The SECURE Act’s 10 Year Rule (Part 2)
In last week’s post, I wrote about the SECURE Act, specifically the change that for most beneficiaries does away with the ability to stretch out the time period by which funds must be withdrawn from these accounts. This change will affect most children who inherit retirement accounts from their parents. Being 25 to 30 years or more younger than their parents, before the SECURE Act they could stretch out the time period by which they must withdraw tax deferred funds and pay the tax. This limited the tax hit and allowed these accounts to grow for a longer period of time without paying tax. The 10 year rule changed that by requiring that these funds be withdrawn completely by the 10th year. What was not entirely clear was whether a beneficiary must withdraw a minimum amount each year or simply make sure to withdraw it all by the end of the 10th year after the original account holder’s death. When the tax law is not clear, the IRS steps in to issue clarification. The IRS last month clarified this issue and announced how it plans to apply the 10 year rule. As with most IRA rules, the answer is complicated. That’s because different rules apply when the deceased owner
The SECURE Act’s 10 Year Rule (Part 1)
A recent caller asked me to confirm a change he said he read about relating to required minimum distributions from an inherited IRA. I wasn’t sure exactly what he was referring to so I did a little digging. Before I tell you what I found, probably a little background on the topic is helpful. I last wrote about the SECURE Act in a post on February 5, 2023, specifically about changes to the original SECURE Act. The original act passed in December, 2019. It raised the age at which one must start withdrawing funds from an IRA - known as required minimum distributions or RMDs, from 70 and 1/2 to 72. This was viewed favorably. SECURE Act 2.0, passed in 2023 then raised the RMD to 73 beginning in 2023. It will also gradually be raised to 75 by 2033. However, when the government gives us something good on the one hand, it typically takes away something else - often of greater value. In this case, it essentially eliminated the stretch IRA for most everyone except a surviving spouse and certain disabled and minor beneficiaries (although even these beneficiaries only get a limited reprieve). What Congress took away was a big deal. Before SECURE Act, if I inherited an IRA from my
FinanciallyEligible but Still No Medicaid (Part 2)
In my post last week, I told you that, while our focus in achieving Medicaid eligibility tends to be on the financial part, there are some non financial requirements we must also pay attention to. One is medical eligibility. Another is residency. Medicaid is a combination federal and state program. Federal funds are provided but the programs are applied for and administered on the state level. This means that if I apply for Medicaid in New Jersey I must reside in New Jersey. There is, however, no “waiting period” to establish residency. In other words, if I move to New Jersey today and can prove I intend to remain here as a resident, I can apply for Medicaid today in New Jersey. When an applicant is in a long term care facility - whether a nursing home or an assisted living facility- establishing residency is easy. If applying for home care, one must prove residency by home ownership, a lease or other proof that New Jersey is now their legal residency. Changing a driver’s license, voter registration, utility bills addressed to the applicant at their New Jersey residence all can be proof. There is, however, another aspect to the residency requirement. That is legal residency. An applicant must be living in this country
Financially Eligible but Still No Medicaid (Part 1)
Many of my blog posts on Medicaid focus on the financial part of eligibility - meeting both the income and asset requirements. There are instances, however, in which meeting those requirements still won’t get someone Medicaid. That’s because there are other hurdles to get over. One is the medical requirement, establishing the need for assistance with at least 3 of the activities of daily living (ADLs). The ADLs are transferring (ambulating), dressing, bathing, toileting, feeding (different than preparing meals which is not an ADL), and incontinence. A Medicaid nurse must conduct an evaluation of the applicant to make the medical determination. Despite common misconceptions, having someone administer medications is not an ADL and by itself, is not enough to meet Medicaid’s medical test. The need for medication monitoring, however, does often indicate or lead to the need for assistance with the ADLs. As I always explain to families, even if we meet all the financial requirements, spend down the assets and establish a qualified income trust when income exceeds Medicaid’s monthly income cap or limit, if you are “too healthy” you still won’t get Medicaid. That’s because you can’t meet the medical test. But, the medical requirement is not the only non financial requirement. Next week I’ll tell you about another
The Perils of GoFundMe – Part 3
In my blog post last week, I discussed crowd funding sites like GoFundMe. We see families dealing with a sudden catastrophic illness or injury attempt to use these sites to raise money to pay for medical and other bills. It rarely is a solution if only because of the amount of money needed and length of time of recovery - if full recovery is even possible. For most people Medicaid becomes a necessary financial solution. As I explained last week, Medicaid is a needs based program. Certain asset and income limitations must be met and the State scrutinizes an applicant’s finances over a five year look back period. Raising money thru GoFundMe and sites like it create two common problems when trying to achieve Medicaid eligibility. The first is that in order to meet Medicaid’s asset limit one must spend down. GoFundMe money coming in results in account balances going in the “wrong direction”, increasing rather than declining. Granted, that money will be spent on medical and other bills as part of the spend down process but strict asset limits must be met and that is difficult when money keeps coming into accounts in differing amounts and at different times. Secondly, these transfers in must be documented for Medicaid
The Perils of GoFundMe – Part 2
In my post last week, I wrote about a particular solution - really attempted solution - to the financial burdens caused by a catastrophic illness or injury. In the age of the internet, crowd funding websites have made it easier to raise money from a large group of people. The GoFundMe site is maybe the most commonly known one. Efforts to raise the money needed to pay medical bills and the cost of long term care are rarely successful simply because the target amount is so undefined in terms of dollars and length of time. The road to recovery is a long one and for those without long term care insurance the Medicaid program will be the only alternative, which is where the fundraising efforts can create a problem. As regular readers of this blog know, Medicaid is a needs based program with an asset test and an income test. A Medicaid applicant must have less than $2000 in assets to qualify for Medicaid. In the case of married couples, the non-Medicaid spouse also has an asset limit. When an application is filed, 5 years of account statements must be provided for every account the applicant and spouse had in that time frame. All transfers into and out of