Current Pension Topics
How to Keep the IRA Growing

By JOEL L. FRANK

Q.: I am a city retiree and will soon celebrate my 88th birthday. I have a million dollars in my retirement account (IRA). I am recently widowed so I want this money to continue to grow, tax-deferred, for decades into the future. How do I do this?

Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net.

D.W.

A.: You first need to designate a beneficiary or multiple beneficiaries who are decades younger than you, for example grandchildren and great grandchildren. For teaching purposes, I'll assume all of your pre-tax retirement accounts have been consolidated into a single New York City Employee IRA (NYC IRA) and you have one grandson whom you will designate as your primary beneficiary, with his son being named your contingent beneficiary. (Should you desire to include more beneficiaries, then please do so by breaking up the NYC IRA into smaller account values each with its own set of primary and contingent beneficiaries).

During the remainder of your life, you will continue to use Table III (Uniform Lifetime) to compute your annual Required Minimum Distribution. Let's assume you die in 12 years at age 100. Your grandson is now 45 and has inherited your IRA, now worth $1.5 million. His life expectancy is about 39 years and he will use Table I (Single Life Expectancy) to compute his annual Required Minimum Distribution during his lifetime. Assume your grandson dies prematurely at age 50. His inherited IRA is now passed on to your great grandson as his inherited IRA. Your grandson used up only five years of his life expectancy of 39 years, so your great grandson will be able to use the balance, or 34 years, to take his Required Minimum Distributions during his lifetime. The total Required Minimum Distribution period is calculated as follows: You made distributions for 30 years from your IRA - from age 70 to age 100. Your grandson made distributions, starting at your death, for five years (from his age 45 until his death at age 50) and your great-grandson made distributions for the balance of your grandson's life expectancy, or 34 years, for a grand total of 69 years. How's that for a s-t-r-e-t-c-h NYCE IRA?

OF NOTE: Your primary and contingent beneficiaries are free to take out more than their Required Minimum Distribution each year. They have the legal right to cash in the account at anytime and pay the taxes due. If you want them to have complete flexibility, then simply tell them that they have been named primary and contingent beneficiaries and the choice of payout method is theirs to make during their lifetimes. If, however, you do not want to leave the choice to them as individuals but want them only to take money out based on their life expectancy (my personal choice) then you must tell them of this restriction and make sure that the Deferred Compensation Plan is so notified and is agreeable to it.

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Q.: As you know, a resident of New York who receives a State/City of New York pension receives that pension tax-exempt by New York State and City. This is not the case in other states like New Jersey. Please explain.

B.U.

A.: Each of the 50 states has adopted its own set of tax-laws with which its residents must fully comply. In New Jersey, only the first $20,000 of pension income is exempt from the New Jersey Tax on Gross Income.