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New Rules for IRA Distributions & Medicaid Residence

Question: I am nearing age 70 ½ and scheduled to begin taking minimum distributions from my 401k and IRA. My wife, who is 65, and I have been reviewing this complicated process for some time to make our decisions; however, when we went to the bank last week, we were told that the Internal Revenue Service had come out with new rules that had not yet cleared the bank’s legal department. That was six weeks ago. Do you know what the new rules are and how will they affect us?

Answer: In comparison to the complicated, somewhat unforgiving rules of the past, the new regulations, which are effective this year, make it much easier to plan withdrawals from IRA’s, 401k’s, and similar retirement accounts and allow you to change beneficiaries.

Under the old rules, for example, as you reached age 70 ½, you were required to make the irrevocable decision of whether to take your withdrawals based upon your life expectancy at that time (called the “fixed method”) or upon your life expectancy as it changed each year (called the “recalculation method”). Depending on when you died, your choice could have a big impact on your surviving beneficiary.

Under the new rules, on the other hand, the choice you make at age 70 ½ is not irrevocable. The new rules are based on one withdrawal table for participants whose beneficiaries are ten years younger than they are. If a spouse is more than ten years younger, you can choose to use a table based upon your actual joint life expectancy and take even smaller minimum required distributions each year.

Because your choice of your beneficiary will not affect the amount to be withdrawn each year under the new rules, you can change your beneficiary designation whenever you wish. Unlike the old rules, you will not be penalized if you fail to name a designated beneficiary before your required beginning date. Even if you have begun taking your required minimum distributions, you can use the new table. In addition to the ability to make beneficiary designations by December 31st of the year after the participant dies, there are expanded options to beneficiaries.

Taking the NextStep: Since the new rules are much more flexible and user-friendly and allow better post-death planning, you should get expert advice about your options. If your bank does not understand the rules and their benefits, we suggest that you contact your certified public accountant or a lawyer who can help you. Good advice from people who know what they are doing is well worth your time and the expense when dealing with significant assets.

Question: My 80-year old mother lives on the west coast and is planning to sell her condo and move east to be near me and my family. My sister, who now lives near Mom, is moving overseas. Mom has about $50,000 in CD’s and will have another $80,000 or so from the sale of her condo. I read somewhere that if she runs out of money and needs to go into a nursing home, the state where she now lives is a better place to be. Can she move in with me and keep her permanent residence there so she can receive favorable treatment if she needs nursing home care.

Answer: Whatever you think you may have read is wrong. Medicaid is a federal program that establishes guidelines that are implemented by each state in somewhat different fashions. If your mother is living with you, needs long-term care and can’t pay for it, and meets the medical criteria, the rules of your state of residence, not where she may keep a bank account, will govern.

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