Dear Mr. Slott,

I just purchased your book "Retirement Savings Time Bomb."  A client that is going through the estate planning process recommended it to me.  My favorite life insurance agent borrowed it before I could finish, but I have one question for you.  In your section on roll back, you mention purchasing the life insurance within the plan without taking a taxable distribution.  Don´t the life insurance benefits remain in the estate in case of death?

Eric L. Hughes

Yes. The value of your retirement plan assets, including life insurance within your employer plan, is included in your estate. Even though life insurance is income tax free, it could be subject to estate taxes. Purchasing life insurance in a plan is a last resort. Generally it should only be done when the individual cannot otherwise purchase life insurance. There should also be an exit strategy for the life insurance. It is an asset that cannot be rolled over to an IRA.

I am 26 and I have been contributing to my Roth IRA since I was 18.  I originally had an account with American Funds, but due to fees, etc. I opened a Roth IRA with Vanguard earlier this year and transferred the funds.  Now, I am looking to purchase my first home and was considering taking funds from my Roth IRA.  The “5-year rule” is confusing me and I am not sure how this applies to me, given my circumstances.  Are the funds in my Vanguard IRA subject to penalty free, tax-free withdrawal for the purpose of buying my first home?  Or must I wait the full 5 years from the date I opened my new Roth IRA to be able to withdrawal the funds tax free?


Mark McLaughlin

You can always withdraw your contributions to the Roth IRA tax and penalty free. In your case, the five year rule for withdrawing up to $10,000 of earnings tax-and-penalty free has been satisfied. Because you will use the funds for a first home purchase ($10,000 lifetime limit) and you started a Roth IRA more than five years ago, the  withdrawal of earnings will be tax and penalty free (known as a qualified distribution). The five-year clock does not reset when you opened your new Roth IRA.

I have read numerous stories but can’t seem to get a clear answer.  My mom passed away this June and did not take her 2012 RMD (required minimum distribution).  The beneficiaries on her IRA CD are my brother and I.  I have read that we take the RMD amount just as if she were still living, but do we take the distribution reporting it under her Social Security number and report the income on her final 2012 taxes or do we each report half of that distribution on each of our 2012 taxes as income?  The IRA CD is still right now in her name and no changes have yet been made since her death.  Please help. 



You and your brother must take the distributions under your respective Social Security numbers. It is taxable to you and your brother as a death distribution. The IRA must be split and properly retitled as inherited IRAs. For example, Mom Smith (deceased June 3, 2012) IRA fbo Carol Smith.