Banks Tread Cautiously With Heirs
Q: What is the best procedure for family members to get sensitive information from banks upon the unexpected death of a relative who may not have left detailed records behind? Understandably, banks are very reluctant to divulge confidential information about their customers. Still, if relatives don’t know about bank accounts and other assets, they could go unclaimed.-- F.E.D .
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A: We took this question to the Bank of America, the largest in California and the bank whose practices are said to be most representative of those of other banks in the state.
Here’s how B of A handles such matters:
Basically, it will give out no information to anyone who is not an heir of the deceased. That person must be willing to sign a notarized affidavit claiming to be a rightful heir. Further, this heir must swear that the deceased’s estate is not subject to probate.
A family member who believes a deceased relative might have held an account or safe deposit box at the B of A should contact the local branch office nearest to the deceased. If that is difficult, you can contact a retail district office in one of 35 major California cities. The bank requires that the contact not be made until at least 40 days after the deceased’s death.
You should have the name, Social Security number and death certificate of the deceased. This is the point at which the bank will ask you to complete an “affidavit of decease” and get it notarized.
That done, the bank will then tell you if the deceased had accounts at the bank and their size. You will also be told if the deceased held a safe deposit box there. The bank will allow you at this point to remove items from the safe deposit box and claim the cash accounts.
What prevents fraud or an asset raid by an unscrupulous relative? The bank says the 40-day waiting period affords ample time for family members to develop a plan for handling the deceased’s affairs that can head off that threat. Once again, it cannot be stressed strongly enough how important it is for all of us to keep our financial affairs in order and to make known in writing to whom we want our earthly possessions to go upon our passing.
Head of Household Math Doesn’t Hold Up
Q: I am a divorced man with two sons. The custody arrangement with my ex-wife calls for me to have the boys 27% of the time. May I still claim head of household status when filing my tax return since the boys are with me a total of 54% of the time? -- J.W.
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A: Your math doesn’t add up. To be considered the head of household for your sons, you must maintain the household that is the primary residence of your children for at least 51% of the year. Two times 27% does indeed equal 54%, but it won’t compute with the Internal Revenue Service, which will see it as two boys each spending 27% of their time with you.
Check 401(k) Plan on After-Tax Withdrawal
Q: I have a 401(k) account into which I have deposited both pre-tax and after-tax contributions. May I withdraw the after-tax contributions before I turn 59 1/2 without facing an early-withdrawal penalty? -- J.E.G .
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A: To be absolutely sure what your company’s 401(k) plan allows, you should consult the plan rules, which should be available from your employee benefits or human relations officer. In general, most 401(k) plans do not permit able-bodied taxpayers to withdraw funds without penalty unless they terminate employment with the firm and close out the account.
If you leave your employer and choose to close your account, you may transfer your untaxed contributions funds to an Individual Retirement Account where they will continue to generate tax-deferred interest. However, prior to making the transfer, the IRS requires that you withdraw any after-tax contributions you made to the 401(k). There is no penalty for this distribution because you have already paid taxes on the money before depositing it into the 401(k). Your employer is required to keep records distinguishing between your pre- and after-tax contributions.
You didn’t ask, but perhaps this would be a good place to detail the rules for premature withdrawals of after-tax contributions to IRAs.
Some people have older IRAs from when they were always deductable as well as more recent IRAs made up of after-tax income. Today the tax code allows IRAs to be fully deductible at lower income levels even if the individual has a retirement or 401(k) plan, and then allows a decreasing percentage of the contribution to be deducted as income rises.
Thus, many people have a mixture of pre-tax and after-tax contributions in one or more IRAs.
Premature withdrawals of after-tax IRA contributions are not subject to the federal and state penalties. However, the IRS does not allow you to withdraw your after-tax contributions without also withdrawing pre-tax funds.
Instead, all such withdrawals must include the pre-tax funds in the same ratio they represent in all your IRAs. So penalties cannot be avoided in a standard premature withdrawal.
To determine what portion of an account is represented by the after-tax contributions, you must aggregate the balances and after-tax contributions in all your separate IRAs. The ratio of your after-tax holdings to the IRA total balance is the percentage of your withdrawal on which you are not subject to either taxation or penalty upon withdrawal. For example, if your IRAs have a current value of $200,000 and $50,000 of that amount was contributed on an after-tax basis, then one quarter of your withdrawal would be free or both taxes and penalties. However, unless you are disabled or take annuity-like disbursements, the remainder of your withdrawal will be subject to taxation and a 10% federal and a 2.5% California penalty--if you make it before the year you turn age 59 1/2.
Note that any interest, capital gain or dividends from the after-tax contribution were not taxed and are part of the “pre-tax” portion of the accounts.
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Carla Lazzareschi cannot answer mail individually but will respond here to general interest financial questions. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053
