Inheriting retirement assets presents a giant step toward a more comfortable retirement. In an era where post-working life is expected to run into decades, additional assets increase your odds of living a good lifestyle in post-career America. Inheritance is a two-way street. Generally involving the loss of a loved one, the financial benefit can produce a timely windfall.
Unless that inheritance is inadvertently squandered.
What should be common financial knowledge has become increasingly uncommon. Following decades of neglect, education in personal finance has recently been renewed. Recently, states such as Florida have imposed new requirements on public educational systems, adding personal finance to high school graduation requirements. Preparing for retirement will never be more important, and financial education has never been more neglected. We applaud Governor DeSantis and others for their efforts.
Dealing with retirement assets, both during life and beyond, is complicated. Rules are numerous, complex, and ever-changing. Failure to understand and/or comply with all rules and regulations can be a costly error. Saving sufficiently for retirement is costly enough; no one needs to make costly mistakes.
Both Congress and IRS change rules and regulations frequently, and the changes are often complicated. They can also be costly to ignore. One recent example, though not carved in stone as of this writing, is most likely to be codified. This new IRS regulation affects some beneficiaries inheriting funds from an IRA or Company Retirement Plan. If the account owner died in 2020 or later, rules for many beneficiaries have been changed by IRS decree.
The change requires some beneficiaries to take a Required Minimum Distribution (RMD) in 2021, though the Regulation wasn’t released until after 2021 was in the rear-view mirror. So far, there is no confirmation as to how these beneficiaries will be allowed to remove the money from their account without penalty.
Assuming these new regulations are made permanent, penalties for non-compliance could be extreme and might result in beneficiaries incurring a significant reduction in their own retirement account balances. When a process is clarified, we will let you know in this Blog and on the Van Wie Financial Hour radio program. Financial literacy is a lifetime pursuit in an ever-changing environment.
April is Financial Literacy Month. Perhaps some government officials need to brush up on their own responsibilities. We can only hope.
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