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There are typically two types of beneficiaries for an Independent Retirement Account (IRA). A beneficiary can be either a spouse or non-spouse, and each group has different options and benefits to receiving money from an inherited IRA.
INHERIT INDEPENDENT RETIREMENT ACCOUNT FROM SPOUSE
If you inherit an IRA from a spouse, you have the option of taking the IRA as your own and also making further contributions to the account. If you choose to take the IRA as your own, you may choose beneficiaries and extend the tax-deferred benefits of the account. Another option available from inheriting an IRA from a spouse is the opportunity to begin receiving distributions from the account. Distributions must begin on the later date of when the original owner would have turned age 70 or by December 31rst of the year following the date when the owner died.
If you feel financially secure, you may choose to disclaim the inherited assets and pass on the IRA to the next designated beneficiary. Disclaiming an IRA or any assets in general is irrevocable. Prior to making this decision you should consult with a financial advisor such as Estate Street Partners who will be able to describe the tax advantages and disadvantages of this choice.
INHERIT INDEPENDENT RETIREMENT ACCOUNT FROM NON-SPOUSE
If you inherit an IRA from a non-spouse, such as a parent, relative, or other individual, your options are much more limited. A non-spouse beneficiary of an IRA can transfer the assets into an Inherited IRA Beneficiary Distribution Account or disclaim all or part of the inherited IRA.
If you transfer the inherited IRA into a Distribution Account, you can begin receiving distributions according to the one year or five year rule. If you choose to receive distributions under the one year rule, you must begin receiving distribution payments by December 31rst in the year following the year when the IRA owner died. Distribution amounts are determined by the age of the beneficiary.
Under the five year rule the beneficiary must receive the full interest of the IRA by the end of the fifth year following the year when the IRA owner died. If you choose to disclaim all or part of the inherited IRA you have only nine months following the death of the IRA owner to make this decision. It is an irrevocable decision and the disclaimed assets will pass to the next eligible beneficiary. Unlike a spouse - spouse transfer of an IRA, if you are a non-spouse beneficiary of an IRA you cannot make additional contributions to the account.
IF MORE THAN ONE QUALIFIED BENEFICIARY TO THE IRA IS DESIGNATED
If there is more than one qualified beneficiary (an actual person), the rules for distribution get more complicated. Designated beneficiaries must be determined by September 30th of the year following the year when the IRA owner died, and multiple beneficiaries have until this date to create separate Distribution accounts for their shares of the IRA.
If the beneficiaries create separate accounts then the distribution amounts will be determined individually and based on each beneficiary's life expectancy. If the beneficiaries do not create separate account by September 30th of the year following the IRA owner's death, the distribution amount from the inherited IRA will be determined by the life expectancy of the oldest beneficiary. This creates a disadvantage for the younger beneficiary since the distribution amount will be higher, and therefore the tax required on the distribution will also be higher.
If the IRA owner named a qualified and non-qualified beneficiary (not an actual person), there are a couple of options available for both parties. Typically, if the owner died before their required distribution date (age 70 ) the balance of the IRA must be distributed within five years of his/her death. If the owner died after they started receiving distributions (age 70 ) the balance of the IRA will be distributed according to the age of the beneficiary.
NON-QUALIFIED BENEFICIARY NAME IN THE DISTRIBUTION
If a non-qualified beneficiary is named the distribution rules can get complicated. For example, if a church is named as a beneficiary along with a surviving son, both beneficiaries must receive distributions according to the five year rule. However, if the church elects to receive its share of the IRA prior to September 30th of the year following the owner's death, the son can be determined the designated beneficiary and use his life expectancy to determine future distributions.
If no beneficiary is named than the IRA will most likely pass to the estate of the deceased. In this situation the IRA loses its tax deferred benefits, is subject to taxation on all interest accrued to that point, and is open to collection from creditors. To avoid creating a tax headache for your beneficiaries it is important to consult with a financial advisor such as Estate Street Partners to designate specific beneficiaries for your IRA to prevent the savings from being lost to your estate.
author bio - Rocco Beatrice, CPA, MST, MBA
award-winning estate planning, trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
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Posted by frankvgmgzny | 9:44 AM | 
As an expatriate you are in a privileged savings and investing position. Make the most of the options available to you while you can, consider investing offshore for your retirement.
While you reside overseas you are legally entitled to make use of any tax savings in the country in which you reside, furthermore you are most likely in a position to save and invest offshore to fund and fuel your retirement.
Not enough expatriates make use of their offshore advantage when living and working abroad. Dont make the same mistake!
Do you already have a domestic pension plan in place from your home country that you established prior to working abroad? Have you found that this policy is not as mobile as you are? Does it make sense to continue with the savings policy?
Have you been considering switching from retirement savings plan to savings plan as you change from country to country? Did you know that by doing this the income you end up with in later life will be fragmented and may be whittled away by foreign exchange costs, charges or even a cash-strapped government?
Or are you one of the lucky few who need read no further one of the lucky few working for an international company who offer a pension plan to expatriate employees as part of their benefits package?
If you are not one of the lucky few and you understand that the onus is on you to provide for your own retirement this article may be able to help you.
If you are looking for the most sensible offshore investment solution for your retirement savings planning you need to consider finding a safe harbour where you can anchor your retirement investments so that you can move from country to country as necessary without this having any negative impact on your assets.
If you decide to do this, you need to find out exactly which safe harbour or tax haven is the best for you.
Offshore financial centres present a viable solution - especially if you are undecided as to your eventual retirement destination. Basing your pension investment offshore should mean that future movements of capital or income are not impeded.
However you should remember that any retirement income you take could be liable for taxation depending on where you are living at that time.
When it comes to offshore retirement planning what do you need to be aware of?: -
Your own personal circumstances are unique.
Be realistic about how much you should be contributing.
Consider the charges the bonuses and the flexibility of any investment plan - generally the more flexible the plan the more charges will be.
Know that a good offshore retirement plan should allow you to do the following without penalty:-
1 Reduce contributions without penalty (normally after an initial period of one to two years).
2 Switch investments between different funds to respond to changes in the market. Preferably including funds managed by other people outside of the institution zone.
3 Have the option of retiring when you want to without penalty.
4 Allow certain access to monies invested (again, after an initial period).
How to Find the RIGHT Offshore Savings Solution
Finding out what each provider's best products are currently, and then hand picking the best to suit your own personal needs and current circumstances is the best idea!
But how impractical!
Do you have the time to do this?
Would you consider yourself an expert in offshore investments and pension planning?
Where would you start?
Obviously professional advice will get you the right solution and save you time and money and reduce your cost of delay significantly!
Pension Surrender
Cashing in an onshore pension is rarely the best option available to you.
If you have taken out an offshore pension policy and you are unhappy with it or want to take a break from paying into it, consider all the options that are available to you before you decide on your path of action.
Generally with an offshore pension up to the first 2 years of contributions are committed to being invested until maturity meaning that if you cash in your policy early you will potentially be wiping hundreds or thousands off your potential returns.
This is money you would be literally THROWING away!
Instead of encashment could you take a payment holiday or change your investment focus?
Instead of encashment you HAVE to speak to a brokerage to find out what options are available to you and which options are BEST for you.
You do not have to speak to the adviser or brokerage who set up the initial policy for advice - a good independent financial adviser will be happy to assist you with any previous policies.
Get Informed!
Simply put, if you haven't started your retirement planning or you want to check whether you need to do more or you want to find out what you can do with policies already in existence from company pensions, personal pensions and offshore pensions - you need to act now!
Find the right person to advise you about exactly what is available in the market place today.
Find the right person to get the best solution in place for you sooner rather than later!
Rhiannon Williamson is an experienced publisher who has produced articles for leading travel and tourism guides and financial magazines. Her specialist knowledge about both travel and finance gives her site Shelter Offshore the unique ability to literally cover every single aspect of moving & living abroad - including the often less discussed offshore tax advantages that can be available when leaving our homeland.
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Posted by frankvgmgzny | 6:21 AM |
