The Herald Bulletin

Evening Update


February 28, 2014

'Big Joe' Clark: Are big changes coming for inherited IRAs?

Relationships and finances can often be complex. However, things can get even more complicated when a spouse passes away.

As a spouse — and only a spouse — an individual can roll their deceased spouse’s IRA and retirement plans into their own name. The other choice is to take an inherited IRA where the beneficiary must begin to take required minimum distributions (RMDs) regardless of their age.

While much ink has been invested in the “marriage penalty” that can result when two taxpayers marry — and subsequently watch their joint tax liability increase above where they were prior to filing a joint tax return — there has been limited conversation devoted to what’s often called the “widow’s penalty.”

As a surviving spouse you typically retain all the assets in defined contribution retirement plans (401ks and 403bs) as well as IRAs. When RMDs are required, you will no longer withdraw at the marginal rates of "Married Filing Jointly" but rather as a single individually. You can get a break for two years if you have a dependent child at home. The tax rates can effectively increase your marginal tax rate to higher levels without any additional income, hence we call it the “widow’s penalty.”

Recent information has further compounded the issue as the courts are pondering creditor protection for inherited accounts. Although the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act indisputably protects “retirement” funds, there’s a real question as to whether or not inherited retirement funds retain their retirement character. To date, three separate U.S. Courts of Appeals have ruled on the issue, with the score, so far, 2-1 in favor of protecting inherited IRAs in bankruptcy. As with all issues tax related, things change!

The Supreme Court has agreed to listen to the most recently decided case, Clark v. Rameker. As a result, the 2-1 advantage is meaningless. Our colleague, Sy Goldberg, has filed a Brief of Amicus Curiae, which translates to “friend of the Court.” In essence, it’s a legal brief that says, “Here’s how I think you should rule and why.”

Text Only
Featured Ads
More Resources from The Herald Bulletin
AP Video
Furry Roommates: Dorms Allowing Cats and Dogs Chase Rice Defends Bro-Country 'Jersey Shore Massacre' Pokes Fun at MTV Series Raw: Wash. Mudslides Close Roads, Trap Motorists DC's Godfather of Go-Go Honored Ukraine Calls Russian Convoy a 'direct Invasion' Girl Meets Her 'one in the World' Match Coal Gas Boom in China Holds Climate Risks Japan Landslide Rescuers Struggle in Heavy Rain Raw: Severe Floods, Fire Wrecks Indiana Homes Endangered Red Wolves Face Uncertain Future Raw: Russian Aid Convoy Arrives in Ukraine Okla. Policeman Accused of Sex Assaults on Duty Dominican Republic Bans Miley Cyrus Concert Raw: Israeli Air Strike in Gaza Raw: Bodies of MH17 Victims Arrive in Malaysia Attorney: Utah Eatery Had Other Chemical Burn

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Helium debate
Front page

Do you think heroin is a significant problem in Madison County?

Yes, it has surpassed meth as the problem drug
Yes, but meth is still a bigger problem
No, this was an isolated case
Not sure
     View Results