Your IRA provides you with terrific tax advantages as you save for retirement, but the rules regarding matters of estate planning can be complicated. High courts recently made some changes to IRAs, and you will want to take note of these changes as you move forward with retirement or estate planning.
If you regularly engage in IRA rollovers, take notice: US tax court recently decided that you can only perform one 60-day rollover in any 12-month period. This rule applies across all of your IRA accounts, so plan your rollovers carefully now that you are only allowed one per year. Also note that the court decided this rule is not based upon the calendar year, but the fiscal year. In other words, if you perform a rollover over September 17, then you can't perform another rollover until September 18 of next year – not January 1, as you could theoretically do under a calendar system.
There is one exception to this rule, however: you can perform as many trustee-to-trustee transfers as you want. As long as the checks are made payable to a brokerage or bank, for the benefit of a client's account, and the client does not actually access the funds, you can perform unlimited transfers if you so wish.
A recent Supreme Court decision also clarified the status of inherited IRAs. Previously, the law was unclear on how an inherited IRA is counted for tax purposes: Was it a retirement account, or treated like cash? Now, the Court has decided that an IRA you pass to your heirs will be treated as a cash asset, meaning it does not qualify for special protection from creditors.
But of course, there is an exception to that ruling as well: If you pass your IRA account to your spouse after your death, they can access it as their own retirement account. Other rules of IRA accounts will still apply, but your spouse won't have to worry about creditors getting their hands on part of this inherited IRA.
If you do want to protect your heirs from credit collections, you can choose to pass the IRA to them as part of a trust. Talk to your financial advisor or estate planning attorney for more details on establishing a trust to bequeath your assets.
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