ó Your retirement nest egg is just that: Money
"surrounded by an eggshell. It can only be broken
open once," says retirement expert Ed Slott.
should know: He appears on PBS and conducts seminars
nationally for financial advisers just on how to
withdraw money from retirement accounts.
laws are so complicated that his seminars last for days
and include hundreds of pages of annual changes
surrounding retirement-money rules.
are some of the myriad mistakes retirees and their heirs
make when cracking open that egg?
lumps missteps into two categories: mistakes that can be
fixed and what he terms "fatal errors" when
taking money out of accounts such as IRAs, 401(k)s,
403(b)s and employer retirement plans.
teach folks who come to our seminars how to tell the
difference and how to avoid those mistakes," he
time money comes out of a retirement account, that money
is subject to rules that no other money is subject to.
Your retirement account is an eggshell. You break it, itís
over. And there are many advisers who donít know the
rules or donít ask the right questions."
common mistakes? Inherited IRAs and automatic
say your child or beneficiary inherits an individual
retirement account worth $300,000 and doesnít set up a
properly titled inherited IRA.
could be a costly omission. The rules are strict and
complex because this money hasnít been taxed yet ó
and the government wants its share.
companies offer a retirement option. When you leave a
company, it may simply advise you to roll over that
account into a personal IRA.
too, could be a mistake, Slott says.
say you have creditor issues, youíve been sued. If
your money remains with the company in an ERISA
(Employee Retirement Income Security Act) plan, itís
creditor-protected. You lose that protection if you roll
it over to an IRA. Now, creditors can grab it. Always
ask whether there are creditor issues or whether the IRA
is protected under state law" before rolling it
over, he says.
a company retirement plan, you can own life insurance.
But if you roll over that plan, you may not be allowed
to own the insurance in a personal IRA.
you have life insurance in your plan and you lose
it," he says. Better to discuss that with a
qualified financial adviser beforehand.
the beneficiaries of your retirement money up to date?
That can have a huge impact after your death.
people never look at the beneficiary forms, so our
advisers go through a life-event checklist. We ask
clients if theyíre aware of any births, deaths,
divorces, new tax laws, any factor you relied on to name
a beneficiary has to be looked at," Slott adds.
Beneficiary forms on retirement accounts trump a written
will, he says.
a retirement account ends up as part of your estate, the
IRA or other account may have to be cashed out ó and
that means paying taxes.
tax-advantaged money is different than any other money
and canít be transported easily," Slott says.
"Other assets can transfer back and forth, but IRAs
canít ó otherwise, that triggers taxes."
seminars include topics that most advisers havenít
thought of. For instance: What if a client who turns 70
1/2 becomes ill or disabled and canít take the
required minimum distribution?
people take an RMD from one account and think it applies
to all of them. It doesnít," he says.
mistakes are fatal: A beneficiary canít be found, or
the wrong person is named. A prenuptial agreement has
confused the issue, or there are no spousal-consent
website, IRAHelp.com, has a list of local advisers who
have been trained at his seminars.
Goodhart, founder of BIRE Financial Services in the
Philadelphia area, has Slott on retainer.
call him my ĎSlott machine,í" Goodhart says,
"because when IRA rule changes happen, we know
about it within the hour. And we need that for our
Caligiuri, managing director of United Capital, also in
the area, has been taking Slottís retirement seminars
for years. She has what she calls a "cheat
sheet" of questions for her clients and rules
surrounding how to take money out of retirement
year, for example, "there are new rules on
charitable giving. The IRS requires an RMD made for
charity be sent directly with an assignment form to the
charity. It counts as an RMD, but the client doesnít
pay tax on the distribution," Caligiuri says.
thorny issues: People think they can withdraw money from
one IRA to satisfy withdrawal requirements on another
account, say a 401(k) or 403(b). Thatís not always so.
a 401(k) withdrawal can satisfy a 401(k) RMD. Itís
like from like ó and these are the types of rules we
go over with our clients," she says.
you donít know the rules, "the penalties are
terrible," Caligiuri says. "If you donít
satisfy the amount, the IRS can audit your tax returns,
and they are looking at this issue lately because many
people are under-withdrawing. And trust me, the IRS is