Do you know what has changed for IRA beneficiaries?
Provided by Jeffrey C. Hamm
New inherited IRA rules took effect on January 1, 2020. The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law on that day, altering the regulations on inherited Individual Retirement Account (IRA) distributions.
The big change: the introduction of the 10-year rule for beneficiaries. Most people who inherit an IRA now have to empty that IRA of assets within ten years of the original owner’s death. You can do this as you wish; you can withdraw the whole IRA balance at once, or take incremental distributions on the way to meeting the 10-year deadline.1
Remember that tax rules constantly change. There is no guarantee that the tax treatment of Roth and Traditional IRAs will remain what it is now. This article is for informational purposes only. If you have inherited or expect to inherit a traditional or Roth IRA, be sure to consult a financial professional for real-world advice.
Are there exceptions to this rule? Yes. If the deceased IRA owner was your spouse, you can treat the inherited IRA like an IRA of your own. If it is a traditional IRA, you generally must take required minimum distributions (RMDs) from it once you reach age 72. The Internal Revenue Service (IRS) taxes those distributions as regular income, and if you take any distributions before age 59½, they may be subject to a 10% federal income tax penalty. If it is a Roth IRA, you aren’t required to take RMDs. (You may continue to contribute to a Traditional IRA past age 72 as long as you meet the earned-income requirement.)1
Certain non-spousal IRA beneficiaries still have the chance to “stretch” inherited IRA distributions over their remaining lifetimes, using Internal Revenue Service formulas (a choice available to most IRA beneficiaries before 2020). You may choose this option if you are less than ten years younger than the original IRA owner. You can also elect to do this if you meet the SECURE Act’s definition of a “disabled” or “chronically ill” individual (you have a life-altering physical or mental impairment or require extended care).1,2
Lastly, if a child inherits an IRA, they can take distributions based on the child’s life expectancy until the age of 18, at which point the aforementioned 10-year rule applies.1
If you are a Roth IRA beneficiary, be aware of the 5-year rule pertaining to Roth IRAs. If you inherit a Roth IRA that is less than five years old at the time of the original owner’s death, any earnings taken from it will count as taxable income. If the Roth IRA is more than five years old, you can take tax-free distributions from the earnings. Assets representing the original owner’s Roth IRA contributions can become tax-free distributions regardless of when the original owner opened the Roth IRA1
What’s the big takeaway from all this? Suppose you are relatively young and anticipate a large IRA inheritance, and that big IRA is a traditional IRA. In that case, you can anticipate greater income taxes during the 10-year window when you take those inherited IRA distributions.
By the way, the new rules do not apply to inherited IRAs whose initial owners died prior to 2020. If you are a beneficiary of such an IRA, then you may still attempt to “stretch” the inherited IRA assets according to IRS life expectancy formulas and take RMDs as required by the old rules.3
Jeff Hamm may be reached at 228-474-3427.
Learn more about NCU Wealth Management.
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
- NerdWallet, November 25, 2020
- FedWeek, March 3, 2020
- Forbes, October 28, 2020
Understanding the Child Tax Credit Expansion
The American Rescue Plan Act temporarily expanded the Child Tax Credit, or CTC, for the 2021 tax year. The IRS will pay half the total credit amount in advance monthly payments beginning in July. Those eligible for the credit can claim the other half when filing their 2021 income tax returns.
Navigator Members may have questions about what the Child Tax Credit expansion means for them. Here are answers to some frequently asked questions.
Will I receive advance CTC payments?
Navigator does not know who will receive advanced CTC payments or how much a Member will receive. The IRS will use your 2020 income tax return to determine if you are eligible and automatically enroll you for the advance payments.
Can I find out when I receive an advance CTC payment deposited to my Navigator account?
Members can see pending deposits on our free mobile app and/or be notified through e-Alerts.
When using the app, the pending deposit displays on the specific account to which the deposit will be posted. Using the mobile app to see pending deposits eliminates the need to call the Credit Union and avoids long hold times waiting for information that is right at your fingertips. It also allows you to see your available balance and displays any pending debits.
What if my advance CTC payment is set to deposit to a closed account or one with a negative balance?
If a Member’s advance CTC payment is deposited into a charged off checking account or any closed account, it will be sent back to the U.S. Treasury with the notation: account closed. If the share account designated for the deposit has been charged-off and the Member has another open share, Navigator will deposit the payment into the open share. If the account designated for the deposit has a negative balance, Navigator will apply the payment to the negative balance.
What do I need to do to get my advance CTC payments?
Most families will begin receiving monthly payments without any additional action. Eligible families will receive a payment of up to $300 per month for each child under age 6, and up to $250 per month for each child ages 6 to 17.
People who need to file a 2020 federal income tax return may be able to prepare and file their federal income tax online using IRS Free File if their income is $72,000 or less.
People who don’t need to file a 2020 federal tax return can also use the Non-filer Sign-up Tool to register to receive the advance CTC payments, the Third Round Economic Impact Payment, and the Recovery Rebate Credit.
Do I have to have direct deposit to receive the advanced CTC payments?
The IRS will use data already in its systems to send the advanced Child Tax Credit payments. Taxpayers with direct deposit information on file will receive the payment that way. Those without current direct deposit information on file will receive a check or debit card in the mail.
Can I opt-out of the advanced CTC payments?
You can unenroll from the advanced payments and claim the full, increased amount on your 2021 income tax return. You can unenroll at any time. For more information, click here.
How do I get more information?
There’s a great deal of information on the IRS’s website.
Beware of fraud
Navigator is warning you of potential scams. Remember, you do not have to do anything to receive the advance CTC payments. The IRS will not email, text, call or direct-message anyone as initial contact. You should delete those messages unread. Clicking a link or responding could connect you with a scammer or infect your phone or computer with a virus.
Here are some other things to do instead:
- Don’t respond to any communication from the IRS other than snail mail, and be sure it’s genuine. Real IRS correspondence has a notice (CP) or letter (LTR) number on either the top or the bottom right corner.
- If your check will be mailed to you, go to com and sign up for Informed Delivery, which emails you photos of your mail before it is delivered. It’s free. When your check is expected, pick up your mail as quickly as possible or have someone do it for you.
- If you believe your check was stolen from your mailbox, the IRS can trace the check and replace the money.
- If someone tries to scam you out of some of the money or offers “help” in getting it sooner, you can report it to the FTC at firstname.lastname@example.org.
Remember, Navigator and the IRS will never ask for your personal information such as social security or account numbers.
Credit unions are not-for-profit and owned by members. Because they don’t have to pay investors, members can expect fewer fees. Only about 10% of credit unions charge annual fees for credit cards, compared to 45% of banks.1 Maximum late payment fees are also 50% more at banks, on average.1 With foreign transaction fees, banks charge almost double what credit unions do.2 And most credit unions don’t charge anything for balance transfers, while you can expect to pay between 3% and 5% at most banks.3 All that’s true for the Navigator Platinum Rewards card which charges no annual fee, no balance transfer fee and no cash advance fees.
The annual percentage rate (APR) is another area where you could save by choosing a credit union. Credit card APRs are generally lower on credit union cards. Right now, new Navigator Platinum Rewards cardholders can qualify to take advantage of a limited-time offer of 4.99% APR on purchases for the first six months. When the introductory period is over, the rate reverts to the regular rate which is significantly lower than that offered by most banks and store credit cards. Regardless of the APR, remember you can avoid any interest charges by always paying your bills on time and in full.
More willing to work with bad credit
Credit unions are more likely to work with people who have a less-than-stellar credit history to find the best solution for them. Navigator’s Share Secured Visa® Card is an invaluable tool whether you’re looking to rebuild credit or establish credit. Your secured credit card is backed by a cash deposit. The deposit is usually equal to the credit limit to make purchases. You get the deposit back when you upgrade to a regular “unsecured” card or close the account in good standing. As you use the card, Navigator reports your activity to all three credit bureaus. Keep your balance relatively low and pay your bill on time every month, and you can begin to strengthen your credit. In addition, Navigator’s Platinum Reward card credit score requirements are set to allow more Members to qualify, even many who might not meet credit score requirements of other financial institutions.
Better customer service
Large banks have millions of customers from around the country. At a local credit union, you can expect a more personalized experience. If you have any questions or concerns regarding your credit card from a credit union, it’s easy to connect with the customer service team for valuable help tailored to your needs.
Take advantage of our limited-time offer!
From weekly grocery runs to monthly bills, our Navigator Platinum Rewards card makes your spending rewarding. And easy on your budget. For a limited time, we’re offering a low 4.99% introductory APR on purchases for six months! There’s also no annual fee, no balance transfer fee and no cash advance fees. Cardholders also earn unlimited uChoose® rewards. You can redeem the points for thousands of options – including cash back. Learn more about this limited-time offer by visiting navigatorcu.org/your-card.
APR=Annual Percentage Rate. Credit eligibility requirements apply. New cardholders pay a 4.99% introductory APR for the first 6 billing cycles from account opening. After that, the APR will be 10.90% and 12.90% based on creditworthiness. Offer subject to change without notice. See Visa agreement for uChoose Rewards® terms and conditions. uChoose Rewards® is a registered trademark of Fiserv Solutions, Inc. Visa® is a registered trademark of VISA Inc.
Cool Down Summer Spending
Lazy days and fun getaways are the hallmarks of summer. But unfortunately, our summer spending can leave our wallets empty come fall. We have some smart ways you can cool down common summer expenses.
Reduce Cooling Costs
Electricity usage tends to peak in the summer months mostly because of air conditioning. To reduce energy costs, replace your air filters often and turn up the thermostat by as little as four degrees. Get in the habit of using a ceiling fan to cool hot air as it rises. Keep blinds and curtains drawn to block out sunlight that can heat up your home.
Entertain the Kids for Less
From summer camp to swim lessons, activities for children can really add up. The good news? Warmer weather usually mean more festivals, outdoor concerts and community events, and this summer many venues and events are resuming pre-COVID schedules. Follow your local city or parks and recreation department social media accounts to keep up to date on free events. Some museums and learning centers also offer free or reduced admission days through the summer months. Consider using coupons and deals for entertainment. You can typically find discounts online on everything from bowling and mini-golf, to swimming, day trips and local restaurants. Plan a get-together with friends and their kids and you can save money thanks to group discounts.
Plan a Thrifty Summer Trip
Everyone enjoys big summer trips but they can be pricey. Cut costs by visiting more affordable tourist spots. Nearby state parks or local beaches are great choices. If you want to travel further away, consider visiting family. You’ll have a free place to stay and someone local to show you around.
If you need to take a break, Navigator can help with our vacation loan. Applying is easy. You can do it by phone by calling 800-344-3281, option 3, in-Branch or online. And if you want to take a break from regular loan payments, our anytime Skip-A-Pay may be right for you. Free up funds during the month of your choice, then use your cash for travel, entertainment, shopping or to just catch up. As a valued Member of Navigator Credit Union, you may be qualified to participate, and if you have more than one eligible loan, you can skip a payment on each one!
Eat at Home, Grill Out More Often
It’s no secret that eating out is considerably more expensive than eating at home – five times more on average. Consider meal planning to help reduce the time you spend in the kitchen and budget the use of your groceries. To change it up, take it outside and grill up some delicious food during the week. Grilling out helps eliminate using two energy-consuming appliances at once – your HVAC and the oven/stove. Have fun testing out different foods on the grill and enjoy relaxing summer evenings spent outside.
Fuel prices inevitably increase in the summer. Even if you’re driving the same distance, it will cost more. If you can, cut back on driving. Carpool to work or use public transit. If you can’t avoid it, drive slower, use the recommended motor oil grade and keep your tires properly inflated to increase fuel efficiency.
Summer can be some of the most fun months of the year, and it doesn’t have to be the most expensive.
Terms and conditions apply. Visit navigatorcu.org for more details about personal vacation loans and the anytime Skip-A-Pay program.