Gary Altman Sheds Light on How to Handle IRA/401(k) Custodians Upon the Death of the Owner


In an interview for the Stamford Advocate, estate planning attorney, Gary Altman, shares some common issues with the handling of IRA/401K distributions are the death of the owner:

  1. Some custodians do not tell beneficiaries what their obligations are with inherited IRAs. In other words, they are not reminded of what their minimum distribution is.
  2. Some beneficiaries do not know what they have to do, so they do not take out enough or any.
  3. If/when beneficiaries fail to take out enough, there is a 50% penalty on the amount that should have taken out, but didn’t. It is sometimes possible to get the IRS to waive this penalty, but this is a cumbersome process and should be avoided if at all possible.
  4. Clients do not change the beneficiaries of their IRAs/401k plans to reflect changes in life. Many times ex-spouses or girlfriends or dead parents are listed as beneficiaries, not current spouses or children.
  5. Sometimes, minor children are named, thereby causing problems because minors cannot inherit directly. They need a legal guardian and court supervision.
  6. Custodians are just that, they should not give advice, but clients sometimes rely on what the person on the phone tells them, which may or may not be correct.
  7. 401k plans and other qualified plans should be the same as an IRA, unless the plan has different rules.
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