Legal Blog

The Weekly Scenario from Steve Shane – 10.28.13

Question:  I am turning 70 next month and I will soon be required to take minimum required distributions from my IRA.  My IRA custodian is a large investment firm.  What types of things must an IRA custodian notify me with in regards to my IRA once I hit the age for taking required minimum distributions? Answer:  There are certain things that custodians are responsible for telling you and other items that you must simply ‘know’ and ‘do’ on your own.  There are also some IRA custodians which provide services and/or take on additional duties that go above and beyond what the tax code and regulations require. Here are some of the items to note: 1. Custodians must notify you (once you are 70 ½) about your required minimum distribution (RMD) each year. By the end of January, the custodian is required to send notification or a statement to the IRA owner who has to take the RMD for that year. 2. If the custodian does not give the precise RMD, they must, at a minimum, offer to calculate the RMD upon request.  (note that I understand that while typically this is the correct figure, that isn’t always the case). 3. While the custodian is responsible for notifying the owner about their RMD, it is the client/owner who is responsible for actually taking the RMD.  Aside from the notification, there is no further follow up required by the custodian to make sure the RMD is actually taken. 4. It is the IRA owner’s responsibility to name a beneficiary.  While there is technically no IRS rule that an individual name a beneficiary, every IRA account has to have a beneficiary designated or the default rules on the account agreement come into play.  Whenever there is a major life event (death, divorce, etc.), it is incumbent upon the IRA owner to update the beneficiary designation (and not the custodian). Just an observation:  I have never seen a custodian reject an IRA beneficiary designation for lack of a contingent beneficiary. 5. Unlike the requirements for IRA owners, there is no similar requirement for custodians to notify beneficiaries about their distributions. Some custodians will in any case notify a beneficiary after the IRA owner’s death.  But the burden is certainly on the beneficiary to know when and how much to withdraw from the account. Comment:  An IRA is typically a person’s most valuable asset.  Entire books are written on IRAs, from tax, investment, and distribution standpoints.  Beneficiary designations should always be up to date and when there is a major change in a life event, these beneficiaries should be reviewed  in conjunction with the estate plan as a whole. Steven E. Shane Principal Offit│Kurman Attorneys At Law 301.575.0313 Washington 443.738.1513 Baltimore 410.218.9339 Mobile 301.575.0335 Facsimile Please note the above material discussed is intended to provide only general information. Do not, under any circumstances, solely rely on this information as legal advice. Legal matters are often complicated. For assistance with your specific legal problem or inquiry please contact me directly.