I am retired, and receive $690 in Social Security a month. My ex and I filed separate taxes. Last week, my divorce was finalized. My sons now pay the remainder of my expenses, and deposit cash into my bank account for food/gas etc. (I realize how very fortunate I am to receive their assistance.)
I received a very small inherited IRA, worth less than $40,000, many years ago. Due to my divorce I incurred legal bills, most of which I paid each month, but now will have a final bill of close to $10,000, as well as an unexpected dental expense not covered by my insurance.
I am 69 years old, and my divorce settlement resulted in my keeping household goods etc., although the house we lived in belonged to my ex-husband. I am now renting a home. I have not much in the way of savings, and I have not worked outside the home since I remarried 12 years ago.
Will my income be solely my Social Security? If I take money from the inherited IRA do I pay a penalty? Do I pay tax on it? I do not have the funds for professional advice, and I do not understand what my taxes will be based upon. I never dreamed I'd be in this position at my age.
Related: 'I don't want to spend my remaining days living hand to mouth': I divorced my husband and remarried. Can I claim his Social Security?
Dear Divorcee,
The good news is that you have a roof over your head and enough money to live on, in no small part due to the support of your children. You are now reaping the benefits of the hard work and love you invested in your sons. Medical bills are persistently the No. 1 reason for people filing for bankruptcy in the U.S., so you are not alone in facing this kind of sticker shock. However, you cannot do this alone - and nor should you.
You can afford to seek personal help. Keep your family in the loop about this $10,000 bill and the $40,000 IRA and how you are best able to manage both of these issues, assuming you are eligible for both Medicare and Medicaid. Whether your IRA is exempt from Medicaid eligibility, which uses your modified adjusted gross income (You can read more here about state-by-state rules.)
"With an Inherited IRA, you may either need to take annual distributions no matter what age you are when you open the account or may be required to fully distribute the assets in the account within a specified number of years, or in some cases a combination of both," Charles Schwab (SCHW) says. "These rules don't apply if you've simply transferred another IRA to your own IRA but are specific to Inherited IRAs."
Inherited IRAs have special rules regarding required annual distributions and depending on when the owner died (pre-2020 or after 2020), says Miklos Ringbauer, a Los Angeles-based CPA. Assuming you inherited the IRA post-2020, you would be obliged to deplete the IRA within 10 years. Non-spouse beneficiaries should begin distributions no later than Dec. 31 of the year after the death of the original owner of the IRA.
You may also be able to claim spousal benefits on your ex-husband's Social Security benefits, assuming they're larger than yours. The amount you'd get depends on whether he started claiming at 62 or waited until full retirement age. You too must be at least 62 years old and unmarried and you must have been married to your ex for at least 10 years.
"You can apply for benefits on your former spouse's record even if he or she hasn't retired, as long as you divorced at least two years before applying," according to the Social Security Administration. If you did successfully claim spousal benefits of up to 50% of your former husband's Social Security, it would not affect his benefits. If you get $1,500 and your ex-husband gets $5,000, you should be able to get $2,500.
Ringbauer advises checking with your sons to determine whether any of your children will want to claim you as their dependent parent on their 2024 tax return as your tax filing would have to be adjusted accordingly. "We see it occasionally that parents are reported without having these family discussions," he says. "This is important as any of your sons' claim of you as a dependent will result in your return rejection once you file."
"Inherited IRAs, assuming it is a traditional IRA, will be a taxable income for the beneficiary," Ringbauer says. "While IRA distributions do not affect Social Security benefits, they could impact Medicare premiums." If your annual income surpasses certain levels, up to 85% of your Social Security benefits can be taxable. Currently, people may have to pay income tax on up to 50% of their benefits if they earn between $25,000 and $34,000.
Get a sense of all these parameters before borrowing from your IRA.
Related: 'I have zero regrets': I'm 84 and estranged from my two adult sons. My 48-year-old wife will get my seven-figure estate. Is that selfish?
The Moneyist regrets he cannot reply to questions individually.
More columns from Quentin Fottrell:
'Should they divorce so he can qualify for Medicaid?' My sister inherited $350,000 from her father's estate, but her husband was diagnosed with dementia.
'He forced me to take Social Security at 62': My husband inherited millions, but never gave me a penny. If I divorce him, would I get any of it?
'My mom still has his original will': A few months before he died, my father went online and made a secret will, cutting off my mother. Can he do this?
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-Quentin Fottrell
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