Home' Island Sun : ISN 073115 Contents ISLAND SUN - JULY 31, 2015
There is so much more to an estate plan than what’s found
in a will or a revocable living trust. Life insurance, IRAs,
401(k)s and annuities aren’t usually distributed pursuant
to the terms of a will or trust since they have a beneficiary des-
ignation. Consequently, upon the death of the account holder,
it is not uncommon for the beneficiary to make a claim for the
death benefits before he or she consults with his or her legal,
tax or financial advisors.
IRA withdrawals and rollovers are like a tube of toothpaste.
Once you’ve squeezed some out, it is impossible to stuff it back
in. Same goes for IRA, 401(k) and annuity distributions or rollovers – once you’ve
made a decision, there is no turning back.
The decisions aren’t so easy sometimes.
Consider, for example, a 55-year-old widow. Her deceased husband named her
as the primary beneficiary to his $1.5 million IRA. She will need IRA distributions
in order to pay her living expenses. Before considering all options, she rolls over his
IRA into her own.
What’s the problem?
The problem is that she is not yet 59½ years of age. When she rolled over her
husband’s IRA account, it became her own account and subject to all of the same
rules as if she owned it from the beginning. One generally cannot make withdraw-
als from an IRA account without paying a 10 percent excise tax (in addition to the
income tax) before age 59½.
If the widow had consulted with a knowledgeable tax professional, she would
have learned that she could have kept the IRA in her deceased husband’s name
for three years. As an “inherited IRA” she would have had mandatory distribu-
tions based upon a “Single Life Table” without incurring the 10 percent excise tax.
Making the IRA rollover was akin to squeezing the toothpaste out of the tube in
that it was a decision that cannot be undone.
The widow may still have some options to withdraw IRA assets without incurring
the 10 percent excise tax. If she uses the withdrawal to pay for medical expenses
not reimbursed by life insurance and that exceed ten percent of her adjusted gross
income she won’t pay a penalty. If she uses the withdrawals to pay for health insur-
ance provided she has been unemployed and receives unemployment compensation
for twelve consecutive weeks, if she has a disability, or if she takes a series of annu-
ity payments under an IRS distribution method for the rest of her life, she might
skirt the rules.
IRAs and 401(k)s aren’t the only accounts that could pose difficulties. When the
decedent owned an annuity contract, his or her primary beneficiary generally will
have several options under the contract’s terms. One option might be a complete
withdrawal of the balance of the contract, but this will generally result in the recog-
nition of all of the ordinary income (and hence tax on that income) inherent inside
of the annuity. Another option might include a five-year withdrawal and yet a third
option could result in a longer stretch out of the payments. Annuity contracts that
contain embedded life insurance benefits might be even more complicated.
IRAs, 401(k)s and annuity contracts are even that much more difficult to deal
with because of the income tax that will be paid when distributions and/or with-
drawals are made. Depending upon the beneficiary’s marginal tax bracket that may
change from year to year because of income fluctuations, planning for rollovers and
distributions becomes that much more important.
The end result is that beneficiaries should consult with their legal, tax and/or
financial advisors prior to making these important decisions.
©2015 Craig R. Hersch. Learn more at www.sbshlaw.com.
When A Spouse Might
Not Rollover An IRA
by Craig R. Hersch, Florida Bar Board Certified
Wills, Trusts & Estates Attorney; CPA
PACE Center for Girls of Lee
County received nearly $22,000
from SS Hookers after the restau-
rant’s inaugural Sunset Party collection
event to benefit the organization and its
Love That Dress! fundraising event.
“We knew that Sandy Stilwell and
the incredible women on her committee
were planning a night to remember for
Love That Dress!,” said Meg M. Geltner,
executive director of PACE Center for
Girls, Lee County. “We are thrilled that
this collection event generated so much
support and generosity from our com-
The Sunset Party at SS Hookers
collection event sponsors included
Contemporary Health Center,
Goldberry, Racila, D’Allessandra, &
Noone, LLC, Gulfcoast Coin & Jewelry,
Gulfshore Life Magazine, Island Sun
and River Weekly News, Merrill Lynch
Wealth Management, Private Client
Insurance Services, Sanibel Captiva
Community Bank, South Seas Island
Resort and WINK News.
This year’s Love That Dress! will
take place on Wednesday, August 26
at the Embassy Suites in Estero, located
at 10450 Corkscrew Commons Drive.
In the months leading up to the event,
members of the Southwest Florida com-
munity are asked to donate new and
“gently loved” dresses and accessories
at collection parties and convenient
drop-off locations across the county.
Collection parties hosted by gener-
ous local businesses and organizations
are a way to connect with community
members and sample the local fare, all
while collecting inventory, raising funds
and generating awareness for the main
During the main event, attendees will
enjoy the huge inventory with friends,
a silent auction full of unique packages,
and cocktails. Suite and VIP ticket hold-
ers are granted access to early shop-
ping, private dressing rooms, clothing
holds, express check-out service, compli-
mentary adult beverages, hors d’oeuvres
and a private selection of decadent
chocolates. VIP Suite owners will also
receive a complimentary style and per-
sonal shopper experience by Christine
Sherlock of Image Matters. Limited VIP
Suites are now available for purchase.
Tickets for the main event will go on
sale August 1. Visit www.lovethatdress.
org for more information.
From left, Allyson Ross, Samantha Baker, Nancy Finch, SS Hookers General Manager and
Executive Chef John Feagans, Sara Garner, Sandy Stilwell and Cookie Douglas
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