By Ian Berger, JD
Your newsletter is so helpful, and your book was a great resource to me when my mom passed away 5 years ago and I inherited her IRA.
I am 76 and have not taken my RMD for 2021. Should I pass away and my wife age 69 transfers my IRA to hers, must my RMD for 2021 be taken first?
Thanks much. A columnist in the Chicago Tribune led me to you years ago.
Thanks for the kind words! If you die in any year before taking your full RMD for the year, your wife as beneficiary must take your RMD for that year. If she does a direct transfer of your IRA to hers, the year-of-death RMD doesn’t have to come out first. Instead, that RMD can be paid from your wife’s IRA – as long as it happens by the end of the year. If, however, she does a 60-day rollover, the RMD would have to be paid out first.
I have a question about a client that has a traditional IRA funded with rollover funds from a DB plan. Client wants to make IRA Contributions to his IRA. He was told by another advisor that the IRA he has now carries special liability protection because it was rolled over from a DB Plan years ago. She told him not to add any funds to it or it would lose that protection. Is that true? Should we open a separate IRA for the contributions?
Thanks so much!
Your client’s rollover funds enjoy unlimited protection against creditors if he files for bankruptcy. IRA contributions and earnings (non-rollover monies) are also protected in bankruptcy. But that protection is lost once the non-rollover funds exceed a certain dollar limit ($1,362,800 in 2021) – still a very high amount. Adding new contributions to the existing rollover account won’t cause the rollover funds to lose their unlimited protection. However, it wouldn’t hurt to keep the funds in separate accounts to more easily keep track of which IRA monies have unlimited protection and which don’t. (Creditor protection against lawsuits outside bankruptcy depends on the law of the state where the IRA owner lives.)