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Each year, IRAs and 401(k)s are subject to required minimum distributions (RMDs). Because the distributions start at just under 4% at age 73 and then slowly increase, many IRA and 401(k) plans earn more than those payouts and will continue to grow. While the distributions will become larger as the owner ages, most individuals will eventually pass away with an IRA or 401(k) balance reasonably close to the value of their plan at age 73.

For this reason, the eventual distribution options for an IRA or 401(k) are quite important. For many individuals, the IRA or 401(k) may be the largest asset in their estate.

IRAs and 401(k)s are transferred to a designated beneficiary that is selected on an IRA or 401(k) custodian's form. The five common choices for designated beneficiary are the surviving spouse, children, charity, a trust for children or a trust for spouse and children.

1. Spouse as Beneficiary

The most common choice for a married couple is to select the surviving spouse as the designated beneficiary of an IRA or 401(k). When the IRA or 401(k) owner passes away, the surviving spouse usually chooses to roll the decedent’s IRA over into his or her IRA.

Assume that Harry Smith is the IRA owner and he passes away with Helen Smith as his designated beneficiary. Helen is age 68 when Harry passes away and she rolls over the IRA into her plan.

When Helen reaches age 73, she must start taking required minimum distributions. The initial minimum distribution must be taken by April 1 of the next year and is just under 4%. Her distribution will steadily increase as she becomes more senior.

Because Helen rolled over Harry's IRA into her IRA, she qualifies for the lower required minimum distributions under the uniform table. Helen often selects children or charities as designated beneficiaries after she passes away.

If you are in a community property state and plan to leave your IRA to a trust or other beneficiary that is not your spouse, then it is essential to obtain a written consent from your spouse. In many states, attorneys who prepare estate plans will frequently use a waiver if the spouse is not the designated beneficiary of an IRA.

2. Children

For a surviving spouse or single person, an IRA or 401(k) may be transferred to children, nephews, nieces, other heirs or charity. Each child or other heir may take distributions for a period of up to ten years. With the exception of a spouse, a minor child, a child with a disability or chronic illness or an heir who is less than ten years younger than the IRA owner, the full IRA must be distributed within ten years of the death of the IRA owner.

Prior to 2020, a child was able to “stretch” the IRA payout over his or her life expectancy. A 60-year-old child of the IRA owner would have been able to start distributions at age 61 at approximately 4% and stretch those payouts over 26 years. Now, a child or other heir of the IRA owner must usually take all distributions within ten years.

Unfortunately, with many children the ten-year stretch plan will not be successful. CPAs report to the author that approximately one-half of children choose to take the traditional IRA distribution early, even though that means paying the income tax earlier and losing the benefit of the tax-free growth over the maximum distribution period.

3. Charity

For an IRA or 401(k) owner, the qualified plan is a wonderful benefit and a very good asset. However, when the owner passes away, a traditional IRA or 401(k) is often transferred to children with a large "you owe the IRS" tax bill attached (unlike the Roth IRA, which is income tax-free). For the vast majority of qualified plans, the child will pay income tax. Worse yet, the IRA or 401(k) distributions may even push the child into a higher tax bracket.

With income tax on the traditional IRA or 401(k) and no income tax paid on an inherited home, land or stocks, the IRA or 401(k) is a less desirable asset for children. In fact, many children consider this a "bad asset" because of the income tax on most IRA payouts to children.

For this reason, children would prefer to receive a home, land or stock because there is no income tax bill attached. The wise planning decision is to transfer the home, stocks or land (the good assets) to children and save all the IRA income tax by transferring it to charity.

Because charities are tax exempt, there is no payment of income tax or estate tax on a traditional IRA or 401(k). The charity receives the full value tax free. By transferring the IRA or 401(k) to charity, it is possible to turn a bad asset into a good asset.

4. "Give It Twice" Trust

What plan could protect children from spending the IRA amounts and paying maximum income tax? Could a plan combine the tax-saving benefits of a stretch IRA with a term-of-years or life payout to children or other heirs? Could this plan also have the tax-free growth benefit of a stretch IRA?

A wonderful solution is an IRA to testamentary unitrust plan, which includes all of these benefits. A single person or surviving spouse may create an unfunded lifetime unitrust or testamentary unitrust in a will or living trust. The IRA beneficiary designation is to the trustee of that unitrust.

When the IRA owner passes away, the unitrust is funded with the traditional IRA. Because the unitrust is tax-exempt, there is a bypass of the income tax on the traditional IRA and any future growth. The children or other heirs receive new taxable income from the trust investments. The 5% unitrust payouts may last for a term of 20 years or for their lifetimes.

A very good plan for parents who have made lifetime gifts to charity is to combine a benefit to children with a future benefit to charity. This plan is called a "Give It Twice" trust.

For example, Mary Smith had an $800,000 estate. She lived in a home worth $200,000, had a CD for $200,000 and $400,000 in her traditional IRA. Her IRA was substantial because when her husband Bill passed away, she rolled over his IRA into her IRA. The combined IRA is now half of her estate.

Mary has two children and decides to transfer the home and CDs to the children in equal shares when she passes away. They each receive $200,000 in value from the home and CDs with no income or estate tax.

After Mary passes away, the $400,000 IRA is transferred into a charitable remainder trust. It receives the IRA proceeds and invests the full $400,000. The trust pays 5%, which is divided between the two children for a term of 20 years. At the end of 20 years, the trust principal plus growth is given to charity.

Mary was pleased with her plan because she had achieved several goals. First, she provided both principal and income to her children. This is a very good plan because some children will benefit from time to improve their money management skills. Second, she saved income tax on the traditional IRA. Because a unitrust is tax exempt, it receives the entire IRA tax free. The trust earns income for the children for a term of 20 years and is then transferred tax free to charity.

Because the trust benefits the children with more than $400,000 in income and then is given to charity, it truly may be called a "Give It Twice" trust.

5. Trust for Spouse and Children

For individuals with larger estates, it may make good sense to create a trust for surviving spouse and then a term of years for children. After the first person passes away, the IRA is transferred into the trust for the surviving spouse. The trust will distribute income for his or her lifetime and then to children for a term of 20 years. Following the life of the spouse plus 20 years for the children, the trust remainder is distributed to charity.

This trust has several benefits. First, it may save very large income taxes because the trust is tax exempt. Second, the trust can be a "net plus makeup" plan that allows the spouse to choose to save taxes by taking reduced income during life. This will allow the trust principal to continue to grow and build up the trust so there is greater income to children.

This plan is an excellent way to benefit the surviving spouse, children and charity.

The Internal Revenue Service (IRS) reminds parents to urge their children and teens to protect personal and financial information. The IRS Security Summit offers tips to parents during National Cybersecurity Month.

With the proliferation of smartphones, tablets, notebooks and computers along with online education for young students during COVID-19, many youths are now at risk. Children use computers and smartphones at home for school, online shopping and social media. Because many young individuals do not understand cybersecurity risks, they may share personal information that will unknowingly be used by scammers and fraudsters.

The Security Summit highlights five tips for online security. Parents should share these concepts with youth and teens and urge them to protect personal data.

  1. Recognize and Avoid Scams — Each year, there are billions of phishing emails, phone calls and texts from thieves. Many of the identity thieves claim to be from the IRS, police, DMV or other organizations. Individuals should not click on links or download attachments in emails if they do not know the identity of the sender. The downloaded attachment will install malware on your computer and may give the thief access to your personal data.
  2. Security is Important — Parents should caution children and teens to be careful not to reveal their personal information. They should not disclose birth dates, home addresses, age or financial information. Young individuals should be cautioned to protect Social Security numbers and bank or savings account information.
  3. Public Wi-Fi Networks — Many coffee shops, restaurants or malls offer a free Wi-Fi connection. However, there is no certainty that this connection is secure. Many cybercriminals monitor the information on these public Wi-Fi networks. Youth and teens should be cautioned not to send emails and personal information over public Wi-Fi networks. They also may consider using a virtual public network (VPN) in order to connect with public Wi-Fi.
  4. Security Software with Firewall and Anti-Virus Protection — All computers should have security software with automatic updates. Most antivirus software will be updated on a daily basis. If a file is sensitive, it can be encrypted or protected through passwords. The best solution is to avoid placing sensitive data in the public arena. Social media sites and email are potentially accessible to large numbers of bad actors.
  5. Passwords — Youth and teens should be encouraged to use strong passwords. A strong password includes a variation of upper and lowercase letters, numbers and special characters. The password should not include information that is easily connected with the young individual, such as his or her name, address, or city.

Editor's Note: Students routinely use online platforms as part of their education. As a result, there is widespread use of electronic devices by individuals in grade school, middle school and high school. Parents should educate students about the importance of cybersecurity.

What is the best way to prepare for a doctor’s appointment?

Studies have shown that patients who are able to provide important health information and are prepared for a doctor’s appointment tend to receive better care than patients who do not. Here are a few steps to take to make the most of your next doctor’s visit.

Before Appointments

Gathering and organizing your health information before your appointment is key to ensuring a productive meeting with your doctor. This is especially important if you are seeing multiple doctors or meeting with a new physician. Here is what you should do before your next appointment:

  1. Get your test results: If you are seeing a new doctor, make sure he or she has copies of your latest X-ray, MRI or any other tests or recent lab results, including reports from other doctors. In most cases, you will need to handle the groundwork on your own. This may require that you make a phone call to your previous doctor, or you may need to pick up your lab results in person.
  2. List your medications: Make a list of all the medications and dosages you are currently taking, including prescription medications, over-the-counter drugs and herbal supplements. Alternatively, collect all your pill bottles and take them with you to your appointment.
  3. Know your health history: Sharing any previous medical problems and procedures can help make an office visit much more efficient. If your health history is complicated, it would be best to write it down. Genetics matter too, so knowing your family’s health history may also be helpful.
  4. Prepare a list of questions: Make a written list of the top three or four issues you want to discuss with your doctor. This can help you stay on track during your appointment and ensure you address your most pressing concerns first. If you are in for a diagnostic visit, you should prepare a detailed description of your symptoms.

During Appointments

When you meet with your doctor, it is important to be direct and concise to explain why you are there. Be honest and specific when recounting your symptoms or expressing your concerns. Many patients may be reluctant to talk about their symptoms, which makes the doctor’s job much more difficult. You may want to bring along a family member or friend to your appointment if your doctor’s office permits it. They can help you ask questions, listen to what the doctor is telling you and provide you support.

Consider taking notes or asking the doctor if you can record the session for later review. If you do not understand what the doctor is telling you, ask him or her to explain it in simple terms so you can understand. If you run out of time and do not get your questions answered, ask if you can follow up by phone or email, make another appointment or seek help from a nurse.

For more information, the National Institute on Aging offers a booklet called “Talking with Your Doctor: A Guide for Older Adults” that can help you prepare for an appointment and become a more informed patient. To get a free copy mailed to you, call 800-222-2225 or visit order.nia.nih.gov and search for the guide.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

 

Published November 29, 2024

Can you recommend pill boxes and medication reminder devices? I started taking several new prescription medications, in addition to the vitamins I usually take. I need a pill box that helps me organize them. What can you tell me?

Pill boxes, or pill organizers, can play an important role in maintaining good health as they help you stay on top of your medication regimen. While there are many options, here are a few tips to help you choose.

Identify Your Needs

When choosing an appropriate pill box, ask yourself a few questions, such as:

  • What is the number and size of pills you take? If you take only a few medications, a smaller pill box may be sufficient. If you are taking multiple medications and large vitamin supplements, you will want to get a large compartment pill box. Pill boxes often come with different color patterns, allowing users to assign specific colors to particular medications or times of day.
  • Do you take your pills once a day or multiple times a day? If you take medications only once a day, a simple pill box with one compartment is practical. If you require medications multiple times a day, a pill box with multiple compartments for each day of the week will work best.
  • Do you have trouble remembering to take your medications? Some organizers have built-in alarms and reminder features. Alternatively, there are free smartphone applications that can help set up a schedule for reminders.
  • Do you have a difficult time opening your medication containers? There are easy-to-open pill boxes or automated medication dispensers that are ideal for those with dexterity challenges.
  • Do you need a portable pill box for travel? Compact portable pill boxes are designed for travel, some of which include sealed cases that prevent moisture and dust from entering.

High-Tech Pill Organizers

If you need more help keeping up with your medication regimen, smart pill boxes will organize your pills, remind you to take them, track your progress and text or email caregivers if the pills are not taken. If you need additional help, consider an automated medication dispenser which is comprehensive, Wi-Fi connected and app-based that reminds you when to take your pills and dispenses them to you. Search for these pill boxes online using key words like “smart pill box.”

Medication Reminding Apps

If you are interested in a medication reminder app, there are free apps that you can download in the Apple or Google Play app stores that will send you timely notifications to take your pills and reminders to refill your prescriptions. A simple solution is to create a daily alarm in the clock app with a reminder to take medications.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

 

Published November 22, 2024

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