Current thread has me asking questions about how inherited IRAs will be looked by CSS/full need schools. I have been operating on the assumption that an IRA inherited from a spouse would be considered retirement savings and not considered. IRA was kept as an inherited IRA because funds will need to be withdrawn before I turn 59 1/2. I am 52, do I have to start withdrawing this year (year after death). Deceased spouse was 60 but was taking money out of IRA due to disability.
Twins will graduate HS 2023. So far my understanding is spouse’s income from 2021 will not be considered, but I will not be able to use IRS data retireval tool. Also, I have spoken to several colleges and each says SS survivors benefits for children which end when they graduate HS will be considered on a case by case basis and there is no set policy. So far the advice I am getting is apply, fill out the forms and wait for aid packages and Net Price Calculators shouldn’t be considered reliable in this situation.
@Mom24boys
I’m so sorry for your loss. Yours is a complicated situation for sure. When I inherited an IRA, I was required to take the distributions that year…but in my case, the person was already taking a RMD so I had to as well.
I’m not sure what to advise you…but I would strongly suggest you look at merit aid as an option for your students. This is not dependent on income or assets, and depending on their stats, could get you to an affordable price point.
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Condolences on your loss. I hope you had knowledgeable advisors helping you with this transition. One thing to double check is that a full RMD was withdrawn in the year of death. (And for future readers of this thread.)
Best wishes as you move forward.
According to my financial advisor and accountant surviving spouses are exempt from RMD. I must have asked half a dozen experts, they were all clear on that point.
What none of them could do was advice me on how all of this impacts college financial aid or point me in the direction of someone who could answer my questions.
Settling the estate was a full time job, including a 4 hour hold with BAC followed by a 3 hour conversation and too many emails and calls to Vanguard to try to get husband’s name removed from 2 very small UGMA accounts - that was my only failure. Next year may be a bigger challenge with FAFSAs and CSS.
I’m sure it will all work out and this time next year the twins will be looking forward to college.
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If the social security your children receive is still in their bank accounts when you file FAFSA, it will be treated as their asset. If you don’t need it right now, you could have them put it in a 529 or spend it on something they need (for college or before) like a car, computer, bike. Don’t waste it, but don’t keep it in a regular account in their names either or it will be assessed as a student asset (rather than as a parent asset).
My nephews are in this position and also make quite a bit as refs and umpires in the sports leagues in their town. They might qualify for Auto $0 on FAFSA as each parent claims one child and neither makes very much money. Then it won’t matter but otherwise they’ll probably get no FA because their bank accounts are quite healthy, and assets assessed as the student’s rate can really add to the EFC.
An IRA inherited directly from a spouse is treated differently than an IRA inherited from a non-spouse, which is the situation in the other thread that is currently focused on the financial aid treatment of an inherited IRA. Basically, an IRA inherited from a spouse is considered to be an IRA of the surviving spouse, and, presumably, it is given the same protections under financial aid rules as any other qualified retirement account owned by a parent. As thumper1 accurately describes the situation, it can get complicated, so make sure you understand where things stand.
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Thank you for the clarification. I think your first statement is in regards to the year of death RMD, and not RMDs in the future? Did you keep this as an inherited IRA or did you combine it with (your) existing IRA?
Please accept my persistence on this, as when I inherited my non-spousal IRA, I received some incorrect information from the lawyer involved (which I knew was incorrect!)
I’m sad that there was so much time involved with working to resolve the estate. 6 years later, we’re still trying to get two out of state accounts resolved. Not a lot of $$ but it needs to be completed. (And I hear you on the phone calls - the US Treasury has some wonderful - and not so wonderful - agents. I spent way too many hours clearing up some issues we had along the way.)
The SS is being used for current expenses.
I was referring to future RMD, I reviewed IRS documents late last night but could easily have misinterpreted. I will meet with my financial advisor again in early summer to clarify any required withdrawals.
My hope is to spend down life insurancein the next 2 to 3 years and then beginning using the inherited IRA. If this isn’t possible, I will adjust, I do not idividually qualify for SS, so will being taking survivors SS which I am eligible for a reduced portion at 60. I can delay that or starting a small pension of my late husband at a reduced rate.
I know I am blessed to have fiancial options, I don’t have to worry about putting food on the table however that does not mean my younger children will have the same financial security regarding college that the older 2 did.
I do need that money for my old age and would hope colleges would not/do not look at it as the same as an inherited IRA from a non-spouse.
Found this on Vanguard site:
Lifetime distribution
Spouse as sole primary beneficiary. If the owner’s spouse chooses to take the IRA as a beneficiary rather than assume the account, he or she can choose when to begin taking RMDs on the basis of his or her own life expectancy. The spouse must begin taking RMDs by the later of December 31 of the year after the owner’s death or December 31 of the year the owner would have reached RMD age. The spousal beneficiary should not enroll in our RMD Service until the year he or she intends to begin taking RMDs. If the owner’s spouse chooses to assume the IRA, he or she must begin taking RMDs by the later of December 31 of the year after the owner’s death or April 1 of the year after the spouse reaches RMD age.
So in my situation I would have to begin RMD in 2034, the kids better have graduated college by then.
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I agree that an IRA inherited from a spouse is treated as a retirement account of the spouse who inherits it.