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IRA, 401k, 403b, Roth IRA and 401k and Other Pension Plan Things to be Aware of

July 7, 2015

IRAs, 401k’s, 403b’s and pensions generally comprise the largest portion of many non-business owners’ assets and estates beside their residences.  Yet, many fail to plan adequately, or at all, for this major asset.

Many people with retirement accounts limit their activities to filling out the designation of beneficiary forms provided to them usually when they sign up or open the account.  However, there are many technical rules and procedures that participants need to be aware of to get full benefit from these important assets.  Here are a few.

Investment choices

Many spend less time making their investment choices than they do reading the sticker on a car they are thinking of buying or leasing.  The choices here need to be integrated with your other assets and should be part of an overall investment allocation plan.  The plan should also consider asset location to minimize adverse tax effects.  If you are unable to do this yourself, your employer could provide someone to advise you or you should seek the services of a financial advisor.


Retirement account distributions, except from a Roth IRA or Roth 401k, will be subject to income tax by the recipient and the full account values will be included in the gross estate subject to estate taxes if there are enough assets.  However, the beneficiaries will not be determined by the will, but by the designation of beneficiaries forms previously provided to plan trustees.  A lone exception is where the estate is named as a beneficiary which usually is indicative of poor planning.  Provision should be made as to who would pay the estate taxes on the retirement distributions.

Multiple IRA accounts

You can divide your IRA into as many separate accounts as you want.  Each account can have different beneficiaries or sets of beneficiaries.  Where there are multiple beneficiaries or a charity as beneficiary special rules apply regarding the required minimum distributions payout period.  There is also a time window after death where the beneficiaries can decline or accounts can be separated for each beneficiary.  To do this, and everything else in the blog, I suggest speaking to a knowledgeable advisor beforehand.

Further, your total annual required minimum distributions can come out of one or more accounts and do not have to come out of each separate account, and you can vary the accounts distributions each year.  Part of decluttering your financial life would be to combine IRA accounts, or move all your IRAs to one custodian.  Obviously, if you have your IRAs spread over a number of banks to get higher or bonus interest or to meet insured account limits this cannot be done, but combining them as much as possible simplifies things tremendously.

Contingent beneficiaries

You should name contingent or alternate beneficiaries who will take the place of a deceased primary beneficiary.  Post death planning to reduce income taxes or the estates of the subsequent IRA beneficiaries might be able to be done depending upon who the alternates are.  This is something that needs to be discussed with a financial professional.  Proper planning can have the IRA become a legacy that will create wealth for generations of family members.  For instance, an IRA inherited by an infant grandchild designated as beneficiary can provide distributions for over eighty or more years of their lifetime.

Keep copies of all forms you sign

Copies should be kept of all forms signed regarding your retirement plans.  This includes a copy of the actual plan and any amendments; signed designation of beneficiary forms; withdrawal or distribution forms or requests; voluntary nondeductible contribution information; and correspondence between you and the trustee.  Many times the trustee changes because of a merger or acquisition.  Papers get misplaced and lost.  The burden of proof of what you decided remains on you, or your heirs, which makes it an even harder task.  Signed and dated copies provide all the necessary assurance.

IRA rollovers

When you terminate your employment, you are given choices, and in some cases it is mandatory, to rollover your pension to an IRA.  It can be done tax-free as long as the funds are rolled over from the plan directly to an IRA account, or if you take the funds directly and deposit in an IRA within sixty days.  The best way is to have direct transfers made.  You can open an IRA account with any bank, broker or insurance company without any deposit, get the account number and transfer instructions, and provide them to your employer.

Generally, IRAs give you much more flexibility in financial planning.  Employer plans must provide for minimum distributions to spouses even with situations where there are prenuptial agreements or second marriages, while IRAs do not have these requirements.  And many employer plans have a 20% withholding tax requirement for distributions that IRAs do not have.

Closing comment

There are many more issues to consider.  This gives you a start.  The bottom line is that you should be informed about this important asset you have.

One Comment leave one →
  1. 6hawthorne permalink
    July 7, 2015 1:20 pm


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