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Retirement Tips and Answers to Tough Questions

In a recent article, “When the 5-Year Clock Starts on a Roth IRA,” The Wall Street Journal provides some great information about Roth IRAs and moving when you retire.

Let’s first look at the “five year” rule for withdrawing funds tax-free from a Roth IRA. We need to distinguish between contributions to a Roth individual retirement account and the earnings on those contributions. For instance, if you deposit $1,000 in a Roth IRA, you can withdraw that same $1,000 at any time, tax-free and penalty-free.

However, you can’t take a tax-free and penalty-free distribution of earnings on your funds until the account is at least five years old and until you have reached age 59½. There are some exceptions to the age rule.

The five-year clock starts when the account is first opened. The clock doesn’t reset with each additional deposit, and the clock starts on January 1 of the year in which you opened the account.

Moving and Estate Planning Documents

What happens with your estate-planning documents when you move during retirement? Questions arise when this happens, and people wonder if they need to throw away their wills and powers of attorney and draw up new ones.

Yes, it is worth your time and money to have new estate planning documents prepared for your new address.

Many times, this is overlooked in the disruption of a move. A will that is valid in your current state (one that was created and signed in accordance with that state’s laws) will still be valid in a different state. However, the laws involving probate, property, trusts and estate taxes are different in each state. For example, the individual you selected as the executor of your will in your current state might not qualify as the executor in your new state. You might also be moving to a community-property state from a state that wasn’t in that system. These types of differences support drafting a new will.

Also, a power of attorney, which gives the authority to the person you have selected to act for you in various legal and financial dealings, may face issues. Some states have their own forms and wording for creating a power of attorney—forms with which local banks and institutions are familiar. Why take the chance that a power of attorney in one state might not pass muster in another?

At the very least—even if your estate-planning documents are relatively new and you don’t want to go through the hassles and cost of starting all over again, you should speak with an experienced estate planning lawyer in your new locale and have him or her review your paperwork.

Reference: The Wall Street Journal (February 7, 2016) “When the 5-Year Clock Starts on a Roth IRA”

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