Understanding Inherited IRAs

Understanding Inherited IRAs
What beneficiaries need to know and consider.


At first glance, the rules surrounding inherited IRAs are complex. Here are some questions (and potential answers) to consider if you have inherited one or may in the future.

Who was the original IRA owner? If the original owner was your spouse, you have a fundamental choice to make. You can roll over your late spouse’s IRA into an IRA you own, or you can treat it as an inherited IRA. If the original owner was not your spouse, you must treat the IRA for which you are named beneficiary as an inherited IRA.1,2

What kind of IRA is it? It will either be a traditional IRA funded with pre-tax contributions or a Roth IRA funded with post-tax contributions.

Do you want to let the money grow and take RMDs or cash it all out now? In the case of a small IRA, many heirs just want to cash out – it seems bothersome to schedule tiny withdrawals out of the IRA across the remainder of their lifetimes. Money coming out of an inherited traditional IRA is taxable income, however – and if a lump sum is taken, the tax impact could be notable.1

If the IRA is substantial, there is real merit in scheduling Required Minimum Distributions (RMDs) instead. This gives some of the still-invested IRA balance additional years to grow and compound. Any future growth will be tax deferred (traditional IRA) or tax free (Roth IRA).1

Internal Revenue Service rules say that RMDs from inherited IRAs must begin by the end of the year following the year in which the original IRA owner died. These RMDs are required even for inherited Roth IRAs. Each RMD is considered regular, taxable income.1,2

One asterisk is worth noting regarding inherited traditional IRAs. If the original IRA owner died on or after the date at which RMDs are required for that IRA, then you can schedule RMDs during the remainder of your lifetime using tables in I.R.S. Publication 590 as a guide. If the original IRA owner died before that date, you have a choice of scheduling RMDs over a lifetime or withdrawing the whole IRA balance by the end of the 5th year following the year of the original owner’s death.2,3

What is the IRA’s basis? In other words, what is the amount on which the original IRA owner paid taxes? For an inherited traditional IRA, the basis equals the amount of all non-deductible contributions that the original IRA owner made. For an inherited Roth IRA, the basis equals the amount of total contributions made by the original owner.4

When you know the basis, you can figure out the percentage of an RMD from an inherited traditional IRA that is subject to tax. RMDs out of inherited Roth IRAs are not normally taxed, but if the inherited Roth IRA is less than five years old, you must determine the basis. The Roth IRA’s basis will be distributed to you first, then the Roth IRA’s earnings, and only the earnings will be taxed. Earnings can be withdrawn tax free from an inherited Roth IRA starting on the first day of the fifth taxable year after the year the Roth IRA was first created.1,4

Can you withdraw more than the RMD amount from an inherited IRA each year? Certainly, but keep in mind that a large, lump-sum payout could leave you in a higher tax bracket.1

What happens when you inherit an inherited IRA? As a secondary beneficiary to that IRA, you assume the RMD schedule of the person who was the primary beneficiary.1

Can you convert an inherited traditional IRA into a Roth IRA? The I.R.S. forbids this – with one exception. A spousal IRA heir who rolls over an inherited IRA balance into their own traditional IRA can arrange a Roth conversion.3

If you have inherited an IRA, talk with a financial professional. That conversation may help you determine a tax-efficient way to manage and withdraw these assets.

Cincinnati , OHIO
1 – forbes.com/sites/ashleaebeling/2017/07/10/what-to-do-if-you-inherit-an-ira/ [7/10/17]
2 – irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries [8/17/17]
3 – fool.com/retirement/iras/2017/06/01/5-inherited-ira-rules-you-should-know-by-heart.aspx [6/1/17]
4 – finance.zacks.com/basis-inherited-iras-2711.html [10/12/17]

On November 5, Daylight Saving Time ends for 2017

On November 5, Daylight Saving Time ends for 2017.

2013 with ann  end of AUG 2013 1668

Spring forward, fall back. You know the saying. According to the calendar, the date for falling back is just ahead of us. On November 5, Daylight Saving Time ends for 2017.

So, set your clock (and your wake-up alarm) back one hour the night of November 4 and enjoy an extra hour of sleep. Daylight Saving Time returns next March.

Retiring Before 60

ALERT : Newsletter
Retiring Before 60
If that is your dream, explore whether these steps could be useful to take.

Email greg@go2ofs.com

How could you retire in your fifties by choice? You will need abundant retirement savings and ways to access your retirement assets that lessen or avoid early withdrawal penalties. You may also need to have other, sometimes overlooked, components of retirement planning in place.

There are ways to tap retirement savings accounts before 60. True, the I.R.S. discourages this with 10% penalties on traditional IRA withdrawals prior to age 59½ and withdrawals from many employee retirement plans before age 55½ – but those penalties may be skirted.1

An IRA or workplace retirement account funded with pre-tax dollars can be converted to a Roth IRA funded with post-tax dollars. While the conversion is a taxable event, it allows a pre-retiree more potential to retrieve retirement savings early. Before age 59½, you are permitted to make tax-free, penalty-free withdrawals of the amount you have contributed to a Roth IRA (as opposed to the Roth IRA’s earnings). After age 59½, you can withdraw contributions and earnings tax free provided you have owned the Roth IRA for five years. For Roth IRA conversions, the 5-year period begins on January 1 of the year in which the conversion happens. Roth conversions may be a good move for some, but a bad move for those who live in high-tax states with plans to retire to a state with lower income taxes.1,2

Under I.R.S. Rule 72(t), you have the option of taking “substantially equal periodic payments” (SEPPs) for five years from an IRA in your fifties. The schedule of payments must end after five years or when you turn 59½, whichever is later. Such withdrawals are taxed as ordinary income, and the distribution schedule cannot be altered once distributions have begun.1

A life insurance policy could assist you. For most pre-retirees, buying life insurance comes down to the pursuit of the largest death benefit for the lowest cost. If you have enough net worth to potentially retire before 60, you may have additional objectives. A sizable death benefit could help your heirs pay estate taxes. A whole life policy might provide a consistent return akin to a fixed-income investment in retirement, but without the usual interest rate risk.3

An HSA might help with upcoming health care expenses. If you retire prior to 60, you must acknowledge that you could live another 35-40 years. Fidelity believes that a retiring 65-year-old couple will need $275,000 for future health care costs. It bases its forecast on Social Security life expectancy projections, which have the average 65-year-old retiree living to about age 85. If your retirement turns out to be twice that long, you could need to set aside much more.4,5

A Health Savings Account offers a potential triple tax advantage. Your contributions are exempt from tax, the money saved or invested within the account benefits from tax-free growth, and withdrawals are untaxed if the money pays for health care costs. This is why many people are looking at the combination of HSA-plus-HDHCP (that last acronym stands for high-deductible health care plan).6

Retiring in your fifties may present you with greater financial challenges than if you retire later. While you may retire in better health, you will have to wait to collect Social Security and Medicare coverage. If early retirement is on your mind, consult a financial professional to see if your savings, your potential income streams, your insurance situation, and your ability to work part time correspond to your objective.

GREG OLIVER 978[090809[
1 - cnbc.com/2017/07/05/three-retirement-savings-strategies-to-use-if-you-plan-to-retire-early.html [7/5/17]
2 – bankrate.com/investing/ira/roth-ira-5-year-rule-the-tax-free-earnings-clock-starts-ticking-at-different-times/ [3/25/16]
3 – forbes.com/sites/jamiehopkins/2017/04/27/why-life-insurance-is-essential-for-retirement-planning/ [4/27/17]
4 – fidelity.com/about-fidelity/employer-services/health-care-costs-for-retirees-rise [8/24/17]
5 – ssa.gov/planners/lifeexpectancy.html [9/14/17]
6 – cbsnews.com/news/how-to-cope-with-health-care-costs-in-retirement/ [9/12/17]

Avoiding the Cybercrooks

Avoiding the Cybercrooks
How can you protect yourself against ransomware, phishing, and other tactics?


Imagine finding out that your computer has been hacked. The hackers leave you a message: if you want your data back, you must pay them $300 in bitcoin. This was what happened to hundreds of thousands of PC users in May 2017 when they were attacked by the WannaCry malware, which exploited security flaws in Windows.

How can you plan to avoid cyberattacks and other attempts to take your money over the Internet? Be wary, and if attacked, respond quickly.

Phishing. This is when a cybercriminal throws you a hook, line, and sinker in the form of a fake, but convincing, email from a bank, law enforcement agency, or corporation, complete with accurate logos and graphics. The goal is to get you to disclose your personal information – the crooks will either use it or sell it. The best way to avoid phishing emails: stick to a virtual private network (VPN) or extremely reliable Wi-Fi networks when you are online.1

Ransomware. In this scam, online thieves create a mock virus, with an announcement that freezes your monitor. Their message: your files have been kidnapped, and you will need a decryption key to get them back, which you will pay handsomely to receive. In 2016, the FBI fielded 2,673 ransomware attack complaints, by companies and individuals who lost a total of $2.4 million. How can you avoid joining their ranks? Keep your security software and operating system as state of the art as you can. Your anti-virus programs should have the latest set of virus definitions. Your Internet browser and its plug-ins should also be up to date.2

Advance fee scams. A crook contacts you via text message or email, posing as a charity, a handyman, an adult education provider, or even a tax preparer ready to serve you. Oh, wait – before any service can be provided, you need to pay an “authorization fee” or an “application fee.” The crook takes the money and disappears. Common sense is your friend here; avoid succumbing to something that seems too good to be true.

I.R.S. impersonations. Cybergangs send out emails to households and small businesses with a warning: you owe money. That money must be paid now to the Internal Revenue Service through a pre-paid debit card or a money transfer. These scams often prey on immigrants, some of whom may not have a great understanding of U.S. tax law or the way the I.R.S. does business. The I.R.S. never emails a taxpayer out of the blue demanding payment; if unpaid taxes are a problem, the agency first sends a bill and an explanation of why the taxes need to be collected. It does not bully businesses or taxpayers with extortionist emails.1

Three statistics might convince you to obtain cyberinsurance for your business. One, roughly two-thirds of all cyberattacks target small and medium-sized companies. About 4,000 of these attacks occur per day, according to IBM. Two, the average cost of a cyberattack for a small business is around $690,000. This factoid comes from the Ponemon Institute, a research firm that conducted IBM’s 2017 Cost of Data Breach Study. That $690,000 encompasses not only lost business, but litigation, ransoms, and the money and time spent restoring data. Three, about 60% of small companies hit by an effective cyberattack are forced out of business within six months, notes the U.S. National Cyber Security Alliance.3

Most online money threats can be avoided with good security software, the latest operating system, and some healthy skepticism. Here is where a little suspicion may save you a lot of financial pain. If you do end up suffering that pain, the right insurance coverage may help to lessen it.

GREG OLIVER i8896p896896896p8976
1 – gobankingrates.com/personal-finance/avoid-12-scary-money-scams/ [8/28/17]
2 – eweek.com/security/the-true-cost-of-ransomware-is-much-more-than-just-the-ransom [8/18/17]
3 – sfchronicle.com/business/article/Interest-in-cyberinsurance-grows-as-cybercrime-12043082.php [8/28/17]

The Equifax Data Breach

The Equifax Data Breach

Have you been affected? If so, how can you try to protect yourself?
2007 Stress out ladt look at computer 2007 pic

By GREG OLIVER greg@go2ofs.com

On September 7, credit reporting agency Equifax dropped a consumer bombshell. It revealed that cybercriminals had gained access to the personal information of as many as 143 million Americans between May and July – about 44% of the U.S. population. The culprits were able to retrieve roughly 209,000 credit card numbers, in addition to many Social Security and driver’s license numbers.1

How can you find out if you were affected? Visit equifaxsecurity2017.com, the website Equifax just created for consumers. There, you can enter your last name and the last six digits of your Social Security number to find out. (Having to enter the last six digits of your SSN hints at how significant this breach is.)2

If you are among the consumers whose data was hacked, Equifax will ask you to return to equifaxsecurity2017.com to enroll in an identity theft protection product, TrustedID Premier. This program will provide you with free credit monitoring for a year. (The lingering question is whether your data could be used easily by criminals afterward.)1,2

How should you respond? Beyond simply taking Equifax up on its offer of one year of identity theft insurance and free credit monitoring, you can take other steps.

Check your credit reports now. (Unless you have already done so in the past month). You can get one free credit report per year from Equifax, TransUnion, and Experian. To request yours, go to annualcreditreport.com. Scrutinize your credit card and bank account statements for unfamiliar activity, and sign up for email or text alerts offered by your bank or credit card issuer(s), so that notice of anything suspicious can quickly reach you.

Consider changing the password for your main email account. A weak password on that account is a low bar for a cybercrook to hurdle – and once hurdled, that crook could potentially pose as you to change the passwords on your financial accounts.3

Regarding bank, investment, and credit card account passwords, avoid the obvious. Too many people use simple passwords based on their pet’s name, their last name and year of birth, the high school they attended, etc. Sadly, these same simple facts are often answers to security questions for credit card and bank accounts. Ask your bank or credit card issuer if you can use additional, random words or a PIN for passwords or security question answers. That way, you can avoid logging in using data that is in the public record. You want your password to be long and random, to make it harder for a would-be thief to guess.

You may want to consider paying for additional identity theft protection for years to come. This is one way to try and shield yourself from the unauthorized use of your Social Security number, driver’s license number, email accounts, and credit card numbers.

If someone calls you out of the blue claiming to be from Equifax, do not cooperate with them. Unless Equifax is returning your call, they will not contact you by phone. The same applies if you get a random, unsolicited email or text from “Equifax” – do not comply, or you may inadvertently hand over personal information to a fraudster. Stay vigilant, today and in the future.


1 - wired.com/story/how-to-protect-yourself-from-that-massive-equifax-breach/ [9/7/17]
2 – washingtonpost.com/news/the-switch/wp/2017/09/08/after-data-breach-equifax-asks-consumers-for-social-security-numbers-to-see-if-theyve-been-affected [9/8/17]
3 – cleveland.com/business/index.ssf/2017/09/devastating_data_breach_at_equ.html [9/8/17]