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Question for the Money Doctors

Question submitted on Apr 22, 2014.

Question

I am the beneficiary of my X-husbands CALPERS retirement. I have to take a lump sum. I want to have access to the money if I need it but know if I don't roll it into an IRA I face 20percent tax and 10 percent penalty. I need advice

Answer

Presumably you have inherited your ex husband's retirement account, and he named you as the beneficiary. If you take all of the assets as a lump sum, all of the money in the account will be distributed to you and you will immediately pay US and possibly state income taxes, depending on your state of residence. There is not a penalty for taking the lump sum distribution, but depending on the amount of the distribution, it may move you into a higher income tax bracket. Alternatively, you can roll the assets into an inherited IRA, choose your beneficiaries and access your funds at any time which are taxed at the time of the distribution, without penalty. There are rules on the timing and amount of the Required Minimum Distributions depending on whether your ex husband was under or over age 70 1/2. Your decision should be made with the context of your personal financial plan. It makes sense for you to contact a local CPA/PFS to help you evaluate your options. Visit www.findacpapfs.org to find one in your area.


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