YEAR-OF-DEATH RMDS AND IRA

CREDITOR PROTECTION: TODAY’S

SLOTT REPORT MAILBAG
Thursday, April 22, 2021
By Ian Berger, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

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.

F. Perry

Answer:

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.

Question:

Good afternoon!

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!

Best,

Becky

Answer:

Hi Becky,

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.)