Empowered Retirement, Inc.
Founder & President
Debra L. Morrison, CFP®, MS, AEP, is a 38-year, fee-only seasoned wealth manager with her Master’s Degree in Retirement Planning. Her firm, Empowered Retirement, Inc. is a Registered Investment Advisor (RIA), held to strict fiduciary standards which coincides with how Debra and her firm have always provided service: the client's interests are not only primary, the client's interest are Empowered Retirement's objective, period.
Debra has helped hundreds of clients face and conquer their money fears and attain financial security. She uses humor and every-day analogies as well as her financial prowess in breaking down complex financial concepts into bit-sized nuggets. In short, she is committed to cutting through the 'financial noise' to distill what is important for her clients to know in building their investment portfolios.
Armed with over 3 decades of experience working with couples & singles nearing retirement, she has authored 3 books, Ms. Morrison's Dictionary of Useful Financial Investment Terms, Common Sense Money Guide For Women, and My Husband Died, Now What? A Widow's Guide to Grief Recovery & Smart Financial Decisions, the latter of which garnered her Amazon's Best Seller author status.
Debra's been featured on CNN, ABC, MSG's Metro Money and CNNfn and is widely quoted, including The Wall Street Journal, Investment News, The New York Times, Business Week, Ladies Home Journal, USA Today, Journal of Financial Planning, Huffington Post, Business Week, Nation’s Business and Reader's Digest - the latter of which her Mom is most proud. She is listed in Marquis' Who's Who in Finance & Industry & Who's Who of American Women as well as Nationwide Register's Who's Who in Executives and Business.
In addition to working hard, Debra plays hard at golf, tennis & scuba diving.
BS, Business Administration, Messiah College
Ms, Retirement Planning, College for Financial Planning
Assets Under Management:
The answers provided are strictly general in nature, and should not be construed as investment , legal, tax or financial planning advice due to the inability to properly assess the risk tolerance and complete financial profile of any one questionner as well as changing tax laws beyond the advisor's control. Before effecting any strategy, please discuss with your CFP® Practitioner, Tax Accountant and/or Legal counsel.
While you may wish to time the receipt of your RMD to coincide with necessary cash flow to meet certain bills, you certainly do have a choice of when to take your distribution. Not sure what you mean by "take average withdrawals until the end of the year".
All other things being equal, I prefer to shelter the income and capital gains within the IRA vehicle as long as I can, thus, we often wait until the middle of December each year to push out our clients' RMDs. This also is good timing for holiday spending, so it works well both ways.
Be sure not to wait until the last few days in December, however, as the penalty for NOT taking your RMD distribution by 12/31 of any year is a whopping 50% of the amount you should have taken. There is often a bevy of activity at year end with trades, etc. and less-than-reliable mail service, so do allow yourself a couple of weeks to accomplish this task and ENSURE that the funds are distributed from the IRA. A word of caution here...IF you are ever close, or worried, simply ask the custodian to transfer the RMD funds into another account at that same custodian, if you have one, and that generally only takes 1-2 days. So, for example, if you have both an IRA and a taxable investment account with TD Ameritrade, just transfer the requisite RMD funds from the TD Ameritrade IRA to your TD Ameritrade taxable account, rather than having them cut you a check.
Finally, IF you may be routing your RMD directly to a charity or charities, you MAY wish to make the distributions earlier in the year, in order to benefit the charity sooner rather than later. So, again...it all depends.
My sympathies to you as you grieve your husband's death.
PLEASE say you haven't done this yet!
In no way, shape or form should you consider investing an inherited IRA into another tax-sheltered investment, least of all an annuity, which contains substantial Mortality & Expense charges that would otherwise needlessly reduce your balance.
The only annuity that allows one complete access to all the principal is a no-load annuity and very few of them are 'sold', such that you probably wouldn't have stumbled upon this idea. I rather believe that a commission agent has recommended this strongly to you, since there is a VERY healthy commission attached to the sale; read anywhere from 4-10% with various bonuses, AND most likely credit towards that agent's award trip offered by their sponsoring company.
So, that said, IF you still have your husband's Inherited IRA, please consider your cash flow needs from this sum of money and invest in a diversified portfolio of indexed, (institutional preferably, since the expenses are razor-thin compared with the expenses on a retail offering) no load mutual funds or Exchange Traded Funds. The mix of assets will be determined on a couple of facts: your need for income, your age, your overall need to grow the monies, and your propensity to withstand some short-term price volatility.
Final reminder, bond prices fluctuate too. And if you buy a bond and do not hold it until its maturity, you could suffer price depreciation at the time of sale. And if you buy a bond mutual fund, your risk of losing principal is also present, especially if the duration/length of the bonds is over 5 years.
Interest rates and bond prices are on an inverse relationship, so as interest rates rise (as I believe they will in the next 5 years) the price, or principal will go down. Be aware of this, as some investors believe they can't lose money in bonds, which is not true, especially in a rising interest rate environment. Credit risk, of course, also contributes to the potential for loss in bond principal. Know that if a bond is paying you more than the current Treasury yield (which is often referred to as the risk-free rate) there is principal risk that you will want to manage. The 10-Yr US Treasury bond yield is approximately 1.625%, so IF you are being 'sold'/'offered' a yield in excess of that, the credit quality is less than 100% guaranteed.
Of course, this investment will be melded into ALL of your other monies, in order to create the most diversified portfolio that will meet your short-medium and long-term expenses. So, I caution you about segregating buckets of money; they ALL have to work together to help you achieve your objectives.
Good luck and God Speed.
No investment account may be transferred without the account holder's (or their executor's) signature, period. This would apply to a 401(k) being transferred, or Rolled into an IRA, AND/OR any other person, other than the account holder, gaining access to the account holder's funds.
While the Department of Labor has recently passed the Fiduciary Rule, many broker dealers have not acted, nor are acting, in a fiduciary role. This activity should be reported to the 401(k) administrator and/or IRA custodian in the form of a written complaint, mailed via Certified-Return-Receipt-Mail, and also reported as a complaint to FINRA immediately for redress. This link is provided for information on filing a FINRA complaint: http://www.finra.org/investors/file-complaint
Not knowing the amount of money involved, or when these transgressions allegedly occurred may determine whether obtaining a lawyer would be advised, yet I would allow FINRA to advise you first. Why spend more money on a lawyer, if you may be able to retrieve what seems to be lawfully yours, through these above-named channels, without paying either an hourly fee or a percentage of the amount of money in question.
So sorry your ex-husband lost his job in January! Indeed the ripple effects of no new job or income, nor access to his previous job's 401(k) monies is also affecting your children, and, of course, you.
While I don't know the particulars of your ex-husband's 401(k), nor the size of the company for which he worked, he would typically state in writing that his last day of employment was X, and that he wishes to receive a full distribution of his 401(k) monies--both his tax-deferred monies as well as any vested portion of the company's match, if any--immediately. He may wish to send said letter via certified return-receipt-requested letter, or hand deliver said letter and get a member of the former employer's human resources department, or better yet, the 401(k) plan administrator to sign that they've received the letter, in order to leave a trail that he is serious about receiving his 401(k) monies.
The plan administrator HAS to receive company verification that any employee is terminated, insomuch as sometimes people are given vacation pay, or severance, etc., which extends their termination date, in some cases. Although January termination causes me to surmise that isn't the case here. So, if he has done this, he may need to seek legal counsel--make sure to retain an attorney with knowledge of ERISA--the laws governing pensions & retirement plan assets, yet I don't know how he will afford to pay for legal counsel frankly.
Alternatively, he can establish an IRA account at a brokerage company or bank or credit union, etc., and ask that new trustee of his new IRA, to request an automatic transfer of all his 401(k) assets into the new IRA, which is called an ACATs transfer (Automated Customer Account Transfer Service). Often plan administrators will comply with these ACAT transfer requests since they are receiving the request from another custodian, and not 'just' an employee. (I feel horrible even typing 'just an employee', since every employee is entitled to their monies!)
IF your ex-husband's retirement plan is a defined contribution plan into which only the company contributed monies, and your ex-husband didn't contribute any monies, you have a wholly different situation, in which he needs to read the Plan Adoption agreement and the annual statement to see when they distribute funds--maybe only once a year, like at the end of the year. Also, if there were company matched contributions, these are subject to a vesting schedule, such that if your ex-husband didn't work long enough at the company to satisfy the full vesting rights, he may only receive a portion of the company's matching dollars. For example, sometimes a vesting schedule is 20%, 40%, 60%, 80% and 100% for a corresponding number of years worked, like one could be 20% vested after 1 year of service, and then 40% vested after 2 years of service, for example.
As to why he hasn't received unemployment payments, has he applied to his state of residence for unemployment benefits, presuming he was fired or down-sized? If he quit the job, he wouldn't normally be eligible for unemployment benefits. He may wish to contact his local county for any help given to unemployed persons, so he could receive food stamps perhaps. This is outside my specialty, yet a Google search of local agencies should prove helpful in gaining access to some temporary benefits, at least.
In the meantime, depending on how much money you have, and how badly you need his required weekends to work out so you can attend to details in your own life, you may pack your two small children and your ex a few brownbag lunches/dinner--even PB & Jelly and tap water into containers along with an apple or banana--and send them to the park, or any number of free activities.
Sorry if this seems lame; yet I hope you all get some relief(s) soonest!
My sympathies in the loss of your Dad! You don't mention when he died, nor when you 'got' the 401(k), nor if your Dad had any of his company stock funding his 401(k). There are a lot of particular details that would lead me to recommend one strategy over another, yet IF your Dad's 401(k) contained the stock of the company for which he worked and that stock had appreciated from the price at which your Dad bought it, you may well be eligible to utilize a little-utilized section of the Code called Net Unrealized Appreciation (NUA) to take advantage of capital gains tax rates (instead of ordinary income tax rates) on shares of company stock. Otherwise, Ordinary Income Tax Rates are the default taxation rates if you rolled the entire 401(k) sum into an IRA and began taking distributions--Required Minimum Distributions or otherwise.
I have just been invited to join Investopedia and am only seeing this question today, yet the tax savings can be WELL worth it on an account this size, IF the fact pattern of your late Dad's 401(k) is that he indeed held shares of his company stock, and it had appreciated in value. I have had to explain NUA to a few CPAs, so no worries if you don't understand every aspect of it, yet the crux of the situation is that to take advantage of NUA, you must instruct the previous employer to make a simultaneous lump-sum distribution of all of the assets of the 401(k)--the company stock on which you utilize NUA as well as any remaining company stock, plus the rest of the plan assets--within one calendar year of your Dad's death.
This NUA for company stock isn't an all-or-nuttin' choice; you can elect NUA treatment for any portion, or all of the company stock. Whatever portion (particular shares of company stock) you choose NUA treatment for, would be peeled off and invested in a separately established brokerage account, and then the rest of the company stock--IF you chose not to utilize NUA on all of the company stock--and all the other assets would presumably be Rolled into a Beneficiary IRA in your name. It is ESSENTIAL however, that the company transfer ALL assets of the 401(k) plan as a lump sum transaction; i.e., the NUA company stock into the separate brokerage account AND the balance of stock if any, and the rest of the 401(k) proceeds into an IRA, ON THE SAME DAY! This is so very important; otherwise two transactions on separate days nullifies the NUA.
Then, depending upon whether your Dad had begun taking his Required Minimum Distributions or not, this dictates what actions you have to take vis-a-vis IRA distributions and paying ordinary income taxes thereon.
More NUA details: you would have to pay ordinary income tax on the cost basis--the trustee of the 401(k) plan will tell you this number--of all the shares of company stock where you're electing NUA treatment, which would get deposited into the separately established brokerage account, yet the GREAT news is that once you've held that stock for 1 year and 1 day, you can sell the stock and only pay a much lower capital gains tax rate on the appreciation from the trustee's cost basis to the market value on the date of the sale. The difference in your ordinary income tax bracket and capital gain' tax represents the bulk of your savings, yet ALSO any of that transferred stock is NOT a part of the IRA, and thus, is not subject to any Required Minimum Distributions.
So, logic would prompt you to determine which shares had appreciated most since your Dad's purchase within the 401(k) plan, AND how much cash flow are you equipped to shell out to pay the ordinary income tax on the NUA's stock cost basis; this will help you decide which shares, and what amounts, you wish to allocate to receive NUA treatment. Depending upon the timing, however, and presuming you would have to take a Required Minimum Distribution in the first year anyway, that very same RMD COULD be earmarked to pay the ordinary income on the NUA stock, due April 15th after the year of NUA election.
Happy to discuss any further details, yet you definitely want to involve your CPA and/or estate attorney in this conversation. IF all the facts align however, NUA is a diamond in the rough, yet it takes incredible coordination of the plan trustee and your new custodian and brokerage account to ensure that the rules are followed correctly. I've overseen 3 of these in my career and while it seemed like I was herding cats (even after I had explained NUA to all parties involved, sometimes twice each) the financial benefits were eye-poppingly rich.
Finally, for whatever portion ends up in your IRA or Beneficiary IRA, make sure you name several generations of beneficiaries, if applicable, to enable your kids/grandkids or future grandkids a Stretch-IRA opportunity, which is a very sweet estate planning technique. Good luck!