Qualified Plans Are Complex: Keep These Things in Mind

Qualified plans are complicated but they are a useful tool in your practice. Here are some helpful things to keep in mind as you utilize qualified plans in your client's estate plan. 

What defines a qualified trust for IRA purposes? 

• Valid under state law
• Irrevocable 
• Identifiable beneficiaries 
• Provide trust agreement to custodian by October 31 of year following owner's death

What are the RMD payout options for IRA in Trusts? 

• Death before reaching 70 1/2: 
• Qualified Trust - RMDs based on oldest trust beneficiary's life expectancy
• Unqualified Trust - Plan balance must be withdrawn within five years of owner's death
• Death after 70 1/2: 
• Qualified Trust - RMD's based on the oldest trust beneficiary's life expectancy
• Unqualified Trust - RMD's based on the remaining life expectancy of original owner

What are the RMD Payout options for IRA in Estates?

• Death before reaching 70 ½:
• Plan balance must be withdrawn within five years of owner’s death
• Death after 70 ½:
• RMDs based on the remaining life expectancy of original owner

What happens if the rmd is not taken in a timely manner after death?

• 50% penalty imposed for failure to take RMD

What now?

• Take missed RMD as soon as possible
• File form 5329 with IRS asking for forgiveness
• “Failure to take RMD was due to reasonable error and new owner is taking reasonable steps to remedy the failure”
• Attach financial statement proving you took RMD Tell IRS why you failed to take RMD (if applicable)
• IRS generally forgives

If you have questions about qualified plans, please contact Nathan Beemster.