Disclaimer of 'Qualified' Accounts, Designated Beneficiary, the September 30th Date, Their Importance (368 hits)
Okay! So, when can funds sitting in a 'Qualified' investment account such as a traditional IRA or 401K, other 'qualified' investment accounts? Become accessible? Believe it or not, our wonderful IRS tax code seems to have an answer for everything if one learns how to navigate the incredibly voluminous Internal Revenue tax code structure, and loves to research it as I do-have done close to 40 years now. Thousands and thousands of sections that can be learned--how to research, develop the ability to apply and interpret this massive set of legalese. Claim the rights to such benefit accorded any other American or naturalized citizen. .
A system of codes, regulations, rulings, bulletins, modifications of previous rulings, etc. Chocked filled with amendments, reversasl and changes in position on a tax issue and quite frankly, revocations of portions of the tax law when, as the IRS determines, a tax issue is no longer relevant to that out-dated section of the code that taxpayers can ignore in the future. And that is why it is so critical to keep in mind that the following instructions be taken as general and not case specific. A qualified tax attorney or accountant, other tax professional skilled in tax law should be consulted if the nature of the present topic affects you or your loved ones, especially if challenged by a disability with which he e or she had no part in causing. p
Specific tax rules as well as time factors apply as to when favorably treated investments can be accessed without an IRS penalty being assessed. The first action is determined by how the deceased set up the 'Qualified' plan with the trustee, which can be a bank, brokerage firm, even institutions or foundations, organizations formed for the specific purpose of holding the funds on a tax-deferred basis. That is, taxes are owed when requests called 'Distributions' are claimed by the owner or beneficiary. As long as the withdrawals conform to the plan's guidelines for withdrawal, requests for funds can be made without penalty for premature withdrawals. Traditional IRAs, for example, in many cases can begin to be made at age 591/2 or in cases of disability at any age as another example. Usually, the withdrawal must be in an amount termed 'minimum 'distributions and in such amounts that all funds should be withdrawn by age 701/2-for the taxpayer and or spouse-could be assessed another penalty if not, reason it is critical that a skilled tax professional be consulted BEFORE withdrawal so as not to incur a tax penalty. There are all kinds of exceptions and variations to this general principle of accessing funds and when withdrawals may be made without having a penalty assessed. Then there is the "Roll Over' such as when a taxpayer switches to another plan and transfers funds from one plan to another, withdrawals made but re-deposited within 60 days before having to pay a penalty, usually 10 per cent, but the Code does allow for a penalty as high as 50% in an instance or two I am familiar with, without consulting the IRS tax code. But let's assume by a make believe example without it being inferred it is Cujo's case. It's not!
So let's assume the taxpayer dies having accrued substantial holdings in a traditional IRA. Let's see how the IRS rule says those funds can be gotten and it starts by the deciding who is the "Designated" Beneficiary? And it does not have to be the person or institution which is currently on file with the Trustee of the 'Qualified Investment Account". This point is critical for the IRS requires this determination be made by the September 30th date.
The Code permits the current beneficiary of record to Disclaim the interest such beneficiary holds "in favor" of another. For example, a younger beneficiary disclaims his possessory interest in favor of his aging grandmother, as he is 47, in good health and wants to work 20 more years, at his 'good' job! Per an IRS table it is calculated to show a 47 year-old has 37.7 year life expectancy remaining. His grandmother has a shorter life expectancy, he the longer. In this case the younger individual can Disclaim his interest in favor of his older grandmother or any other person by simply signing a statement of Disclaimer with the Trustee of that account, which permits grandmother to begin withdrawing her minimum distribution, determined from the life expectancy table for her in any amount above the minimum required. A great tool to access funds in a Qualified traditional IRA. There is no prohibition as to how much, as long as at least the minimum has been withdrawn. And one more beautiful POINT! Traditionally, the older are allowed to claim this option to withdraw FIRST! Having the shortest life expectancy. Conversely, an older individual on the account as beneficiary can Disclaim his or her interest in favor of a younger individual by the same process. This means-choice- can provide for multiple IRAs to be set up in several beneficiaries' names.
But here's the critical point. Such a Determination as to who is the Designated beneficiary(ies), has to start with the year of death of the Qualified account holder and be submitted to the Trustee of that account by the Deadline-being the 'year following the year' of the account holder's death. Death in 2008, the deadline for such determination must be made in the 'year following the year'-before September 30th in 2009. Please review Internal Revenue Code Section 2518 and for a really detailed explanation, including the life expectancy table, you'll want to go to Internal Revenue Bulletin 2005-36. These sections of the Code are very unambiguous in how we establish the September 30th date.
Was that information HELPFUL? Did you know Cooper and Associates Tax Service holds lecture series, small business developmental planning workshops, tax resolution workshops, seminars and submitting claims under the Veterans Administration's more relaxed rules for disability due to PTSD or Post Traumatic Stress Disorder and many different kinds of seminars on benefits many in the public at large seem not to be aware of?. We are available for consultation nationwide with 2-week notification. Contact us: Cooper and Associates Tax Service, 1838 Montgomery Hwy, Suite 1, Dothan, AL 36301, ph 334-446-1283 or email cooperdothan@aol.com.
