Bankruptcy and IRAs

The federal bankruptcy exemption for IRAs was originally set at $1 million through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Every three years, that amount is adjusted for consumer price index changes. The federal IRA bankruptcy exemption limit is currently just over $1.2 million.

IRAs created under an employer sponsored section 408(k) simplified employee pension (a “SEP IRA”) or a section 408(p) simple retirement account (a “SIMPLE IRA”), as well as pension, profit-sharing, or section 401(k) wealth transferred to a rollover IRA, enjoy an unlimited exemption from the bankruptcy estate.

Latest 60-Day Rollover Private Letter Ruling

If you have an IRA and choose to do a rollover, you have 60 days to complete the transaction. Occasionally, for one reason or another, IRA owners miss the 60-day rollover deadline, rendering the failed rollover a fully taxable distribution. However, under certain circumstances, the IRA owner may be granted a waiver by the IRS. Recently, a Private Letter Ruling (PLR) was issued to an IRA

The Importance of Beneficiary Reviews

Simple mistakes can cost your beneficiaries everything. Beneficiary designation forms are often overlooked when people are reviewing their estate plans. This simple oversight, however, can have dire consequences. For example, divorce is already an unpleasant event but imagine that your ex-spouse gets the proceeds of your life insurance policy plan assets and/or retirement accounts because you forgot to update your beneficiary designation forms.

Section 1035 Exchanges

Does your current insurance policy need to be updated to reflect changes in your personal situation and financial planning goals? Insurance needs change as your family, financial, and business needs change. Just as technology created new means of communication and streamlined old methods, new types of insurance programs sold by ethical

agents will match the most current features and updates to your changing needs. If a new product provides a more cost effective solution than your old product, then you may consider exchanging the old policy for a new one.

Federal income tax law facilitates certain exchanges by providing that in some instances they may be made without the immediate recognition of gain. Although such transactions are sometimes referred to as “Section 1035 tax-free exchanges” the gain at the time of the transaction is not forgiven but is deferred rather than recognized as an immediate taxable event. If you decide that a 1035 exchange is a right strategy for you, be careful - you don’t want to trigger unwanted consequences so make sure that you understand all of the rules before you engage in such a transaction. An insurance licensed advisor, retirement distribution specialist or tax professional can help you determine whether a Section 1035 exchange may be appropriate for you.