IRA Changes That Benefit Seniors

Seniors, especially those on fixed incomes, can benefit greatly by some of the changes in the IRA rules. The Pension Protection Act in 2006 made it so those that had a tax sheltered annuity plan with their employer, if they leave the employer they can roll both the pre-tax and post tax amounts into an IRA. The whole thing can continue to grow tax deferred.

You no longer have to roll over an account into a traditional IRA first before putting it into a Roth IRA. You can now put your retirement funds straight into the Roth IRA. Of course, you have to pay the taxes on it when you make the transfer, then it will continue growing tax-free.

Giving retirement funds to charity instead of cash has always made sense. Every dollar in your tax deferred retirement plan is actually only worth about 65 cents to you, since you will most likely be paying 35% taxes when you get it out. You used to have to take these contributions out and claim them as a disbursement on you taxes, and then show them as a charitable deduction. This wasn’t always an advantage.

Beginning in 2010, the $100,000 limitation on Roth conversions expired. This now makes it possible for practically anyone to do a Roth conversion. You can also spread out the tax so that you pay half one year and half the next.

It used to be that a non-spouse beneficiary couldn’t roll over the money in the deceased retirement account into an IRA. That has now been changed. As an example, Dad listed his son as the beneficiary on his 401k plan.

Dad dies, and now the son can do a trustee-to-trustee roll over of the 401k plan into an IRA. A non-spouse beneficiary still cannot take possession of the funds without having to pay taxes. There is no 60-day roll over provision.

Now for more good news. If Dad died in 2004, the son is required to empty the IRA in 5 years. The son can now make a roll over into another IRA, even though Dad died years ago.

Those with self directed IRAs need to make sure they stay on top of any rule changes. Self directed IRA accounts give you more control over your investments. These new rules make it even easier for seniors to transfer funds into a self directed IRA.

NAFEP (The National Association of Financial and Estate Planning) is a leading provider of self directed IRA and self directed 401k products, administrative and custodial services.