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Ed Slott welcomes you to The Slott Report, your source for IRA, retirement and tax planning information.

How Long Do I Have to Keep Year-End Retirement Account Statements?

This week's Slott Report Mailbag looks at how long you have to store year-end retirement account statements as well as how a spousal beneficiary should do if he or she decides to leave a deceased spouse's IRA separate from their own. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.


ed slott IRA questions
Send your questions to mailbag@irahelp.com
This is the story: I put money into several IRA mutual funds over the years, sometimes rolling over from one to another. Over a span of about 40 years, I probably have owned about 30 different IRA mutual funds. Last year, tiring of all the statements/prospectuses/quarterly-semi-annual and annual reports, I put all that IRA mutual fund money into a Vanguard IRA. I have year-end statements for every IRA mutual fund I have owned back to the beginning and for those that did not issue end-of-year statements, I have the monthly statements. I also have the forms setting up the accounts and the forms closing the accounts. I have properly reported on each year’s 1040 the end-of-year value of whatever IRA funds I owned at the end of the year. I also have prepared and kept a paper copy of a cash-net-worth statement that shows the value of my IRA and non-IRA assets at 12/31 of every year since 1978. I now have about 3-4 file drawers of these statements.

This is the question: Do I need to continue to keep the end-of-year IRA mutual fund statements (or the monthly statements for mutual funds that did not send end-of-year statements) for these funds that I no longer own? If so, for how long?

Thank you for any help you can give me. (I tried talking to the IRS but could not get a live person and the canned question-and-answer did not address my question.)

All IRA custodians are required to send you an annual statement of the December 31 fair market value (FMV) of your IRA by January 31 of the following year. That FMV information is also shown on IRS Form 5498, which is sent to IRS and to you each year in May. Accordingly, there is no need for you to keep the end-of-year mutual fund statements once you check them against the 5498.


If a spousal beneficiary chooses to utilize a beneficiary IRA rather than commingling it with their own IRA, do they have to take RMDs (required minimum distributions) like a non-spouse would?

Generally yes. When a spouse chooses to remain a beneficiary, then he or she has to take RMDs similar to how a non-spouse beneficiary would. There are some differences though for spouse beneficiaries. For example, if the IRA owner died before his required beginning date, the surviving spouse can wait until the deceased spouse would have been age 70 ½ to begin taking RMDs as a beneficiary.

- By Joe Cicchinelli and Jared Trexler

What You Need to Know About Qualifying Longevity Annuity Contracts

qualifying annuity longevity contractsOn July 1, 2014 the Treasury Department released the long-awaited final regulations for Qualifying Longevity Annuity Contracts (QLACs). These new annuities will offer you a unique tool to help make sure you don't outlive your money. The QLAC rules, however, are a complicated mash-up of IRA rules and annuity rules, and you may need help in understanding their key provisions. To help you understand some of the most important aspects of QLACs, below are 3 critical QLAC questions and their answers.

1) Question: What are QLACs?

Answer: QLACs, or qualifying longevity annuity contracts, are a brand new type of fixed longevity annuity that is held in a retirement account that has special tax attributes. Although the value of a QLAC is excluded from your RMD (required minimum distribution) calculation, distributions from QLACs don’t have to begin until you reach age 85, well beyond the age at which RMDs normally begin.

2) Question: Why did the Treasury Department Create QLACs?

Answer: Prior to the establishment of QLACs, there were significant challenges to purchasing longevity annuities with your IRA money. The rules required that unless an annuity held within your IRA had been annuitized, its fair market value needed to be included in your prior year-end balance when calculating your IRA RMD. So, if you had non-annuitized IRA annuities in your IRA, this left you with an inconvenient choice to make after reaching the age at which RMDs begin. At that time, you needed to either:
  1. Begin taking distributions from your non-annuitized IRA annuities – reducing their potential future benefit, or
  2. Annuitize your annuities – which would obviously produce a lower income stream than if they were annuitized at a more advanced age, or
  3. “Make-up” the non-annuitized annuity’s RMD from your other IRA assets – drawing down those assets at an accelerated rate.

None of these options was particularly attractive and now, thanks to QLACs, you will no longer be forced to make such decisions – at least with respect to a portion of your retirement savings.

3) Question: How Much Money Can I Invest in a QLAC?
Answer: The final regulations limit the amount of money you can invest in a QLAC in two separate ways, a percentage limit and an overall limit. First, you may not invest more than 25% of your retirement account funds in a QLAC. For IRAs, the 25% limit is based on the total fair market of all your non-Roth IRAs, including SEP and SIMPLE IRAs, as of December 31 of the year prior to the year the QLAC is purchased. The fair market value of any QLAC held in an IRA will also be included in that total, even though it won’t be for RMD purposes.

The 25% limit is applied in a slightly different manner to 401(k)s and similar plans, so if you’re thinking about using plan money to purchase a QLAC, be sure to check on those specific rules.
In addition to the 25% limit described above, there is also a $125,000 overall limit on total QLAC purchases. When looked at in concert with the 25% limit, the $125,000 overall limit becomes a “lesser of” rule. In other words, you can invest no more than the lesser of 25% of your retirement funds or $125,000 in QLACs.

- By Jeffrey Levine and Jared Trexler

"Age 55 Rule" For Taking Money Out of a Company Retirement Plan

401(k) distribution rule to avoid 10 percent penaltyIf you participate in a company retirement plan, such as a 401(k), there's a way you can take a distribution and get out of paying the 10% early distribution penalty if you're under age 59 ½ at the time of the withdrawal. The rule is sometimes called the “age 55 rule.”

If you are 55 years old or older in the year you left your job and you need to take a distribution of your retirement plan funds immediately, you should leave the money in your company plan and take your withdrawals from there. The reason is because distributions from your company plan, when you leave the company in the year you turn age 55 or later, are not subject to the 10% early distribution penalty if you no longer work for that company (or what the tax code refers to as “separation from service”). Remember, though, that the distribution would still be subject to federal income taxes.

It’s the year you turn age 55 that matters. For example, in one Tax Court case, the Court ruled that a person was liable for the 10% penalty for an early distribution made from her company retirement plan. Although her distribution took place after she turned age 55, she left her job when she was just age 53, which disqualified her from being eligible for the age 55 exception to the 10% penalty. It’s the year someone separates from service that matters, not the distribution date. To qualify for the penalty exception, separation from service must occur in the year the person turns age 55 or older.

Also, if you roll over company retirement plan money to an IRA, withdrawals before age 59 ½ are subject to the 10% early withdrawal penalty unless one of the other exceptions applies (such as disability). The age 55 exception does not apply to IRA distributions. So, if you meet the age 55 rule and need to spend some of your retirement money, don’t roll over the amount you need to an IRA. If you do, and then take a distribution from your IRA, you will be hit with the 10% penalty. Once you roll over company plan money to an IRA, the IRA rules kick in and you can’t go back and use the age 55 rule.

- By Joe Cicchinelli and Jared Trexler

IRAtv: Inherting an IRA as a Young Spouse and QLAC Discussion

We have talked about inheriting IRAs as a younger spouse as well as QLACs (qualified longevity annuity contracts) and their compatibility with IRAs now that they have meshed with IRA required minimum distribution (RMD) rules.

Along with the articles below, we gathered in Chicago just over one week ago for a video roundtable to answer some of the frequently asked questions on the topics as well as provide advisors and consumers with an educational audio/visual component.


What a Younger Spouse Should Do When Inheriting an IRA
IRS Regulations Bring QLACs to Life
QLACs Shift From Tax Code Theory to Consumer Reality ... Soon

Why You MUST Check Your IRA (or Plan) Agreements

Most of the time we are telling you how important it is to check IRA beneficiary forms to be sure they reflect your current planning objectives – such as the stretch IRA. It is also important to check the IRA agreement or an employer’s summary plan description (SPD) for the plan.

IRA plan agreement rulesWhy?

Because when we write about the IRA distribution rules, we write about what the tax code allows. An IRA custodian or employer plan can sometimes narrow those choices. They can never allow more than the tax code allows, but in many instances they can offer less.

Most employer plans do not offer a stretch option to a non-spouse beneficiary because they do not have to. However, they do have to allow a named non-spouse beneficiary the ability to do a direct rollover from the inherited plan account to a properly titled inherited IRA (or Roth IRA).

On the IRA side, a custodian does not have to offer a direct transfer option. The custodian could say you either leave it here in an inherited account or we will send a check payable to the beneficiary. The check option is a taxable distribution to a non-spouse beneficiary and the funds cannot be put back into an inherited IRA. A spouse beneficiary could do a 60-day rollover into an account in his or her own name, but only if they have not done another 60-day rollover in any other IRA in the previous 365 day period.

Other items to check for are the ability to use a trust as a beneficiary, the ability to use a power of attorney and the ability to disclaim inherited retirement assets. These are all actions allowed in retirement accounts, but IRA custodians and employer plans do not have to allow any of these options. If they are an important part of your estate plan, you better check to see if they will work with the company holding your retirement funds.

Now is the time to find out if you’re planning will all work the way you want it to. If an IRA custodian will not accommodate your planning, you can move the account to one who will. If your funds are in an employer plan that will not allow certain aspects of your planning and you are still working there, you will be stuck with the rules of the plan. But at least you know in advance and you can try to plan around the employer plan limits. After your death, it is too late.

- By Beverly DeVeny and Jared Trexler

What Type of Annuity Can be Rolled Over to an IRA?

This week's Slott Report Mailbag looks at potential annuities that can be rolled over to IRAs
as well as a follow-up question on a younger spouse inheriting an IRA. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.
IRA questions
Send questions to mailbag@irahelp.com


I have small annuity account of approximately $4,000.00.

I would like to be able to access funds from time to time, but to cash this account (i.e. close it) out, the company would pay me only about half of it.

Is it possible to avoid this by rolling it over to an IRA? Also, can I still get an IRA at my age of 82?

Would appreciate help.

Joan Fogel

If the annuity is a non-qualified annuity (an annuity that’s not held inside an IRA or company retirement plan), it cannot be rolled over to an IRA. However, if the annuity is a qualified annuity (such as an IRA annuity), then it can be rolled over or transferred into an IRA. You can open an IRA at any age, including after age 70 ½, and fund it with a rollover or transfer from another IRA or company retirement plan.


This question is based on Beverly DeVeny’s post on a younger spouse inheriting an IRA.

First: why would the spouse establish an Inherited IRA? And in your explanation you mention why she is not subject to RMDs (required minimum distributions).

Second: I went back to Ed's 2012 edition of The Retirement Savings Time Bomb. On page 136 Rollover, Ed writes: "Under the tax code, an inherited IRA is an IRA inherited by someone other than your spouse."

Please clarify. Thank you.

John Recchia

While technically, an inherited IRA is an IRA inherited by a non-spouse beneficiary under the Tax Code, a spouse can basically be treated as a beneficiary by not rolling over or electing to treat the IRA as her own IRA. This IRA is often called an inherited IRA or a beneficiary IRA. A younger spouse beneficiary who inherits an IRA from her deceased spouse but needs to use the IRA funds before age 59 ½ should not do a spousal rollover. The reason is so she can avoid the 10% early distribution penalty that would apply if she did a spousal rollover before age 59 ½.

- By Joe Cicchinelli and Jared Trexler

3 Things To Check On A Beneficiary Form ... Besides The Beneficiaries

The Beneficiary isn't the only thing you must check on your own or a client's beneficiary form. Here's a list of 3 other important things to make sure are present on the beneficiary form. Do you think there are others? Email us at info@irahelp.com

    what to check on an IRA beneficiary form
  1. Does the beneficiary form work on a per stripes or per capita basis? - Ideally, when you name beneficiaries on a beneficiary form, you don't just stop with the primary beneficiaries, but you add contingent beneficiaries as well. But when are those contingent beneficiaries entitled to any funds and when they are, how much are they entitled to? The answer to those questions may depend, in part, on whether your beneficiary form follows per stripes rules or per capita rules. Those rules are beyond the scope of this article and, in some cases vary slightly from state to state, but your financial or estate planning professional should be able to explain them to you.
  2. Are there any restrictions on who you can name as a beneficiary? - You might think that just because your IRA money is yours, you can name whoever you want as your beneficiary whenever you want to. From a tax code perspective, that's true, but believe it or not, those seemingly inalienable rights can be restricted. Some beneficiary forms, for instance, may not allow a trust to be named as a beneficiary. Others may limit the number of primary or contingent beneficiaries you can name. In other cases, you options may be limited in other ways. Most custodians won't place these types of restrictions on your account, but are you sure yours doesn't?
  3. Does the beneficiary form allow the stretch? - Under the tax code, a designated beneficiary (generally just a living, breathing person) can stretch distributions from an inherited IRA over their life expectancy. Doing so helps to maximize the potential value of an account by minimizing the impact of income taxes while maintaining tax deferral for as long as possible. The stretch can be limited however. For instance, a retirement account may require that any beneficiary - designated or not - empty an inherited account within 5 years. This is more common to see in plans than it is in IRAs - most IRA providers now allow the stretch - but in either case it's nothing to take for granted. Do your homework and double check now, before it’s too late. 
- By Jeffrey Levine and Jared Trexler