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Author: ForHim210 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76384  
Subject: 701/2 age stipulation Date: 1/28/2004 11:29 AM
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Hi all,
I tried to find info on the board about the following question and did not find any. So I hope I am not asking something that's already been answered.

My father is 70.5 which means he will have to move money out of his 401k plans. Does anyone know if you have to do that with one's Roth IRA as well. Anyway, I'm trying to figure out the best thing to do for him so that he is not hammered through taxes. Does anyone know what you can roll the money into or if it just has to be transferred to an after-tax account with a place like Freetrade or Ameritrade?

Also I was told that it is helpful to start getting certain assets out of his name, such as his house, and have it put in a child's name (that would be me). I'm asking because he was recently diagnosed with Alzheimer's and I can see that his mind is slipping etc (very sad). Anyway, I want he and my mom to be provided for as well as I can and know that their expenses will increase as his disease gets worse. My mom is 8 years younger and in good health so I'm trying to think for her best too in that I want their money to last for them. Of course, I would try to help them financially if that were ever needed.

Lastly, I'm wondering if my dad's 401k money could be rolled tax free into my mom's name since she does not hit 70 for 8 years? Does anyone know the answer to that question? THanks for any help you can provide me.

From a daughter who just LOVES her parents!
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38787 of 76384
Subject: Re: 701/2 age stipulation Date: 1/28/2004 12:42 PM
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The mandatory distribution rule applies only to IRA and 401K accounts. The effect is to force you to begin paying income taxes on your gains at age 70.5.

The rules are complex and were just modified last year. But roughly, the mandatory distribution amount is determined by the life expectancy of the account holder and his beneficiary. The people named as beneficiary will affect the amount of the payment. Usually your 401K administrator can tell you what the required distributions are under the various systems of calculation. You will also find books on the subject in the library. A financial planner can also help if you need personal assistance.

Once the distribution is made, a portion of any distribution is attributed to after tax contribution, which reduces the taxable amount involved. However, once its distributed from the account you may do whatever you want with the money. If it is not needed now, reinvesting it is a good idea.

On the subject of Altheimers, yes, planning to preserve your parents assets to support your mother if he is in a nursing home for an extended period is a good idea. The rules on this vary from state to state. So you need to consult an eldercare attorney in your area for advice. Most states have a three year lookback. That means any assets he has distributed in the three years prior must be considered in determining if he is qualified for state aid as medicaid. There are also asset limitations. Your attorney can advise you. Your fathers doctor, hospital or nursing home all have social workers who can recommend elder attornies in your area. They can also make clear what services can be provided under medicare or other programs.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38789 of 76384
Subject: Re: 701/2 age stipulation Date: 1/28/2004 12:57 PM
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Greetings, ForHim210, and welcome. You asked:

My father is 70.5 which means he will have to move money out of his 401k plans. Does anyone know if you have to do that with one's Roth IRA as well.

No, unlike a traditional IRA or qualified retirement plans, minimum required distributions at age 70 1/2 do not exist for Roth IRAs. The money may stay there until heirs have to take it.

Anyway, I'm trying to figure out the best thing to do for him so that he is not hammered through taxes. Does anyone know what you can roll the money into or if it just has to be transferred to an after-tax account with a place like Freetrade or Ameritrade?

He will have to pay income taxes on the mandatory withdrawals. After all, that's the purpose of making him take them. The "gummit" let the money stay there untaxed all those years, so at age 70 1/2 it says the money must now come out so it can be taxed. If the money isn't needed immediately, then an after-tax long term, buy and hold investment is arguably "best" under today's tax laws.

Also I was told that it is helpful to start getting certain assets out of his name, such as his house, and have it put in a child's name (that would be me). I'm asking because he was recently diagnosed with Alzheimer's and I can see that his mind is slipping etc (very sad). Anyway, I want he and my mom to be provided for as well as I can and know that their expenses will increase as his disease gets worse. My mom is 8 years younger and in good health so I'm trying to think for her best too in that I want their money to last for them. Of course, I would try to help them financially if that were ever needed.

For a number of reasons putting assets into your name before your Dad passes on is normally a very bad move for you and your parents. In this case, given his advancing mental deterioration plus his and your mom's advancing ages, I strongly urge you to immediately seek the services of an attorney thoroughly familiar with the elder care laws of your state. At this stage of life, to protect your folks it sounds as if you will need various powers of attorney and/or revocable or irrevocable trusts. You now need someone well-versed in elder law to guide you through the legal thicket necessary to protect both you and your folks from various contingencies (e.g., income/estate/inheritance taxes, medical costs, etc.).

Lastly, I'm wondering if my dad's 401k money could be rolled tax free into my mom's name since she does not hit 70 for 8 years? Does anyone know the answer to that question? THanks for any help you can provide me.

NO, that could happen only if your father was deceased. In that event, she could have the remaining proceeds transferred into her own traditional IRA.

Hope that helps.

Regards...Pixy


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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38791 of 76384
Subject: Re: 701/2 age stipulation Date: 1/28/2004 1:24 PM
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Sorry about your Dad,

It wasn't clear if you were talking about being required to close the 401k or just take a minimum yearly distribution.

If there is something in his 401(k) plan that requires that it be closed after he turns 70.5 then you can roll it over to a traditional IRA without paying any taxes until it is withdrawn from the IRA. To do this have the new IRA company do all the paperwork and have it transferred directly to them because doing it yourself is tricky to do without causing taxable income. If his 401k is administered by a large company like Fidelity or Vanguard then it should be possible to just open an IRA with them. This would less stressful on your Mom and you.

I'm not familiar with the rules for 401(k) minimum distributions but if they are like the traditional IRA they are not as bad as they sound since the factor in their joint life expectancy.(assuming that you Mom is the only beneficiary on the account) The table for the traditional IRA minimum distributions are at;

http://www.irs.gov/publications/p590/ar02.html#d0e12155

When you look at it be sure that you look at the very end which is appendix C table 3. As I read it looks like their distribution period is about 27 years, which means that he will be forced to withdraw between 3 and 4 % of the account. You should call the company that the 401k is with and ask them just when it needs to be done and how much.

Much of you father's health care will likely be eligible for a tax deduction on your parents income tax which will help to minimize the tax bite. They will need to itemize their deductions.

The only thing that is real urgent is to double check that this years required distribution is made because if it is not then the taxes and penalties are ridiculously high.

Be careful and don't panic and have your parents do anything without knowing the tax and estates consequences.


Greg


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