Yesterday I wrote about the very small amount of time left that you (as a beneficiary of a 401k) have to take your required minimum distributions… And then this morning President Bush signed HR 7327 “which delays required minimum distributions from certain retirement accounts for” 2009… So there you go! Mystery solved. I know you were worried sick.
Happy holidays everyone.
According to these various & sundry stories, it looked like Washington was going to act to suspend the minimum distribution requirements for 401ks for 2008 and 2009. No idea what I’m talking about? Michael Keenan can help:
RMD’s are a specific amount of money, based on your life expectancy and the balance in the account, that must be taken as taxable income each year starting at the age of 70 1/2. Technically, the deadline for your first RMD is April 1st of the year following the year in which you turn 70 1/2.
Anyway, the tax code wields a pretty big stick for those who decide to ignore this requirement. The penalty, which is 50% of the amount that was supposed to be withdrawn, is usually more than enough motivation for an IRA owner to fully comply.
But in light of the decimation of everyone’s IRA’s the thought was that it seemed cruel to accelerate the decimation by continuing the obligation to take RMD’s. In fact, Congress apparently reached a bipartisan proposal for suspending RMD’s for 2008 & 2009, and many retirement owners have been delaying the withdrawal of their ’08 RMD in light of the plans.
However, according to a December 17 letter from a senior Treasury official to Congress obtained by CCH. “Individuals who are subject to RMDs for 2008 should take their distribution under existing rules[.]“
What does that mean for you, the taxpayer? It means hurry up and take those distributions or you could see your friendly neighborhood tax guy come along and take their 50% penalty… And after the year most of us have had, another 50% really stings.
Thank you Mr. Keenan for your great post.
Is it odd that I live in Ohio and I heard about this story from a guy who lives (and blogs) in Illinois? Anyways…
This very friendly looking guy
apparently tried to murder his adoptive parents when he was 17. First, he laced their tea with cyanide and Second (as if you needed a second), he shot at them with his .38 hitting mom three times and missing dad. Mom and dad both survive, he goes to juvenile jail for for 1 year, then he gets out and joins the Navy. He then “settles down” (a humerous but ill-advised pun that the author obviously didn’t catch) and his step-parents both die with recipricol “I love you wills” leaving everything to each other with no contingent benficiaries. Oops. In an article full of unique quotes, this one caught my eye:
“It’s a mess, a classic example of what happens when you don’t update your will,” said John Polito, chief magistrate and administrator in Probate Court. “The way it was written, it was as if they had no wills.”
There is no mention in the article of Ohio’s Slayer statute (R.C. 2105.19), which is odd, but I think the issue is not so much that you should have your wills regularly updated but that you should have your wills drafted by someone who knows what they’re doing. To have simple, mirror-image wills that do not contemplate a simultaneous death by listing any contingent beneficiaries is inexcusable malpractice.
Thats all I have to say about that.
Joel Shoenmeyer writes here about the (relatively) new Illinois law (Public Act 95-0784) that allows an individual to name a beneficiary of a car thus allowing it to pass outside of probate… This would be great.
There is only so much work one can do in Ohio to assitt clients with avoiding probate but there’s always something… Whether its the $1,500 burial policy the decedent took out in 1964 or a car, it can be dificult to escape the ever-widening grasp of probate courts.
It is true that in Ohio one can own a car jointly which would vest survivorship rights in the surviving joint-owner after the death of the first, but jointly owning assets has its own headaches (I’m thinking mostly of liability here) that make it ill-advised as a planning device to invoke solely for probate avoidance. There is also the allowance that a surviving spouse can take any two cars of their deceased spouse so long as their aggregate value is less thatn $40,000 and that can be done with an affidavit only (without having to open a full estate).
Here’s hoping our legislature take a short look west and takes the hint. This would be nice.
Thanks Joel!
