Required Minimum Distributions – Part 1
This week’s blog post topic is one I touched on briefly at the end of last year, required minimum distribution. It is something that applies to retirement or nonqualified accounts and comes up frequently with clients who sometimes misunderstand it. IRAs, 401ks and other retirement accounts are tax deferred accounts. Under tax laws, the government does not tax the interest and dividends earned in these accounts until they are withdrawn. This gives a boost to the value of these accounts since no tax paid means more money that can continue to grow. Eventually, however, Uncle Sam does want to get its share. That’s where the required minimum distribution (RMD) comes in. RMD rules require that account owners must start making minimum withdrawals from their retirement accounts no later than when they reach age 70 and ½. These rules apply to most IRAs, such as SEP, SIMPLE, traditional, rollover and inherited IRAs. It does not, however, apply to Roth IRAs (no RMDs necessary) and some exceptions apply to certain 401ks. The amount of RMD you must take is based on a formula. You take the value of your IRAs on December 31 of the previous year and then divide by
That Pesky Tax Waiver – Part 3
This week’s post is the last of 3 on New Jersey’s tax waiver. Last week I showed you how a small bequest in a will to a non-Class A beneficiary will trigger the need to file an inheritance tax return. I also said, however, that in some instances a return must be filed even if no tax is due, which is what the L-8 and L-9 affidavits are supposed to help avoid. Let’s look at some examples. The first $25,000 left to a sister or brother – Class C beneficiaries – is exempt from inheritance tax so you might think that using the affidavits should be permissible. The need to file a complete return, however, does makes sense because the State wants to take a look for itself at where the money is going. It is not willing to take our word that there is no tax due. Another example involves trusts and disclaimers. A disclaimer is a statement by an heir that he/she does not wish to receive an asset to which he or she is entitled. The person disclaims it. The asset then passes to someone else according to instructions established in the will or according to
That Pesky Tax Waiver – Part 2
In my post last week, I referred to New Jersey’s tax waiver. It is an often misunderstood process designed to insure that the State receives the appropriate amount of taxes when someone dies. As I explained, New Jersey’s estate tax was phased out as of 2018 but we still have an inheritance tax. Very few estates actually owe the tax. New Jersey has a law in place that places a lien on certain financial accounts and real estate. This is the way it can insure that it will be paid. The State releases the lien by way of a tax waiver which is usually issued when a tax return is filed and the appropriate amount of tax is paid. New Jersey has also created what are called self executing affidavits, which if used will automatically release the lien. There are a series of questions on the affidavits – one is used for New Jersey real estate and the other for New Jersey bank accounts, stocks, bonds and brokerage accounts. Using the forms allows most estates to avoid filing a complete inheritance tax return just to obtain the waivers. Given the very small number of estates that owe inheritance tax
That Pesky Tax Waiver – Part 1
As I have written in previous posts, New Jersey did away with its estate tax in 2018. This was part of a compromise between the state legislature and then Governor Christie who agreed to an increase in New Jersey’s gasoline tax. I have also pointed out that we still have an inheritance tax in New Jersey, although the number of estates that must pay inheritance tax is very small. That’s because most decedents leave their assets to spouses, children and grandchildren who are exempt from inheritance tax. Yet, we are finding that there are a number of estates where we must file an inheritance tax return even though no inheritance tax is owed. That might seem strange. The reason, however, is New Jersey’s tax waiver system. I last wrote about the tax waiver in 2016 (see 10/10/16 post). New Jersey places a lien by law on New Jersey assets until the state issues a waiver releasing that lien. It is designed to insure that the inheritance tax is paid. Once the State is satisfied, it issues this document called a tax waiver. Financial institutions and buyers of real estate then know that the tax has been paid and the
Is There Any Government Benefit Program I Am Not Aware Of? (Part 2)
In last week’s post I related a common question about government benefits – “is there something out there in the way of benefits that we could get that we’re just not aware of”? Most recently, a son, whose dad is in a nursing home already receiving Medicaid benefits, asked me this question. His dad is a Korean War veteran and he said someone told him he could get approximately $1800 a month in benefits, a reference to the VA Aid and Attendance benefit. Many government benefits do not work well together. VA Aid and Attendance and Medicaid are a good example. The Aid and Attendance benefit is received in the form of a pension. I certainly understand the thought process. Maybe dad can get the pension money coming in which could help pay for other things he might need. The first problem is that the VA won’t pay the pension when it knows Dad is already receiving Medicaid. If he was already receiving the VA benefit before applying for Medicaid, it would drop the pension down to $90 a month. “But what about any other benefit that maybe I am not aware of,” the son asked me. When I
Is There Any Government Benefits I am Not Aware of? Part 1
In this week’s post I want to talk about a common question I get about government benefits. “Is there any benefit my family member can get that I am not aware of?” In other words, “am I missing anything”? I can certainly understand the reason for the questions, however, it really is looking at things from the wrong direction. Here’s what I mean. When you are trying to manage the care of a loved one and pay for it all, the first question is, “what does that person need”? Once I know that, I can then look to see what benefits might be available that would match the need. Th analysis is going to be focused on what the person needs in the way of care or treatment. Recently I had someone ask me whether his dad was entitled to any benefits because he is a disabled Veteran. Dad is in a nursing home and on Medicaid. “What about the VA Aid and Attendance benefit”, he asked me. “I heard Dad can get $1800 a month as a Korean war veteran, which could give him some additional income.” When I asked the