| Sargent & Lundy Savings Investment Plan |
| IRA WITHDRAWALS |
| The following excerpts are from an
article in the April 1998 issue of "Money"
magazine. The opinions of the author, Lani Luciano, may
or may not reflect those of the SIP Committee. Q. My mother postponed tapping her six-figure IRA until she was 70-1.2 because she wanted to avoid paying taxes as long as possible. Unfortunately, she died last year at 72 with most of her money still in the account. My brother and I are her beneficiaries, and the trustee told us we had to cash out the entire IRA by the end of this year and pay income taxes on the whole amount. He said my mother calculated withdrawals on her life expectancy alone, not on a joint life expectancy with one of us, so the withdrawal schedule ended with her death. This was obviously a misunderstanding on my mother's part. She wanted distributions to last as long as possible, so I'm sure she would have preferred the joint life expectancy calculation. It would have lengthened her withdrawal schedule and let us continue the tax deferral after her death. Is there any way to make this case to the IRS when we file our taxes? Or are we stuck with this catastrophe? A. I'm afraid you're stuck. Even in its new benevolent incarnation. the IRS will not be moved by your tale. My colleague Susan Berger had a little chat with your mom's IRA trustee and discovered that he gave you the right answer but the wrong explanation. The source of your misery is not her choice of a single life expectancy but the method she used to compute her withdrawals. Let me explain. IRA owners have two basic options when figuring mandatory minimum withdrawals. One is called the fixed method, which is based on the owner's assumed life expectancy or the joint expectancy of the owner plus the oldest beneficiary. Had your mom chosen this method - with either single or joint life expectancy - you and your brother would be able to make periodic withdrawals until the schedule ran out, or you both could roll the money over into your own IRAs. The problem is that your mom chose the second method, called recalculation, which allows adjustments to reflect the fact that as you get older, your life expectancy increases. Unless the beneficiary is a spouse, recalculation ceases when the IRA owner dies - again, regardless of whether the life expectancy was single or joint. As a result, all the money has to be disbursed from the account by the end of the following year and you'll owe income taxes on it. |
This page updated on 3/19/98