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Income Tax Burdens for the Non-Spouse Beneficiary: Perils of Failing to Roll a 401k into an IRA Charlotte NC

After your death, your spouse and/or your children could continue to defer income taxes for many years after your death, as long as they are prudent and only take the annual minimum required distributions mandated by law.

Mr. Charles E. Trent (RFC®), CFP, CHFC, CLU, EA, LUTCF
(704) 365-3122
6525 Wheeler Drive
Charlotte, NC
Company
Gardner and White
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Education: MBA
Years of Experience: 26
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IARFC, FPA, SFSP
Services
Invoice, Estate Planning, Business Planning, Portfolio Management, Pension Planning, Executive Compensation Planning, Retirement Planning, Tax Planning, Tax Returns, Employee Benefits, Mutual Funds, Annuities, Life Insurance, Disability Income Insurance, Long Term Care Insurance, Medical Insurance, Group Insurance, Auto Home Insurance, Charitable Planning, Education Plan, Healthcare Accounts, Asset Protection, BuySell, LiabCover, Compensation Plans

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Roger Myers
632 Matthews-Mint Hill Rd.
Matthews, NC
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Title: Branch Manager
Company: Dalton Strategic Investments
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Investment Advisor Rep: Yes
Years Experience
Years Experience: 29
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Captive Insurance,Pension for Highly Compensated Owners,Income for Life/ Preserve Principal,Alternative Investments,Annuities,Alternative Asset Class Planning,Annuity Ideas & Strategy Planning,Planning For Personal Finances & Budgeting,Retirement Income Accumulation Planning,Individual Income Tax Planning,Wealth Engineering,Stock Market Alternative,Wealth Management,Life Insurance,Investment & Portfolio Management,Commission-Only Financial Planning (Full Disclosure),Insurance & Risk Management P

Data Provided by:
Jats Tax Svc
(704) 332-1997
208 N Caldwell St
Charlotte, NC

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Phillips Tax Group
(704) 563-1414
4822 Albemarle Rd Ste 208
Charlotte, NC

Data Provided by:
Tricia Oliver
(704) 532-4611
3553 N Sharon Amity Rd
Charlotte, NC

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Mr. Harvey Stephen Bailey (RFC®), CEP, CSA, LUTCF
(704) 563-6844
125 Floyd Smith Drive, Suite 250
Charlotte, NC
Company
HB Financial Resources, LTD
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Education: Attended Embry Riddle Aeronautical University,Graduated from Southwood College. Was Financial services instructor for three years at Central Piedmont College.
Years of Experience: 37
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IARFC, MDRT, NAPFA, NAIFA, NICEP
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Invoice, Estate Planning, Business Planning, Portfolio Management, Trustee Service, Pension Planning, Executive Compensation Planning, personal Coach, Retirement Planning, Medicaid Planning, Tax Planning, Tax Returns, Seminars Work, Employee Benefits, Family Offices, Stocks and Bonds, Mutual Funds, Mortgage Loans, Collectable Coins , CD Banking, Annuities, Life Insurance, Disability Income Insurance, Long Term Care Insurance, Business Coach, Charitable Planning, Healthcare Accounts, Charitable F

Data Provided by:
Eric Little, CPA
(980) 939-8528
1329 E Morehead St Ste 100
Charlotte, NC
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Feel free to call anytime.
Parking
Free

Data Provided by:
Complete Bookkeeping Service
(704) 347-1360
401 E 2nd St
Charlotte, NC
 
Tax Advantage
(704) 567-6525
3551 N Sharon Amity Rd
Charlotte, NC

Data Provided by:
H&R Block
(704) 537-0928
3119 N SHARON AMITY RD
CHARLOTTE, NC

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Income Tax Burdens for the Non-Spouse Beneficiary: Perils of Failing to Roll a 401k into an IRA

Provided By: 

Money, Taxes & Small Business

Income Tax Burdens For the Non-Spouse Beneficiary: Perils of Failing to Roll a 401k into an IRA
By James Lange 
   

Have you heard about a stretch IRA and wondered if it was some special kind of IRA? Well, it isn t. In the simplest terms, a stretch IRA is an IRA that has a beneficiary designation that provides for the possibility of maintaining the tax deferred status of the IRA after the death of the IRA owner. You might be thinking, I wish I had a stretch IRA. I only named my spouse as my primary beneficiary and my kids as my successor or contingent beneficiary. Well, guess what? You have a stretch IRA. After your death, your spouse and/or your children could continue to defer income taxes for many years after your death, as long as they are prudent and only take the annual minimum required distributions mandated by law.

While the stretch concept applies to some retirement plans, many heirs of 401k owners could be in for a rude awakening if their parents fail to plan properly.

With proper planning you can put in place the mechanisms to stretch taxable distributions from an inherited IRA and certain retirement plans for decades, sometimes as long as 80 years after the original owner dies. If, however, the employer s retirement plan document stipulates the wrong provisions, the stretch may be replaced by a screaming income tax disaster. The heirs could be in for a tax nightmare if Dad never transferred his retirement plan into an IRA.

Many investors fail to realize that the specific plan rules that govern their individual 401k or other retirement plan take precedence over the IRS distribution rules for inherited IRAs or retirement plans.

The distribution rules that come into play at the death of the retirement plan owner are usually found in a plan document that few employees or advisors ever read. Many, if not most plan documents say that in the event of death, a non-spouse beneficiary must receive (and pay tax on) the entire balance of the retirement plan the year after the death of the retirement plan owner. These retirement plans don t allow a non-spouse beneficiary to stretch distributions. For example, if there is a $1 million balance, the non-spouse heir or heirs will have to pay income taxes on $1 million. Then, the remaining balance, roughly $650,000 ($1 million minus the $350,000 immediate income tax hit) would be outside of the tax-deferred protection of an inherited IRA.

Had the 401k participants taken that money and transferred it into an IRA before he died, the non-spouse beneficiary would have been able to stretch the distributions based on his or her life expectancy. Failing to make the IRA transfer will result in an unnecessary massive income tax burden for the non-spouse beneficiary.
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Top IRA expert and author of Retire Secure !, James Lan...

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