court ruled in 2014 that IRAs passed on to someone other than your spouse do not have creditor protection. Why? Because they are not technically the retirement accounts of the beneficiary. This means that inherited IRAs will in many cases be used to pay off creditors in case of bankruptcy or a lawsuit settlement.