"Thanks Dick for an interesting piece. I'm a bit of broken record on this topic, but the challenges of retirement saving make me glad to be part of Australia's compulsory superannuation scheme. Every single Australian employees compulsorily gets 12% of their salary put into a fund that is typically only available at age 60. This system was phased in over decades, has its flaws and glitches, but IMHO is a wonderful thing for Australians."
"Wow, what a great read, including all the comments. In recent years we were gifted games 'Toledopoly' and 'Game of Thronesopoly'. They sit not-opened in the closet. You have given me the idea to get them out, and also a great tutorial for winning. Thanks, DJ!"
WHEN A HUSBAND dies, his widow inherits his IRA. Somewhere in the paperwork of the months that follow there is a decision to make, and nobody presents it to her as one. She can take the account as her own, or she can leave it titled as inherited.Taking it as her own means filling something in. Leaving it means doing nothing, and the IRS tells custodians they may assume that is what she wants. So the account sits where it is, at the same firm, holding money the household always treated as joint, and the decision gets made by nobody.It is the more expensive of the two. Not by a little.Two TablesEvery year, a required minimum distribution, or RMD, has to come out of the account. The amount is the balance divided by a number from an IRS table, and there are two tables in play here.Beneficiaries use the Single Life Expectancy table. Owners use the Uniform Lifetime table, which spreads the money over a longer period and therefore asks for less each year. That is the whole mechanism, and it is worth about a third of the annual bill.Take a widow of 76 with $480,000. Left titled as an inherited account, she must take $34,043 that year. Had she taken the same account into her own name, she would have to take $20,253.Same money, same woman, same birthday. The difference is which box got ticked in the months after the funeral.It Does Not Happen OnceThat gap is not a one-year event. Run both versions forward 10 years, same account, same growth, taking exactly what is required and nothing more.The inherited schedule forces out $374,306 over the decade. As owner, $246,281.She pays about $30,600 more in federal income tax getting there, and reaches 85 with roughly $171,000 less still inside the IRA.She has not lost that money. She has been made to take it out early, pay tax on it sooner, and hold it somewhere less sheltered for the rest of her life. That is a slower kind of damage than a penalty, and a larger one, because it renews every January for as long as she lives.A Floor, Not a CeilingThe usual objection to taking the account as your own is that it locks the money up. It does the opposite.A required distribution is a floor, not a ceiling. She can take more in any year she wants it, for any reason, and nobody asks why. What she leaves alone stays sheltered and keeps compounding.The lower figure buys her the choice. The higher one makes it for her, every year, whether the money is needed or not.One Case Runs the Other WayThere is a real exception, and it matters enough to state plainly.Money paid out of an inherited IRA escapes the 10% early-withdrawal penalty at any age, because the IRS exempts what is paid to a beneficiary on account of the owner's death. Take the account as your own and you are back under the ordinary rules.So a survivor who is young enough that an early withdrawal would be penalized, and who expects to need the money, has a genuine reason to leave the account exactly where it is. That threshold is 59 and a half.For most couples already retired this will not apply, and the rest of the article governs. Where it does apply, it outranks everything above.Nobody Will Prompt YouI wrote recently about the letter that never comes. A custodian has to tell an IRA owner what must be withdrawn each year, and owes an inherited account nothing at all.So the choice decides more than the size of the bill. Take the account as your own and the letter starts arriving, every January, for the rest of your life. Leave it as inherited and you are on your own to remember the RMD.The branch that requires no paperwork is therefore both the more expensive one and the quiet one, and those two facts feed each other. The option that costs more is also the one that removes the annual nudge that might have made you reconsider it.Decide It Before You Have ToNone of this is hard to work out. It is hard to work out in the eight weeks after a funeral, which is exactly when it gets decided, usually by default.If you are married and you both hold IRAs, settle it now, while it is hypothetical for both of you.Talk through which of you would be likely to need the money soon after the other died. That is what the 59-and-a-half question really asks, and it is a conversation about your circumstances rather than about tax tables.Then decide which way the survivor should go, write it down, and put it with your trust, your will and the beneficiary designations, where a survivor or an executor will actually come across it. Tell whoever else needs to know that it exists.Look at it again as either of you nears the age your own distributions must begin. That is 70 and a half if you were born before July 1949, 72 if you were born between then and the end of 1950, 73 if you were born between 1951 and 1959, and 75 if you were born in 1960 or later. It is the birthday that makes the whole question live.The paperwork will not choose for you. It will simply do nothing, which is a choice, and on these numbers it is the wrong one for most people who make it by accident. ________________________________________________________________________________ John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.
"That is also the case with the national debt which a scarier issue than social security. Neither party wants to address anything that will affect people’s lives."
EVERY JANUARY, if you own an IRA and money must come out of it that year, your custodian writes to you. The letter gives you the amount or offers to work it out. We barely read it, but it is doing more than we notice.Most people never miss a required distribution, and the reason is not diligence. It is that somebody tells them.Inherited IRAs are different. The IRS notice that creates the requirement says reporting is not required for the IRAs of deceased owners, and an inherited IRA is exactly that. No letter is owed to the person who inherits, and in many cases none arrives.When nobody tells us anything needs doing, we assume nothing does. Here that assumption is expensive.The question behind the questionEveryone remembers the 10-year rule. It answers one question: when does the account have to be empty? It does not answer the one that costs money: does something have to come out this year?That turns on a fact about the person who died. Had they reached the age at which their own distributions had to begin? It is 72 for anyone born before 1951, 73 for those born between 1951 and 1959, and 75 for anyone born in 1960 or later.Take the common case, an adult child inheriting a traditional IRA. If the parent died before reaching that age, nothing has to come out until the account is emptied at the end of year 10. If the parent died on or after it, a required minimum distribution, or RMD, is due every year in the meantime, and the account still has to be empty at the end of year 10.That second case is the one people get wrong. The 10-year rule is widely remembered as permission to leave the money alone until year 10, and for a great many people who inherit, it is not.Other beneficiaries have their own timing, among them a disabled or chronically ill beneficiary, a minor child, and anyone less than 10 years younger than the person who died. Inherited Roth IRAs differ again, and a spouse has choices nobody else has. All of it sits in the SECURE Act and its 2022 successor, which is what to search.Take too little and the shortfall carries an excise tax of 25% of what should have come out, or 10% if you correct it promptly. That is on top of the income tax you owe when the money finally comes out.And there are two ways to trigger it. Taking too little in a year is one. The other is reaching the end of year 10 with money still in the account, because whatever is left on that date is treated as a shortfall too.What four quiet years costA widow turns 76 the year after her husband dies. He was 78, well past the age his own distributions had to begin. She has Social Security of $36,000, a pension of $24,000, and his IRA, still titled as an inherited account, holding $480,000.She does not need the money, no reminder arrives from the custodian, and so she takes none of it for four years while the account grows at 5%.Because he had already passed that age, and because she left the account titled as inherited, she owes a distribution in every one of those years.At 76 she should have taken $34,043. At 77, $37,895. At 78, $42,000. At 79, $46,694, by which point the untouched balance has grown to $555,660.She has missed $160,631 of required distributions. At 25%, the excise tax on that is $40,158. Corrected in time it would be $16,063.Now the part I expected to be worse than it is. When she corrects, all four distributions come out in a single year, and I assumed that bunching would be the quiet disaster.Spread across four years, the distributions cost her $37,566 in federal income tax. Bunched into one, $38,783. The difference is $1,216. If you have been told the danger of a missed distribution is the bracket you land in when you fix it, check that against your own numbers before believing it.The bigger surprise came from Medicare.The surcharge nobody seesTake the distributions on time and her Medicare surcharge is zero in all four years. Bunch them into a single return and it is $6,355.That bill does not arrive with the tax. Medicare sets your Part B and Part D premiums from your income two years earlier, so the surcharge turns up long after the correction has been filed and forgotten, attached to something that does not look like a tax at all.Add it up. Four quiet years cost her about $47,700 she need not have spent: $40,158 of excise tax, $1,216 of extra income tax from the bunching, and $6,355 of Medicare surcharge. The $37,566 of income tax on the distributions themselves was never avoidable and was never the problem.In none of those four years did anyone write to her. The first letter came from the IRS, years late, and fixing it by then meant amended returns and a Form 5329 for every year.What actually prevents itNot vigilance. Nobody is vigilant about a rule they have not heard of, and the custodian was never obliged to tell you.If you have already inherited, two facts settle almost all of it. The year the person died, and whether by then they had reached the age their own distributions had to begin.Your custodian can tell you how the account is titled. Nobody but you is going to find that second date.And if you are reading this married, with both of you alive and nothing yet owed, you are in the only position from which this is easy. Work out the year each of you reaches that age. For whichever of you dies first, that is the year deciding whether the survivor owes a distribution the year after the death.Write both years down, with a line saying why they matter, and put them with your trust, your will and the beneficiary designations, where the survivor will actually come across them.The account will not remind anyone that a clock started. The only reliable reminder is the one you write down before you need it.A note of thanksThe shape of this article came from William Perry, who spent his working years preparing returns and described in a comment thread how these cases reach a preparer. His account of the letter arriving to the widow years later convinced me the annual question deserved a piece of its own. ________________________________________________________________________________ John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.
"I agree Bruce. I am a longtime investor and currently own VEA, which is a broadly diversified ETF index of Euro countries. I have owned other mutual funds and ETFs focused on international markets. My experience and observation is that US markets are better performers and I agree with your logic of US based multi national companies."
"Thank you, Dan. Those belongings sound like such personal reminders of your dad. I imagine you can sometimes picture him wearing those caps or that watch. Jonathan’s words do something similar for me: I recognize his voice, feel close to him for a moment, and then feel his absence all over again. His illness and death were so hard to comprehend, knowing how carefully he looked after himself. I appreciate you sharing these memories of your dad."
"These are great points to consider. One aspect of healthcare costs that often catches people off guard is the sheer complexity of the billing process itself. From what we see building healthcare software at OSP, the fragmentation between providers, payers, and out-of-pocket tracking can lead to massive billing inefficiencies. When patients are thinking about how to pay for care, understanding their explanation of benefits (EOB) and advocating for billing transparency is just as important as choosing the right insurance plan. The backend technology is slowly improving with better Revenue Cycle Management systems, but as consumers, we still have to stay incredibly vigilant about what we're actually being charged for."
"Thanks Dick for an interesting piece. I'm a bit of broken record on this topic, but the challenges of retirement saving make me glad to be part of Australia's compulsory superannuation scheme. Every single Australian employees compulsorily gets 12% of their salary put into a fund that is typically only available at age 60. This system was phased in over decades, has its flaws and glitches, but IMHO is a wonderful thing for Australians."
"Wow, what a great read, including all the comments. In recent years we were gifted games 'Toledopoly' and 'Game of Thronesopoly'. They sit not-opened in the closet. You have given me the idea to get them out, and also a great tutorial for winning. Thanks, DJ!"
WHEN A HUSBAND dies, his widow inherits his IRA. Somewhere in the paperwork of the months that follow there is a decision to make, and nobody presents it to her as one. She can take the account as her own, or she can leave it titled as inherited.Taking it as her own means filling something in. Leaving it means doing nothing, and the IRS tells custodians they may assume that is what she wants. So the account sits where it is, at the same firm, holding money the household always treated as joint, and the decision gets made by nobody.It is the more expensive of the two. Not by a little.Two TablesEvery year, a required minimum distribution, or RMD, has to come out of the account. The amount is the balance divided by a number from an IRS table, and there are two tables in play here.Beneficiaries use the Single Life Expectancy table. Owners use the Uniform Lifetime table, which spreads the money over a longer period and therefore asks for less each year. That is the whole mechanism, and it is worth about a third of the annual bill.Take a widow of 76 with $480,000. Left titled as an inherited account, she must take $34,043 that year. Had she taken the same account into her own name, she would have to take $20,253.Same money, same woman, same birthday. The difference is which box got ticked in the months after the funeral.It Does Not Happen OnceThat gap is not a one-year event. Run both versions forward 10 years, same account, same growth, taking exactly what is required and nothing more.The inherited schedule forces out $374,306 over the decade. As owner, $246,281.She pays about $30,600 more in federal income tax getting there, and reaches 85 with roughly $171,000 less still inside the IRA.She has not lost that money. She has been made to take it out early, pay tax on it sooner, and hold it somewhere less sheltered for the rest of her life. That is a slower kind of damage than a penalty, and a larger one, because it renews every January for as long as she lives.A Floor, Not a CeilingThe usual objection to taking the account as your own is that it locks the money up. It does the opposite.A required distribution is a floor, not a ceiling. She can take more in any year she wants it, for any reason, and nobody asks why. What she leaves alone stays sheltered and keeps compounding.The lower figure buys her the choice. The higher one makes it for her, every year, whether the money is needed or not.One Case Runs the Other WayThere is a real exception, and it matters enough to state plainly.Money paid out of an inherited IRA escapes the 10% early-withdrawal penalty at any age, because the IRS exempts what is paid to a beneficiary on account of the owner's death. Take the account as your own and you are back under the ordinary rules.So a survivor who is young enough that an early withdrawal would be penalized, and who expects to need the money, has a genuine reason to leave the account exactly where it is. That threshold is 59 and a half.For most couples already retired this will not apply, and the rest of the article governs. Where it does apply, it outranks everything above.Nobody Will Prompt YouI wrote recently about the letter that never comes. A custodian has to tell an IRA owner what must be withdrawn each year, and owes an inherited account nothing at all.So the choice decides more than the size of the bill. Take the account as your own and the letter starts arriving, every January, for the rest of your life. Leave it as inherited and you are on your own to remember the RMD.The branch that requires no paperwork is therefore both the more expensive one and the quiet one, and those two facts feed each other. The option that costs more is also the one that removes the annual nudge that might have made you reconsider it.Decide It Before You Have ToNone of this is hard to work out. It is hard to work out in the eight weeks after a funeral, which is exactly when it gets decided, usually by default.If you are married and you both hold IRAs, settle it now, while it is hypothetical for both of you.Talk through which of you would be likely to need the money soon after the other died. That is what the 59-and-a-half question really asks, and it is a conversation about your circumstances rather than about tax tables.Then decide which way the survivor should go, write it down, and put it with your trust, your will and the beneficiary designations, where a survivor or an executor will actually come across it. Tell whoever else needs to know that it exists.Look at it again as either of you nears the age your own distributions must begin. That is 70 and a half if you were born before July 1949, 72 if you were born between then and the end of 1950, 73 if you were born between 1951 and 1959, and 75 if you were born in 1960 or later. It is the birthday that makes the whole question live.The paperwork will not choose for you. It will simply do nothing, which is a choice, and on these numbers it is the wrong one for most people who make it by accident. ________________________________________________________________________________ John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.
"That is also the case with the national debt which a scarier issue than social security. Neither party wants to address anything that will affect people’s lives."
EVERY JANUARY, if you own an IRA and money must come out of it that year, your custodian writes to you. The letter gives you the amount or offers to work it out. We barely read it, but it is doing more than we notice.Most people never miss a required distribution, and the reason is not diligence. It is that somebody tells them.Inherited IRAs are different. The IRS notice that creates the requirement says reporting is not required for the IRAs of deceased owners, and an inherited IRA is exactly that. No letter is owed to the person who inherits, and in many cases none arrives.When nobody tells us anything needs doing, we assume nothing does. Here that assumption is expensive.The question behind the questionEveryone remembers the 10-year rule. It answers one question: when does the account have to be empty? It does not answer the one that costs money: does something have to come out this year?That turns on a fact about the person who died. Had they reached the age at which their own distributions had to begin? It is 72 for anyone born before 1951, 73 for those born between 1951 and 1959, and 75 for anyone born in 1960 or later.Take the common case, an adult child inheriting a traditional IRA. If the parent died before reaching that age, nothing has to come out until the account is emptied at the end of year 10. If the parent died on or after it, a required minimum distribution, or RMD, is due every year in the meantime, and the account stil
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