Topic: Individual Retirement Accounts (IRAs)
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We viewed a webinar on the new Illinois unclaimed property law. The speaker stated that IRAs can be treated as active accounts after the owner turns 70½, when the IRAs are in distribution. Is that true? The law seems unclear.
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Yes, we believe that individual retirement accounts (IRAs) should be treated as active accounts after the owner reaches the age of 70½, provided your bank has evidence that the IRA owner is receiving IRA distributions or otherwise has “indicated an interest” in the IRA. The Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) requires inactive…
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We have a customer with an IRA at our bank. The customer is not yet 65 years old and has not made any deposits since opening the IRA four years ago. The customer also holds certificates of deposit (CDs) at our bank sharing the same mailing address as the IRA. Because the new Illinois unclaimed property law would treat the IRA as active, can we also treat the CDs as active?
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No, we do not recommend treating the CDs as active unless the customer has communicated with the bank or made some other indication of interest in one of the CDs or the IRA. We agree that the IRA should not be treated as abandoned under the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA), which…
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We have a customer whose wife suffered from Alzheimer’s disease. The customer had been advised to spend down his IRA so that he could access public assistance to pay for her care. Based on this advice, the customer paid for his wife’s care from his IRA and did not apply for medical assistance benefits. The wife recently died. Now the customer believes that advice was incorrect and has been advised to hire an elder law attorney to recoup the lost funds. Can the customer recover his IRA funds used to pay for his wife’s care?
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This is a complicated area of law, and it would be prudent for your customer to consult with an attorney who has expertise in this field. Also, while we understand the desire to assist a customer in a difficult situation, we recommend steering clear of providing any information that could be construed as legal advice.…
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Is an individual retirement account (IRA) considered a “savings account” under Regulation D?
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If your institution wishes to characterize its IRAs as savings accounts for purposes of your reserve requirements under Regulation D, the IRAs must meet Regulation D’s definition of a “savings deposit.” To meet this definition, your account agreements must reserve the bank’s right to require at least seven days’ prior written notice of a withdrawal,…
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We have a tax-deferred retirement account owned by an individual who has not yet reached the age of 70 1/2 years. It’s a simple CD IRA with a very low balance. We have three years of communications that have been returned undeliverable. We are not aware of the customer’s death. Do we need to report and remit this account as unclaimed property? How should we fill out the IRA distribution form? Should we withhold 10% for federal income taxes to cover the early withdrawal penalty?
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We do not believe that you should report a tax-deferred retirement account as unclaimed property before the owner has died or reached the age of 70½. The Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) requires tax-deferred retirement accounts to be reported and remitted to the Treasurer on the later of: Three years after the…
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Do we need to obtain a wet signature on individual retirement account (IRA) and health savings account (HSA) documents, or can we use an electronic pin pad to obtain a signature? Also, do we need to keep hard copies of IRA and HSA files, or can we retain only electronic copies?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. We believe that you may accept electronic signatures on IRA and HSA documentation. Both Illinois…
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A customer with a traditional IRA made an impermissible $5,000 contribution that we plan to return to him. On the 1099-R form, should we use Code 8 or Code P to reflect the return of this excess contribution? He made the contribution in 2018 for 2017.
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In our view, the appropriate code to reflect the return of the excess contribution is Code 8. The instructions for form 1099-R require the use of Code 8 for excess contributions for the 2017 taxable year. In this case, the customer made the contribution for tax year 2017. Consequently, we believe that the Code 8…
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Under the new Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA), are Roth IRAs treated as IRAs? The law refers to “tax-deferred retirement accounts,” and my understanding is that Roth IRAs are not considered tax-deferred because they are funded with after-tax dollars.
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We believe that the Illinois RUUPA provisions governing tax-deferred retirement accounts should apply to Roth IRAs, based on informal verbal guidance from the Illinois Treasurer’s office. We posed this question to an attorney with the Illinois Treasurer’s office, who told us that the Illinois RUUPA provisions applicable to accounts qualifying “for tax deferral under the…
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Can we exercise a right of setoff in a customer’s IRA distribution check that was deposited into the customer’s checking account? The money will be applied to a past due loan payment for which the note creates a right of setoff in any deposit account.
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Yes, we believe that you may exercise a valid right of setoff of funds in a customer’s checking account, even if some of those funds are a deposit of a retirement account distribution. Under Illinois law, funds in IRA accounts typically are considered “special deposits” that are exempt from offset rights — the account creates…
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In the new Illinois unclaimed property law, there is a requirement to include the name and last-known address of the beneficiary for “a life or endowment insurance policy, annuity contract, or other property where ownership vests in a beneficiary upon the death of the owner.” Would this requirement apply to payable on death (POD) and IRA beneficiaries?
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Yes, the reporting of beneficiary information applies to POD and IRA beneficiaries, as for other types of property for which “ownership vests in a beneficiary upon the death of the owner.” We contacted an attorney at the Illinois Treasurer’s office, who confirmed that this provision applies to POD and IRA beneficiaries. The State Treasurer’s intent…