Q: My mother is 80 years old and has a traditional IRA money market account. What does she need to do to access that money before her death?
A: On a couple of fronts, this situation is fairly straightforward, and your mother should have no trouble accessing her money after having it in an IRA money market account. However, there may also be a couple complications. While these complications should not restrict immediate access to the account, they could seriously impact the tax liability your mother faces. In light of this, while this article can lay out some of the relevant issues for you, it may be a good idea for you and your mother to consult a tax adviser with the specifics of your situation.
The straightforward issues are these: A money market account should be liquid enough to allow for access at any time upon request, and your mother's age entitles her to access money from the IRA without tax penalties.
Beyond those issues though, there are some potential complications that you may need to discuss with a tax adviser. These include:
- Income tax consequences. While your mother is old enough to take money out of an IRA without penalty, she will have to pay ordinary income taxes on those withdrawals. So, when money is taken out, it is important that enough be set aside to pay the taxes on those distributions.
- Required plan distributions. This may be the most critical issue you face. Your question implies that your mother has not been accessing the IRA to this point, and if that is the case she may be subject to penalties for not having started taking the required minimum distributions at age 70 1/2. If your mother has not taken any money out of the IRA to this point, you should discuss with a tax adviser how to calculate and report any relevant penalties. It would be a little odd that the custodian of the IRA did not notify your mother of the need to take those required minimum distributions.
- Advantages of keeping some money in the IRA. Though your mother has to meet minimum distribution requirements, she should not have to withdraw all her money from the IRA at once, and there may be tax advantages to leaving some of the money in the IRA. This depends largely on her needs and whom she intends to be the IRA's beneficiary, and this is another worthwhile discussion to have with a tax adviser.
IRAs are very useful retirement savings vehicles, but one thing to remember about them is that the rules for taking money out of them are even more particular than the rules for putting money in.