Author Archives: Albion Financial

About Albion Financial

Established in 1982, Albion Financial Group is an independent, fee-only financial planner and investment manager located in Salt Lake City, Utah.

Inherited IRA Rules: Beneficiary Distribution Options

IRAs are powerful savings tools which have favorable tax benefits while an account owner is alive. When the account owner dies and the assets pass to beneficiaries, the IRS has specific guidelines applying to distribution of these assets. If the timing rules for taking distributions from the IRA are not met a beneficiary can face a penalty of 50% on the amount of the distribution that should have been taken. Understanding how these rules apply to your specific situation can save you from incurring steep penalties and/or taxes.

Rules for Surviving Spouse Beneficiaries

When inheriting IRA assets, surviving spouses are offered the most flexibility. They have the option to treat the account as their own or they can choose to remain a beneficiary and take the account as their own at a future date. Once the spouse takes an Inherited Traditional IRA as their own, the required minimum distribution rules apply when they reach age 70 ½. If the Inherited IRA is a Roth and the surviving spouse takes the account as their own, they are not subject to required minimum distributions.

Rules for Non-Spouse Beneficiaries

The rules for inheriting IRA assets for non-spouse beneficiaries are quite different. Non-spouse beneficiaries are allowed to stretch the distribution of IRA assets over their own lifetimes, but only if they carefully follow the established rules. Non-spouse beneficiaries do not have the option of combining the Inherited IRA assets with existing IRAs in their name. Required minimum distributions from Inherited Traditional IRAs are subject to income tax whereas required minimum distributions from Inherited Roth IRAs are tax-free as long as the 5-year holding rule applicable to Roth IRAs has been met. Early withdrawal penalties do not apply to distributions from Inherited IRAs.

Selecting a Payment Method

Even though the IRS requires the beneficiary to take a minimum distribution from the Inherited IRA at specific times there are several options for scheduling these payments.

Lump Sum Option – Beneficiaries have the option of taking the Inherited IRA assets in a lump sum. However, unless the inherited assets are coming from a Roth IRA, the beneficiary will be responsible for paying tax on the entire distribution based on their current tax rate.

The Five-Year Method – This distribution option is only available to the beneficiary of an Inherited Traditional IRA if the account owner died prior to reaching their required beginning date, which is currently age 70 1/2. Beneficiaries of Inherited Roth IRAs are always allowed this payout option regardless of the account owner’s age at death. The five-year method allows the beneficiary to withdraw any amount from the IRA during this period as long as the entire IRA is distributed by the end of the fifth year following the owner’s death.

Life Expectancy Method – This method allows the beneficiary to stretch out the account by taking minimum annual payments from the Inherited IRA based on IRS guidelines. With the Life Expectancy Method, the beneficiary can benefit from future years of growth while mitigating the tax bill produced by taking the money out all at once.

The Secure Act and Potential Changes to Inherited IRA Distributions

The House recently passed a landmark retirement law which could affect workers, retirees and beneficiaries. The potential impact to non-spouse IRA beneficiaries includes a loss of the existing Stretch IRA Rule, which allows a beneficiary to stretch out the required minimum distributions from Inherited IRAs over the non-spouse beneficiary’s life expectancy. The legislation, if it becomes law, would require that Inherited IRA assets are withdrawn within 10 years. This could result in significantly larger IRA withdrawals for beneficiaries and in turn larger tax liabilities. Roth IRAs could become more attractive if the loss of the stretch goes away because the minimum distributions required of Inherited Roth IRA beneficiaries are tax free. The Secure Act legislation offers exceptions to the 10-year rule — Beneficiaries who are surviving spouses, minors, disabled or chronically ill would be exempt from this rule and are considered “eligible designated beneficiaries” if they meet the qualification criteria. The Senate has similar legislation under consideration known as the Retirement Enhancement and Savings Act. These two pieces of legislation will require reconciliation prior to going to the President.

Distributions from IRAs can be very complex and the penalties for mistakes are high. It is important to work with a team of financial professionals to help you navigate required minimum distributions and how they might affect your goals.Please contact Albion Financial Group to discuss your specific situation and the strategies to consider when determining your distribution options.

Debbie Knotts, CFP®, CLU® 

Senior Wealth Advisor and Vice President

Albion Financial Group

dknotts@albionfinancial.com

(801)487-3700

 

We are hiring! (This position has been filled.)

Albion is currently looking for a Financial Planner to join our team.

An Albion Financial Planner works closely with one of our Senior Wealth Advisors in managing client relationships through building, presenting and updating comprehensive cash flow plans. This is a client-facing position. The Financial Planner will work directly with clients on planning issues and concerns. An ideal candidate will thrive on the opportunity to help clients work towards their financial goals. Financial Planners discuss a variety of planning topics with clients including but not limited to budgeting, retirement planning and investment management questions.

Albion’s mission is to help clients make a lifetime of good decisions as they work towards their financial goals. Albion takes a team approach in accomplishing our mission. The ideal candidate is someone who is a self-motivated team player. Good communication skills are essential to success in our team environment.

We are looking for someone who has or is working towards a CFP® designation.

This is a full-time position with a competitive salary and benefit package. To apply, please submit your resume along with a letter describing why you are an ideal candidate to work at Albion in the Financial Planner position.

Submissions should be sent to employment@albionfinancial.com.

Click Here for Financial Planner Job Description

12 Days of Financial Tools

Tripping over piles of toys, and dusting around the must have item of Christmas past we find ourselves asking, What are some gift ideas that don’t include a “thing”? Senior Wealth Advisor Sarah Bird shares an idea each day for the twelve days of financial tools:

Day 1: A Book

Day 1: A Book

Day One: A Book. Our favorite financial advising book for 2018 is Ageproof, Living Longer Without Running Out of Money or Breaking a Hip by Jean Chatzky, the financial expert on the Today Show and Michael Roizen, MD. The book focuses on the importance of taking care of our physical health and our financial health. This book is an enjoyable read with several excellent checklists and worksheets.

Day Two: The gift of time. Do you have someone who dreads removing the snow from their driveway? Hire someone to help with a month of snow removal. Be sure to schedule a night out or a fun activity with the time that was saved. Schedule a time for an activity of choice for the recipient. Think about what they enjoy doing and be their companion.

Day Three: Piggy Bank. For our youngest recipients, a piggy bank is a physical reminder of a place to store money. You can have fun feeling your piggy bank get heavier as you save more and more.  

Day Four: Savings Account. When you move beyond the piggy bank, it’s time to open a savings account. I will never forget the smiles on my boys faces and their sense of accomplishment when they turned over their piggy bank savings to the bank for safe keeping. The bankers were thrilled to sit with their newest savers and explain how things work.

Day Five: Budgeting Tool. Money in and money out is a simple concept, but we need to have a system to track it. Methods range from a traditional notebook and pencil to an online solution or app on our smartphones. We would be happy to show you the budgeting solutions available in our Albion GPS (Guided Planning Service).

Day Six: Debit Account. For tweens and teens, a prepaid card is a good option. This could be something like an ITunes card or a card with a balance to spend. At thirteen, many banks offer the teen debit account. My oldest son has this. I transfer money at the beginning of each month and he has to budget his lunches and outings. He has access to an app where he can track and keep an eye on his balance. I love when we go to get a treat, and he says “Mom, I’ve got this” and he pays with his card. He is learning about budgeting, how to pay for things, how to tip and what is “worth” spending his own money on.

Day Seven: Stock certificate. A stock certificate in a stocking is a fun idea. Choose a company that your child is interested in. Do they like a certain brand of electronic, toy, sports gear or clothing? Buy a share of stock and request a certificate.

Day Eight: Roth IRA. As soon as a child has a source of income, look at opening a Roth IRA for them. They can fund their Roth with up to $5,500 in earned income for 2018. This money grows tax free, and is not taxed when taken out of the account if holding periods are met. Think of the power of compounding and the gift that this becomes over time.

Day Nine: Matching. Matching a child’s savings is a powerful motivator. Teaching them about this “free money” early encourages them to look for matches as they explore potential employment options in the future.

Day Ten: Debt reduction. Consider making a payment towards a loved one’s debt. Giving them the freedom of a period without a payment, or helping them see the impact of an additional payment is powerful.

 

Day Eleven: Emergency Fund.

It can be extremely hard to save up that 3-6 months of living expenses when you are figuring out how to live on a limited income. Helping someone in their early 20s set up their emergency fund provides them with some freedom.

Day Twelve: Service and giving back. Choose a charity or cause to donate your time to. Serving together is a powerful bonding activity. Some of my favorite days are the hours spent side by side with the Albion team and our kids volunteering at the Utah Food Bank.    

Sarah Bird, CFP® / Senior Wealth Advisor
Albion Financial Group
sbird@albionfinancial.com (801) 487-3700