Investing and saving money for you and your family’s future is very important. However, sometimes life and health get in the way and we need a third individual to take care of these financials. Sometimes these third individuals can be a family member, a friend, a spouse, or even an attorney this is when power of attorneys come into play with regards to your Individual Retirement Account (IRA).
What is a Power of Attorney?
A power of attorney is a legal relationship between an agent, who is the one being granted power of attorney, and a principal, the individual authorizing the agreement. The agent would manage the legal, financial, health, or personal decisions of the principal. A power of attorney generally requires the consent of both the agent and the principal.
What is an IRA Account?
An IRA is a savings account with tax advantages that an individual can open to save and invest in long periods of time. There are different IRA accounts: (1) Traditional IRAs, (2) ROTH IRAs, (3) SEP IRAs, and (4) SIMPLE IRAs. A traditional IRA allows individuals to direct pre-tax income towards investments that can grow tax-deferred; in this case, the IRS assesses no capital gains or dividend income taxes until the beneficiary makes a withdrawal.
A ROTH IRA is a type of tax-advantaged IRA to which you can contribute after-tax dollars. The primary benefit is that your contributions and the earnings from said contributions grow tax-free and may be withdrawn tax-free after the age of 59 1/2 (however, the account must be open for at least five years). A Simplified Employee Pension (“SEP”) is an IRA that an employer or a self-employed person can establish; similar to a 401(k), an employer can make contributions to each eligible employee’s plan on a discretionary basis. A Savings Incentive Match Plan for Employees or SIMPLE IRA is a retirement savings plan compatible with small businesses with 100 or fewer employees. Normally, employers can choose to either make a non-elective contribution of 2% of the employee’s salary or a dollar-for-dollar matching contribution of the employee’s contributions to the plan up to 3% of their salary.
How Do Power of Attorneys Help With IRAs?
Since an agent with a power of attorney can manager a principal’s finances, that same agent could withdraw from or cash in funds from an IRA. However, this can only be done in a way that benefits the principal and his or her needs. It is also important to note that a just because an agent has a power of attorney does not mean he can manage your IRA accounts; only when it is expressly mentioned in the power of attorney that the agent will manage your finances can an agent handle and manage your IRA funds and investments.
Even if the power of attorney says your agent can handle finances, including your IRA accounts, the financial institution holding your IRA account and the designated employee assigned to your case, or IRA custodian, will most likely ask to verify this by requesting a copy of the power of attorney as well as other signed forms and paperwork.
