I think you said it much more coherently than I did!
yes, surviving spouses (and minor children or disabled) are exempt from the 10-year rule.
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But thanks for the heads up about like IRAs. My husband has a Roth IRA and I donât. I am the sole beneficiary if he dies before me.
SoâŠwhat do I need to do?
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if you are the sole beneficiary, then you can have hubbyâs Roth retitled as an inherited spousal Roth into yoru name and avoid RMDâs during your remaining lifetime.
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Iâm the sole primary beneficiary. Kids are secondary but only if we both die at the same time.
And we know we need to deal with all beneficiaries in the event one spouse dies.
CC has excellent timing as usual! We are updating our wills. If spouse and I die, our kids will inherit our IRAs, 401-Ks, etc. Do they have use it for their retirement? Can they cash it out? Pay a penalty? Tax on it?
We were told our kids can use our retirement account balances as they choose. If we both go, they will be given the options available to them, as well as a timeline to make a decision.
If they cash out these accounts (the NOT Roth ones) they will be required to pay the taxes.
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Non-spousal inherited retirement vehicles must be depleted (and therefore taxed) within 10 years of inheriting, per the Secure Act. After paying those taxes, the funds are theirs to do what they wish.
The timing of your death will impact those taxes vis-a-vis the tax brackets of your offspring during distribution.
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Good job updating your will (and I assume also POA, healthcare directives).
If you have not already done so, for the IRA/401K think about defining beneficiaries (easy to do at the website, at least for my Fidelity 401k). Simplifies things by keeping it out of probate process. Also more flexible in future (if you want to have a percentage go to grandchild or non-profit). For example, my husband and I list each other as 401k/IRA beneficiary. Alternate (in case spouse pre-deceases without paperwork update) is 50/50 to our two kids. For alternate, I may someday opt to put a small % to my church⊠or perhaps any grandchildren that might come along.
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Very important to rememberâŠwhen one spouse in a couple dies, the living spouse needs to review ALL beneficiaries on all accountsâŠand remove the spouse who is no longer alive.
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I just checked on my life insurance the other day. The backup beneficiary was my mother. She died years ago - oops. Easy to fix, but glad I checked/updated.
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Agree. PoD/ToD definitely simplifies the Will. Just make sure to check the PoD/ToD accounts once per year to make sure that you want to keep those elections & beneficiaries.
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That is a good reminder. But where possible, we like to have a scheme of alternate designations that would works reasonably even if the surviving spouse is also ailing by then and not in a position to revisit the paperwork.
We do have a example of where it was wise to not revisit our will from early in our marriage. My MIL, who gave us the house downpayment, was listed as heir to our house. She died, so that means that with our old will our almost paid-off house would have gone to husbandâs brothers rather than our children. Oops.
Updating beneficiaries to remove dead ones is very important. I helped a friend deal with an estate of a friend. Both of her parents had never updated their beneficiaries. The executor and lawyers had to actually settle those issues first before they could deal with our friendâs estate. She was the sold heir, and it would have been so easy if her parent had added her as a primary beneficiary when the first parent died.
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Iâm trying to think of a good reason to withhold taxes when getting a distribution from my 401K. Iâd prefer to pay the taxes on a quarterly basis, as to get airmiles on my credit card and spread out the tax payment over the year. Money market rates are so high, may as well get over five percent throughout the year as opposed to paying the IRS upfront. Am I missing something important?
Donât they have processing fees to make federal payments with credit card?
but answer your question, I know some folks wait until late Dec to make their IRA/401k withdrawal and then have 100% of that amount to go towards tax withholding. Since it was a withholding, the IRS assumes that such amount is withheld equally throughout the year. If that withdrawal/tax withholding covers your safe harbor amount, no penalty. (To avoid interest due, your withholding has to at least equal 100% of tax due that year.)
This way, your pre-tax balance (hopefully) grows all year.
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Just to double check - once we start our RMDâs, we can ask for withholding of 100% of previous yearâs tax burden and avoid quarterly estimated taxes and no chance of penalty? Both of us are turning 73 in 2024 so can take the distribution by 12/31/2024 or wait up to 4/1/2025. Husbandâs estimated RMD is well above our annual taxes. Actually, mine is also above that, come to think of it.
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in general, yes. But make sure that your bank/brokerage allows 100% withholding.
âŠif you donât need the money to live on, wait until December to take your RMD and ask the sponsor to withhold a big chunk for the IRS, enough to cover your estimated tax on the IRA payout and all of your other taxable income for the year."
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Yes. You can google Safe Harbor to find detailed explanations. Here is the first hit I found.
I believe Schwab only allows 99% withholding and I may have had to split that across Fed & state. I have already forgotten and it was only a few weeks ago. You have to go in an manually set the withholding %. LMK if you use Schwab and I will look up the instructions.
If your AGI is above $150K, you have to pay 110% to avoid penalties. I donât know if this works for states also or simply the Feds.
Another way individuals can avoid penalties is by pre-paying a âsafe harborâ amount equal to 100% of the previous yearâs tax. The safe harbor amount for high income taxpayers is paying in 110% of the previous yearâs tax. A high income taxpayer is one whose previous yearâs adjusted gross income was $150,000 or more ($75,000 or more if you were married and filing a separate return).
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I just found that same article, thanks! That looks like an excellent strategy for us. I also have to check with my synagogue to see if they have a way to let us pay our annual membership directly from an IRA/401(K).
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