What to do with money from Retirement Accounts:

Written by Edward Clark, Spectrum Enterprises

Questions about retirement accounts are a big portion of the questions we get. The right answers can be hard to give when a lot of account verifications don’t always use the same terms and phrases we expect to see. Investment mechanisms come in all shapes and sizes now and it’s easy to get confused when you try to classify them in a manner you are familiar with.

There are certain things you always want to know:

1)      What is the total asset value?

2)      How much would it cost to convert this asset to cash?

3)      What is the current rate of interest or how fast is this asset growing in value?

4)      Does it generate any other form of income like dividends?

If the verification doesn’t answer these four questions, you have to go back to the source and get them answered somehow. Don’t try to muddle through without it.

1)      Total asset value: You need this because any interest or change in value (usually a percentage) is calculated from this number. So if the account is worth $50,000 and it grew at 3% according to the latest quarterly earnings statement you are going to figure on $1,500 of interest income for the next year.

2)      Cost to convert it to cash: You only need this number to help you figure out if the total worth of all assets is less than $5,000. People get hung up on this question all the time. Don’t bother getting this number for all the household accounts once you know they are collectively worth at least $5,000.

3)      Interest rate/growth rate: Few investment accounts guarantee a specific rate of return and we’ve all heard the “Past performance is not a guaranty of future earnings”.  So assuming you’ve actually asked and didn’t get a useful answer, you can assume future earnings are likely to match the most recent activity. Many accounts provide quarterly statements. It’s ok to resort to that in the absence of anything more recent. If your applicant/tenant is computer savvy, getting a printout from online is better. You could even resort to last year’s annual statement if you can demonstrate attempts to get better (fresher) documentation.

4)      Dividends: Count these as income even if they are automatically re-invested.

So far, this is how you treat all assets, not just Retirement accounts.

Some retirement accounts have a Required Minimum Distribution (RMD) once the account owner reaches 70.5 years old or retires, whichever comes later. The IRS has a good page on this (http://www.irs.gov/retirement/article/0,,id=96989,00.html).  How the account owner takes this distribution determines what you need to do.  First find out how much the RMD is. The account manager can usually provide this information. Then find out if the tenant/applicant is receiving only the RMD. If they are taking more, count all distributions as income. If not, then find out if they are taking the RMD in a LUMP sum just once a year or spread out throughout the year. If they spread it out, count it all as income.

Exhibit 5-2A6b from the 4350 reads as follows:

b. At retirement, termination of employment, or withdrawal. Periodic

receipts from pension and retirement funds are counted as

income. Lump-sum receipts from pension and retirement funds

are counted as assets.

Just be sure not to count it twice. If they put the RMD into another asset like a savings or checking account, don’t list it as a separate asset, because its already accounted for in the savings or checking account.

Next time we’ll tackle Spectrum’s position on counting retirement accounts as assets even after the tenant/applicant has begun taking regular distributions.

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