When making minimum distributions from a retirement account, the required minimum distribution is a term that refers to the lowest amount of money that you must withdraw from said account every year once you reach the age limit. You can withdraw more than the minimum if you would like to, but keep in mind that the withdrawals you make will be included as part of your taxable income.
The main exception is money that was taxed prior to being deposited into the retirement account or money that can be withdrawn tax free, which is a benefit that exists for qualified distributions pulled from Roth accounts. In that context, other examples may include traditional individual retirement accounts, 401(k)s, 403(b) accounts, 457(b) plans and profit-sharing plans.
Now, going back to the RMD, the value of which, no matter the year, is equal to what the balance of the account is at the end of the immediately preceding calendar year. This is better explained by a distribution period defined by the IRS’s Uniform Lifetime Table.
Please recognize that changes have been made to the way things work, and as a result of the SECURE Act, people who turned 70 years old on or after July 1, 2019, can wait to take withdrawals from their account until they turn 72. The primary exception is a Roth IRA, which does not require account owners to withdraw any funds, even if that means they pass away without ever withdrawing. (Also, note that the new RMD age is 73 if you reach age 72 after Dec. 31, 2022.)
That said, if the sole beneficiary just so happens to be the owner’s spouse and if that spouse is 10 or more years younger than the account owner, then a separate table from the Uniform Lifetime Table must be used. But don’t worry! There are predefined worksheets that you can fill out to calculate the required withdrawal amount.
There are three main ways to calculate the RMD: the Uniform Lifetime Table; Table I: Single Life Expectancy; and Table II: Joint Life and Last Survivor Expectancy.
The Uniform Lifetime Table
This table is best for those who are unmarried IRA owners, especially if they plan to calculate the value of their withdrawals themselves. It’s also suitable for married IRA owners with spouses who are no more than 10 years their junior. Last but not least, IRA owners who are married to people who are not the sole beneficiaries of their spouse’s IRA can use this table as well.
Table I: Single Life Expectancy
Table I is intended to be used by beneficiaries of an IRA when these beneficiaries are not spouses of IRA owners.
Table II: Joint Life and Last Survivor Expectancy
Table II is ideal for IRA owners who are married to spouses who are both the sole beneficiaries of the IRA as well as more than 10 years younger than the IRA owner.
What happens if you don’t take the RMDs? The consequence is that you will have to pay an excise tax equal to 50% of the amount that was not distributed as required. And what happens when the account owner dies? Ultimately, within the year of their death, you must use the RMD on the part of the account owner. The year after that, the value of the RMD for that account will be dependent on the identity and status of the account’s designated beneficiary.
What about inherited IRAs? If you inherited your IRA or other retirement plan account from the initial owner of the account, you must calculate your RMD because you are a designated beneficiary. In doing so, you can use the Single Life Expectancy table, which provides a life expectancy factor based on age. With this table in mind, the account balance will be divided by this factor to determine your first RMD. The life expectancy will be reduced by one year for each subsequent year that passes.
What’s the beginning date for your first RMD? For IRAs, including simplified employee pension plans and SIMPLE, or Savings Incentive Match Plan for Employees, IRAs, it’s April 1 of the year following the calendar year that you turn 70 1/2 years old as long as you were born prior to July 1, 1949. If that prerequisite does not apply to you, then the beginning date for your first RMD is April 1 of the year after the calendar year during which you turned 72 years old if your birthday is after June 30, 1949.
Now, let’s turn our attention to 401(k)s, profit-sharing plans and 403(b) plans. In most cases, you must withdraw the first RMD as of the first day of the April that follows the calendar year during which one of the following circumstances applies to you:
You turned 72 years old.
You turned 70 1/2 years old if your birthday precedes July 1, 1949.
You retired, as long as your plan allows you to take a distribution.
However, if you own at least 5% or more of the business that sponsors your IRA plan, you have to start withdrawing distributions by April 1 during the year that follows the calendar year during which you either turned 70 1/2 years old or turned 72 years old, as long as you were born after June 30, 1949. This applies regardless of whether or not you have retired.
It’s important to be aware of your required RMD start date. For each year thereafter, as well as the year of your start date, you must withdraw your RMD by Dec. 31.
This means you will usually need to keep track of two required distribution dates, those of which start with April 1 for the withdrawal you must make either during the year you turned 70 1/2 years old or during the year you are already 72 years old if you were born after June 30, 1949. The second date to pay attention to is Dec. 31, which is when you must make the additional withdrawal.
With all this information in mind, you should be well equipped when it comes to understanding how RMDs work and the rules surrounding them. As always, reach out to a tax professional if you require additional assistance when determining the value of your RMDs and all other IRA-related concerns.
The “estate” you own comprises much more than just physical real estate. Whether you have a modest income or sizeable assets, understanding the full scope of your estate is essential for planning purposes. Let’s delve into the various components of an estate with guidance from a knowledgeable Modesto estate lawyer.
Key Components of an Estate
Real Property: This includes homes, land, and any other real estate holdings you own or have an interest in.
Personal Property: Items like cars, jewelry, furniture, artwork, and personal belongings are all part of your estate.
Financial Accounts: This encompasses bank accounts (checking, savings), investment accounts, retirement accounts (IRAs, 401ks), and any other financial assets.
Life Insurance: The death benefit of a life insurance policy is considered part of your estate if you own the policy.
Business Interests: If you have ownership in a business—whether it’s a sole proprietorship, partnership, corporation, or LLC—it’s part of your estate.
Intellectual Property: Copyrights, patents, trademarks, and other intellectual property rights can also be estate assets.
Digital Assets: In today’s digital age, things like social media accounts, websites, blogs, and digital currencies (like Bitcoin, Robinhood) can be considered part of your estate.
Debts Owed to You: Money that others owe you, including personal loans or business-related debts, adds to your estate’s value.
Why Identifying All Assets Matters
Accurate Valuation: Knowing the entirety of your estate helps in determining its total value, crucial for tax implications and distribution strategies.
Efficient Distribution: Proper estate planning ensures that all assets, big or small, are distributed according to your wishes.
Avoiding Legal Complications: Missing out on any asset can lead to potential disputes or legal challenges in the future.
Getting Help
Your estate encompasses more than you might initially realize. From tangible assets like homes and cars to intangible ones like intellectual property and digital profiles, everything counts. Collaborate with a Modesto estate lawyer to ensure that you have a holistic view of your wealth and a solid plan for its future management and distribution. If you’re ready to get started, reach out to us by calling 209-416-0353 for guidance and peace of mind.
Special Needs Trusts (SNTs) are designed to provide supplemental support to individuals with disabilities without jeopardizing their eligibility for government assistance, such as Medi-Cal or Supplemental Security Income (SSI). However, there are certain expenses that an SNT should not cover. Understanding these can prevent unintentional complications and preserve the trust’s integrity. Let’s dive deeper with insights from a leading Stanislaus County special needs lawyer.
Potential Pitfalls: Expenses to Avoid
While an SNT can cover many life-enhancing expenditures, here are some it should NEVER pay for:
Cash Distributions Directly to the Beneficiary: Direct cash distributions can be counted as income, potentially affecting SSI and Medi-Cal eligibility. Always ensure disbursements are for specific services or products instead.
Basic Food and Shelter: Direct payments for food or shelter-related expenses, including mortgage, rent, utilities, and groceries, can reduce the SSI benefits due to the In-Kind Support and Maintenance (ISM) rule.
Assets That Might Count as Resources: Avoid buying assets that could be counted towards resource limits for government benefits. For instance, multiple cars or property not serving as the primary residence can pose problems.
Payments to Relatives for Basic Care: Compensating a family member for basic caregiving services can be perceived as a gift from the beneficiary, impacting benefits. Formal caregiver agreements, crafted with a Stanislaus County special needs lawyer, can provide a structured solution.
Why It Matters
Maintain Benefits Eligibility: Missteps can jeopardize the beneficiary’s government assistance, often their primary source of support.
Preserve the Trust’s Intent: The trust’s primary objective is to enhance the beneficiary’s quality of life without displacing primary needs covered by government benefits.
Avoid Legal Complications: Unintended violations can lead to legal issues, potential penalties, or a need for corrective action.
Work Closely with a Trusted Stanislaus County Special Needs Lawyer
The nuances of SNTs require an understanding of both federal and state laws. By working closely with an attorney you’ll:
Receive guidance on allowable disbursements.
Ensure compliance with all legal stipulations
Regularly review and adapt the trust in light of changing needs and regulations.
Getting Help
While a Special Needs Trust is a valuable tool for supporting a loved one with disabilities, it’s vital to be aware of the disbursements that could jeopardize their well-being and benefits. Collaborate with a Stanislaus County special needs lawyer to navigate the complexities and safeguard your child’s future. If you have questions or require expertise in crafting or managing an SNT, contact us by calling 209-416-0353.
Designing a trust is a significant move in estate planning, one that provides flexibility and potential tax advantages. Central to the operation of any trust is the Trustee, who is responsible for managing and distributing the trust’s assets as per its terms. Given this responsibility, how financially knowledgeable should a Trustee be? Let’s uncover the answer with advice from an experienced Central Valley trust attorney.
Decoding the Trustee’s Responsibilities
The Trustee’s duties span various functions, from prudent investment of assets to managing distributions and ensuring taxes are filed. Considering these diverse tasks, financial savvy is undoubtedly beneficial.
Assessing the Financial Acumen Needed
Nature & Size of the Trust: If the trust holds complex assets, like business interests or diverse investment portfolios, a Trustee with financial acumen will be better poised to oversee them effectively.
Expert Consultations: It’s vital to remember that a Trustee can always consult financial experts, tax professionals, or a Central Valley trust attorney when specific challenges arise. So, while financial knowledge is an advantage, it isn’t mandatory if the Trustee knows when and how to seek expert guidance.
Trustworthiness & Diligence: Financial expertise aside, the Trustee’s integrity is non-negotiable. They must always act in the best interest of all trust beneficiaries, not just the ones they like!
Organizational Skills: Beyond financial know-how, strong organizational skills can be critical. This helps in meticulous record-keeping, timely distributions, and efficient communication with beneficiaries.
Still Struggling to Choose? Consider These Tips:
Co-Trustees: If you’re grappling with choosing between two potential Trustees – one familiar with your personal wishes and another with financial expertise – think about naming them as co-Trustees.
Clarity in Trust Documents: A well-drafted trust document that clearly outlines your desires can alleviate the Trustee’s burden. Regular consultations with a Central Valley trust attorney can ensure your trust remains current and reflects your wishes.
Open Communication: Engage in open discussions with your prospective Trustee. Gauge their comfort with the role and the prospect of working with professionals when needed.
Conclusion
Choosing a Trustee is a blend of trust, capability, and foresight. While financial insight is beneficial, it’s one of several factors to weigh. Collaborate with a Central Valley trust attorney to align your choice with your trust’s intricacies, safeguarding your legacy and beneficiaries’ interests. If you’re in need of help or have additional questions, we are here to offer guidance and support. Simply contact our law firm at 209-416-0353 to schedule a consultation.
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