Q: I inherited a Roth IRA in 2020 from my father. I am 60 years old. What are my options for withdrawal, and will I have any tax liabilities?

A: You should instruct the account trustee to transfer it to you as an inherited Roth IRA. Under current regulations, you are allowed to withdraw funds from this account for up to 10 years after the death of your father. You will incur penalties (50% of remaining funds) if you do not withdraw all the funds in the account by the end of the 10th year.

Whether there is any tax liability depends on when your father initiated the Roth account. If your father established the account at least five years prior to his death, then your withdrawals will be tax-free. If the account was not established at least five years prior to his death, you have options to make tax-free withdrawals. You are allowed to withdraw all of his contributions to the account tax free. If you wait until five years expire after his first contribution, then you can withdraw all of the funds in the account tax free. If you withdraw more than the contributions made before the five years have elapsed, then the excess amount withdrawn is taxable and subject to a 10% penalty.

For example, assume your father established the Roth account three years ago, and contributed $10,000. The account is now valued at $12,000. You can withdraw $10,000 tax free. If you wait two years, you can withdraw any amount tax free. If you withdrew all $12,000 before the five-year period elapsed, you would incur taxes on the $2,000 excess withdrawal and a 10% ($200) penalty for early withdrawal.

Q: I have reached my 65th birthday. I registered for Medicare A and B because I thought it was compulsory at 65. I am still working, and my health coverage is covered by my employer’s plan. I was under the false impression that I could continue to fund my health savings account (HSA). I have been told that all my contributions to my HSAs have to be returned because I signed up for Medicare. I would like to cancel my Medicare because I don’t need it, and I would like to continue my HSAs contribution. Can I do that?

A: You may cancel Medicare as long as you aren’t receiving a benefit from Social Security. Anyone who is receiving a Social Security benefit is automatically enrolled into Medicare.

If you aren’t receiving a Social Security benefit, you can cancel Medicare by filling out CMS Form 1763. However, if Medicare has paid any benefits on your behalf, you will have to reimburse Medicare. I recommendation that before you cancel you should contact Medicare at 1-800-772-1213 to make sure that Medicare has not paid any benefits to health providers on your behalf.

I am not aware of any other pitfalls in canceling Medicare as long as you know that all of your health-care expenses that would be paid by Medicare will be covered by your employer’s insurance. However, I recommend you double check that with Medicare. Make sure that when you do retire from your current employer, you stop contributing to your HSA six months prior to ending your employment, and that you apply for Medicare in the special enrollment period during the eight-month period that begins the month after employment ends or the coverage ends, whichever happens first.

©2020 Elliot Raphaelson Distributed by Tribune Content Agency LLC

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