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Required Minimum Distributions: What You Should Know
Jayde Law PLLC • Nov 23, 2022

Required Minimum Distributions (RMDs) are the minimum amounts a retirement plan account owner must take out each year. RMDs begin when a person reaches either age 72, 70½ if they reached this age before January 1, 2020, or the year in which a person retires (if after age 72).

There are some exceptions. In the case of an IRA or where a person is a 5% owner of the business that sponsored a retirement plan, the RMDs start at age 72 (or 70½). There is no option to defer RMDs to a later age, even if the individual is still working.

It is the responsibility of each retiree to take out the correct RMD from their retirement account each year. If a retiree does not do so, they can face penalties. Furthermore, upon a person’s death, there are special rules regarding how the remaining funds must be distributed to beneficiaries. These death rules are currently in flux, as explained below.

RMD rules apply to all profit-sharing plans, 401(k) plans (including Roth 401(k) plans), 403(b) plans, 457(b) plans, traditional IRAs, SEP IRAs, SARSEPs, and SIMPLE IRAs. Roth IRAs are presently excluded from the RMD requirement while the account owner is still alive.

How RMD Rules May Affect You

As mentioned above, the onus is on you to ensure you take the correct RMD when you retire or reach a certain age. The amount of the RMD is calculated for each retirement account by dividing the account’s balance as of December 31 of the prior year by a life expectancy factor outlined in IRS tables.

Many retirement administrators or plan managers can help you with these calculations. Still, you should also try to understand on your own what you are required to withdraw, as you are ultimately responsible for any penalties or taxes that you may incur for incorrect withdrawals.

Unfortunately, you cannot keep amounts in your traditional retirement accounts indefinitely, even if you don’t need the income. If you take out less than the RMD for a particular year, you may be subject to a 50% excise tax on the amount you didn’t take out but were required to withdraw. However, in some circumstances, if you made an error in calculations but are in the process of taking corrective action, you may be able to request a waiver of the excise taxes.

Changes in RMD Rules

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) changed the RMD rules regarding how quickly beneficiaries must receive retirement benefits upon the account owner’s death. These new rules will apply to persons who passed away after December 31, 2019. In addition, the SECURE Act increases the RMD beginning age from 70½ to 72.

Before the SECURE Act, RMD rules required distributions after a person’s death to be made in one of two ways. If the owner died before RMD rules applied to them, their interest had to be distributed as follows:

1. within five years of their death, or

2.  over the life or life expectancy of the beneficiary, with distributions beginning no later than one year after the date of the owner’s death (subject to an exception for a surviving spouse).

If the owner died after the RMD applied to them, the beneficiary had to receive payments at least as quickly as the owner had been receiving them.

The SECURE Act has changed these RMD rules in several ways:

1. It lengthens the five-year rule to 10 years.

2. The new 10-year rule applies regardless of whether the owner dies before the required RMD beginning date.

3. The option to distribute the retirement funds over the life or life expectancy of the beneficiary applies only to specific qualifying persons.

4. For a beneficiary who is a minor at the date of death, the 10 years begin to run when that child reaches the age of majority.

5. For persons who paid excise taxes for insufficient RMDs for 2021 and 2022, they may be able to request a refund.

The IRS has also stated it will not assert that an excise tax is due for persons who did not take an RMD under the prior rules for 2021 and 2022. The IRS final regulations related to these changes will not apply sooner than 2023.

The changes to these RMD rules are complex, and there are more details not fully covered by this article. If you have questions about RMDs and how they may affect you, contact Jayde Law PLLC.

Estate Planning: An Overview

15 Feb, 2023
Estate planning entails preparing your affairs for the future, including death and other life events. While older adults might give more thought to estate planning, it is an essential tool at any age. WHY IT’S IMPORTANT With estate planning, individuals and families can protect their interests during incapacity or after death. You can provide for a spouse, children, and dependent family members when you pass away. You can arrange your care and financial affairs should you suffer a severe accident or illness that renders you incapacitated. If you are a parent, you can appoint a guardian to care for and manage the inheritance of your minor children. If you own a business, you can prepare to transfer it to family members, colleagues, or other trusted individuals. You can make arrangements for your long-term care when you can no longer live on your own. You can also make funeral preparations, determine what happens to your body when you pass, and prepay for your funeral, all of which can help lessen the burden on your family members. WHAT IS AN ESTATE? Legacy planning entails passing on your estate. Your estate is everything you own, including: Savings and checking accounts Retirement accounts Investments Life insurance Annuities Houses and other real estate Cars Personal possessions, such as jewelry, furniture, and sentimental items When you die, your estate encompasses all your property upon death. If you sold or gave away property before death, it is no longer part of your estate, and you cannot transfer it upon death. Items you own with another person are also part of your estate. Depending on the type of asset, it might automatically pass to the other owner. For instance, if you own a home with your spouse as tenants by the entirety, it will pass to your spouse upon your death. WHAT IS AN ESTATE PLAN? An estate plan consists of legal documents and arrangements that determine the distribution of your assets when you die or outline your care if you become incapacitated. While a will can be a central component of an estate plan, a solid plan encompasses more than a will. It can also include legal tools that allow assets to pass outside of a will and probate (the process by which a court oversees the distribution of assets in a will). ESTATE PLANNING TOOLS In addition to your will, your estate plan could include the following: Purchasing jointly owned property or adding a joint owner to your property Designating a beneficiary on a pay-on-death bank account, retirement account, or annuity Buying life insurance to benefit your family should you pass away Creating a trust for a child Obtaining long-term care insurance to cover future nursing home or assisted living fees Executing power of attorney documents, naming health care and financial agents Making a living will, providing instructions for care should you become incapacitated Preparing a transfer on death instrument to pass ownership of your property to a beneficiary upon death WHAT IS AN ESTATE PLANNER? As professionals helping people make future arrangements, estate planners are attorneys who focus on end-of-life preparations. Estate planning attorneys assist people with drafting legal documents and understanding laws and taxes that could affect them and the loved ones they will leave behind. When creating estate plans, individuals may need to consult attorneys as well as other experts, including financial planners, accountants, life insurance advisors, bankers, and real estate brokers. WHAT DOES THE FINAL DISTRIBUTION OF ASSETS INVOLVE? The final distribution of assets is a conclusory step in the probate process before the court closes probate. When an estate goes through probate, the personal representative or executor must satisfy all debts, and the court must resolve all disputes before allowing the beneficiaries to receive the assets. At the end of the probate process, ownership of the assets of the estate is transferred to the beneficiaries. DO I NEED A LAWYER FOR ESTATE PLANNING? Although the law does not require that individuals secure legal representation to make estate plans, many find the support and guidance of estate planning attorneys invaluable. An estate planning attorney can help you identify the legal tools and strategies that suit your needs, as well as draft the necessary documents, such as wills, trusts, and powers of attorney. In addition to addressing tax concerns and drafting documents, these attorneys can help you avoid probate. Probate, the process by which the court oversees the distribution of assets in a will, can be expensive and time-consuming for surviving family members. It also opens the door for disgruntled people to challenge the validity of the testamentary document, further complicating asset distribution. An estate planning attorney could help you organize your assets to transfer outside of probate to make the transfers simpler, easier, and less vulnerable to challenges. When you are ready to create an estate plan, contact Jayde Law PLLC.

Three Things to Know About Being an Executor

01 Feb, 2023
An executor (or personal representative) is a person or entity you choose to carry out your last wishes outlined in your will. Your executor should be someone you trust is responsible enough to manage your estate after you pass away. Choosing an executor is a big decision when it comes to estate planning. So, what should you know about an executor? What should you consider before naming an executor? Here are answers to three common questions about executors. Can an Executor Decide Who Gets What? No. In most circumstances, an executor cannot decide who gets what property. Executors are responsible for carrying out the decedent’s wishes as outlined in the will. However, if the decedent did not distribute all their assets in their will, in some circumstances, the executor may be able to decide how to distribute the unassigned property. Can an Executor of a Will Be a Beneficiary? Yes. An executor can also be a beneficiary of the will. It is common for people to have their surviving spouse or children act as the executor of their estate. This choice can be cost-effective if you have a small or simple estate. Another benefit of having a family member act as the executor of your estate is they are familiar with your wishes. They know you, and they understand how you want your assets divided. If you forget to state where property goes in your will, an executor that knows you well is more likely to give those assets to the correct beneficiaries. How Long Does the Executor Have to Pay the Beneficiaries? The short answer is: It depends. The executor should work diligently to get each beneficiary paid as soon as possible. While the executor is responsible for ensuring beneficiaries receive the money or property they were left in the will, the probate process may delay beneficiaries from receiving a payout. Depending on the size of the estate and the debts and taxes the estate owes, it may take anywhere from six months to more than one year for a beneficiary to receive an inheritance. The probate process varies depending on the state, but the typical process goes like this: Submit the Will for Probate — Part of the executor’s responsibility to the estate is to file the will with the probate court. Filing the will begins the probate process. Once completed, the beneficiaries are one step closer to receiving their inheritance. The time executors have to file a will with the probate court varies by state. File an Inventory — An inventory of estate assets is required. As part of an inventory, the executor determines the total value of all estate property, money, and other assets. A completed inventory can then be used by the executor to determine whether federal or state taxes apply, or whether assets will be used to settle debts. Pay Taxes and Debts — Before the executor can distribute any assets to beneficiaries, estate debts and taxes must be paid. The executor is responsible for ensuring these payments are made. Creating a complete estate plan can be overwhelming. With the help of an experienced estate planning attorney, you can ease some of the anxieties you may be facing in thinking about estate planning. If you are ready to start the estate planning process give Jayde Law PLLC a call..
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