2 Peter was in the military. As such, he had Service Member’s Group Life Insurance. On the application, Peter named his sister as beneficiary should anything happen to him. Peter became ill and died of natural causes unrelated to his military duty. QUESTION Must his sister accept the policy benefits, or could she elect to transfer the death benefit amount directly to a Roth IRAaccount? 3 Person “A” and Person “B” have a been married for 15 years. They had grown apart and decided a divorce was the right thing for them. “A” was a diligent saver and has built a nice sized Traditional IRA. “B” was never a saver and has no interest in the IRA plus “B” is in need of money now to help finance a new home. “A” & “B” have agreed to split everything 50-50%, so “A” already knows that “B” will be getting half the val - ue of “A’s” IRA account. QUESTION Would you tell “A” to take a distribution of half the IRAand give it to “B” so that “B” canmove onwith their life? 4 You recently inherited a Traditional IRA that belonged to your mother. You were the sole beneficiary. You have a lot of experience with IRAs and you know this inherited IRA is yours to do with as you see fit until the time it must be liquidated. (Ten years from the date of the death of its original owner). QUESTION Which of these things can you dowith the inherited IRAyou just received? A. Liquidate the holding and withdraw all the funds immediately. B. Transfer the IRA from the brokerage house to a Self-Directed IRA company to allow you to make investments outside the stock market. C. Change some or all the investments it holds to better grow the value of the IRA. D. Convert the Traditional IRA to a Roth IRA to improve the tax treatment at the time of liquidation.
5 In times of increasing Income Tax rates, people want to have as much as possible in a Roth account. The earning made in a Roth account can be Income Tax Free when you attain the age of 59½ and if you have owned a Roth IRA for no less than five years. QUESTION Which account type can accept the most Roth money? A. Roth IRA B. The Roth portion of a Solo 401(k). C. Both
KEY
#1 Declined. Contributions may not be made to the account of a person who is deceased. #2 His sister may transfer the policy proceeds to her Roth IRA—no strings attached, even if she had already maxed out that year’s contribution. This benefit applies to all branches of the military including the Reserves. If she did not have a Roth IRA, she could open one. #3 Sorry, even though “A” is trying to do a nice thing for “B”, “A” is better off doing nothing. If “A” takes a distribution from the IRA to give funds to “B”, “A” will be hit with income tax on the value of the distribution from the IRA. Plus, a 10 percent early distri - bution penalty if “A” is under the age of 59½. However, if “A” waits until the Court orders the transfer of value from the IRA to “B” there will be no income tax or tax penalty as “A” is taking action as ordered by the Court. #4 You can do A, B, and C. You cannot convert the Traditional IRA to a Roth IRA to improve the tax treatment at the time of liquidation. You may not change the tax character of an inherited IRA. #5 You would think they would be the same; however, they are not. A Roth IRA may accept an unlimited amount of money in assets from a Traditional IRA, SEP IRA, Defined Contribution Employer 401(k) Plan, Defined Contribution Solo 401(k). 401(k) Plans may not accept incoming Roth funds from any qualified account.
Dennis Blitz is a recognized authority on Self Directed IRA and Solo 401(k)s. He is an author, national speaker, and President of IRA Club. Today IRA Club has thousands of members successfully investing their IRA and Solo 401(k) money in: Real Estate, Making Hard Money Loans, Private Placements, Agricultural Land, Life Settlements, Pre IPO-Stocks, and more.
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