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DEAR TRUST OFFICER:
I turn 73 this year, so I have to begin my Required Minimum Distributions (RMDs) this year. I have a large balance in my 401(k) account, and a smaller but substantial IRA rollover account. Neither account has enough cash for my RMD, so I will have to sell some investments. I’d like to take this year’s RMD just from the 401(k), so as to leave my IRA investments intact. Is it OK to take the entire RMD from just one account?—FORTUNATE RETIREE
DEAR FORTUNATE:
Sorry, no, that won’t work. It is true that, if you have multiple IRAs, you can choose just one of them for a distribution to meet the RMD mandate for all of them, but this rule does not extend to accounts in employer retirement plans, such as your 401(k) account. You will need to arrange for two RMDs, one from each of those two accounts.
After you have taken both RMDs, you might consider rolling over your 401(k) balance into an IRA for next year, which could simplify next year’s analysis. However, if your plan does not provide for an in-kind distribution of securities to an IRA rollover, I can understand your reluctance to take so major a step.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
What happens when a 529 plan has been overfunded, so that funds are still in the account when the beneficiary’s college education is complete? If the surplus is removed for other than qualified education expenses, there will an income tax on earnings and a 10% penalty tax. The SECURE Act 2.0 provides an alternative resolution. Subject to some pretty serious limitations, up to $35,000 of the excess savings may be rolled into a Roth IRA for the beneficiary.
Among the limitations:
Possible work-around? The Retirement Learning Center has pointed out that a parent who is the 529 account owner for his or her child may be eligible to become a successor beneficiary as a qualified family member. As such, the parent might be able to move the money into his or her own Roth IRA eventually. However, the open question is whether the change of beneficiary would start a new 15-year waiting period before the rollover could happen. See generally https://www.psca.org/news/psca-news/2025/9/how-does-converting-a-529-to-a-roth-ira-work/ for more information.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
In general, funds in an IRA are protected from creditor claims in bankruptcy. However, the protection does not apply to an inherited IRA, the U.S. Supreme Court has ruled. Funds in an inherited IRA may be withdrawn at any time without penalty, assets generally must be distributed within ten years, and contributions to inherited IRAs are prohibited. Given these characteristics, an inherited IRA is not “retirement funds” within the meaning of the bankruptcy code.
Stephanie inherited a $44,000 IRA from her father when he died. A few years later she withdrew the entire amount and contributed it to a new IRA in her own name. After that she used the money to purchase an individual retirement annuity.
Before the Bankruptcy Court Stephanie argued that because the IRA had become her own, it should be a protected asset, immune from creditor claims. It was no longer an inherited asset. Unfortunately, the Court pointed out, in the year that Stephanie moved the money the limit on IRA contributions was $6,500 ($5,500 plus a $1,000 “catch-up” contribution). Stephanie had made a substantial excess IRA contribution. As such, she was required to pay a penalty tax and file additional IRS forms until the excess contribution was corrected. As Stephanie had done none of these things, the Court held that the IRA was not a tax-exempt account to any degree, and was fully vulnerable in bankruptcy.
IRAs and inheritances can be complicated assets to manage for those who lack familiarity with all the requirements. Professional advice is generally a very good idea in these situations.
Article ©2025 M.A. Co. All rights reserved. Used with permission.
When Michael Jones purchased Series EE federal savings bonds, he designated his wife, Jeanine, as the pay-on-death beneficiary. The couple later divorced. Under the divorce settlement agreement Michael agreed to pay Jeanine $200,000 over a period of years. The settlement agreement did not mention the savings bonds, nor did Michael take any action to have the pay-on-death beneficiary changed.
Michael died before completing all the payments required by the divorce agreement. Jeanine redeemed the savings bonds, then filed a creditor’s claim against his estate for the $100,000 remaining to be paid to her. The estate argued that the redeemed savings bonds should be counted toward satisfying the debt, and the trial court agreed, dismissing Jeanine’s claim.
Jeanine appealed, and the appellate court reversed. Under the federal regulations governing savings bonds, Jeanine became the sole owner of the bonds at the moment of Michael’s death. Because it became her property, it does not satisfy the debt the estate owes to her. The New Jersey Supreme Court now affirms that outcome. Jeanine’s property interest in the bonds was not revoked by the divorce agreement, because that agreement did not mention the bonds. “The trial court’s holding, which impaired Jeanine’s right of survivorship as beneficiary of the bonds based on nothing more than its assumption that Michael likely intended to do so, is exactly the type of judicial determination the federal regulations do not allow,” the Court held [Matter of Estate of Jones, 328 A.3d 923 (N.J. 2025)].
Article ©2025 M.A. Co. All rights reserved. Used with permission.
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