Each year, IRAs and 401(k)s are subject to required minimum distributions (RMDs). Because the distributions start at just under 4% at age 72 and then slowly increase, many IRA and 401(k) plans earn more than those payouts and will continue to grow. While the distributions will become larger as the owner ages, most individuals will eventually pass away with an IRA or 401(k) balance reasonably close to the value of their plan at age 72.

For this reason, the eventual distribution options for an IRA or 401(k) are quite important. For many individuals, the IRA or 401(k) may be the largest asset in their estate.

IRAs and 401(k)s are transferred to a designated beneficiary that is selected on an IRA or 401(k) custodian's form. The five common choices for designated beneficiary are the surviving spouse, children, charity, a trust for children or a trust for spouse and children.

1. Spouse as Beneficiary

The most common choice for a married couple is to select the surviving spouse as the designated beneficiary of an IRA or 401(k). When the IRA or 401(k) owner passes away, the surviving spouse usually chooses to roll the decedent's IRA over into his or her IRA.

Assume that Harry Smith is the IRA owner and he passes away with Helen Smith as his designated beneficiary. Helen is age 68 when Harry passes away and she rolls over the IRA into her plan.

When Helen reaches age 72, she must start taking required minimum distributions. The initial minimum distribution must be taken by April 1 of the next year and is just under 4%. Her distribution will steadily increase as she becomes more senior.

Because Helen rolled over Harry's IRA into her IRA, she qualifies for the lower required minimum distributions under the uniform table. Helen often selects children or charities as designated beneficiaries.

If you are in a community property state and plan to leave your IRA to a trust or other beneficiary that is not your spouse, then it is essential to obtain a written consent from your spouse. In many states, attorneys who prepare estate plans will frequently use a waiver if the spouse is not the designated beneficiary of an IRA.

2. Children

For a surviving spouse or single person, an IRA or 401(k) may be transferred to children, nephews, nieces, other heirs or charity. Each child or other heir may take distributions for a period of up to ten years. With the exception of a spouse, a minor child, a child with a disability or chronic illness or an heir who is less than ten years younger than the IRA owner, the full IRA must be distributed within ten years of the death of the IRA owner.

Prior to 2020, a child was able to "stretch" the IRA payout over his or her life expectancy. A 60-year-old child of the IRA owner would have been able to start distributions at age 61 at approximately 4% and stretch those payouts over 26 years. Now, a child or other heir of the IRA owner must take all distributions within ten years. A child may choose to wait and take the full payout in the tenth year, but that may greatly increase the tax rate paid on the IRA.

Unfortunately, with many children the ten-year stretch plan will not be successful. CPAs report to the author that approximately one-half of children choose to take the traditional IRA distribution early, even though that means paying the income tax earlier and losing the benefit of the tax-free growth over the maximum distribution period.

3. Charity

For the IRA or 401(k) owner, the qualified plan is a wonderful benefit and a very good asset. However, when the owner passes away, a traditional IRA or 401(k) is often transferred to children with a large "you owe the IRS" tax bill attached (with the exception of a Roth IRA, which is income tax-free). For the vast majority of qualified plans, the child will pay income tax. Worse yet, the IRA or 401(k) distributions may even push the child into a higher tax bracket.

With income tax on the traditional IRA or 401(k) and no income tax paid on the home, land or stocks, the IRA or 401(k) is a less desirable asset for children. In fact, many heirs consider this a "bad asset" because of the income tax on most IRA payouts to children.

For this reason, children would prefer to receive a home, land or stock because there is no income tax bill attached. The wise planning decision is to transfer the home, stocks or land (the good assets) to children and save all the IRA income tax by transferring it to charity.

Because charities are tax exempt, there is no payment of income tax or estate tax on a traditional IRA or 401(k). The charity receives the full value tax free. By transferring the IRA or 401(k) to charity, it is possible to turn a bad asset into a good asset.

4. "Give It Twice" Trust

What plan could protect children from spending the IRA amounts and paying maximum income tax? Could a plan combine the tax-saving benefits of a stretch IRA with a term-of-years or life payout to children or other heirs? Could this plan also have the tax-free growth benefit of a stretch IRA?

A wonderful solution is an IRA to testamentary unitrust plan, which includes all of these benefits. A single person or surviving spouse may create an unfunded lifetime unitrust or testamentary unitrust in a will or living trust. The IRA beneficiary designation is to the trustee of that unitrust.

When the IRA owner passes away, the unitrust is funded with the traditional IRA. Because the unitrust is tax-exempt, there is a bypass of the income tax on the traditional IRA and any future growth. The children or other heirs receive new taxable income from the trust investments. The 5% unitrust payouts may last for a term of 20 years or for their lifetimes.

A very good plan for parents who have made lifetime gifts to charity is to combine a benefit to children with a future benefit to charity. This plan is called a "Give It Twice" trust.

For example, Mary Smith had an $800,000 estate. She lived in a home worth $200,000, had a CD for $200,000 and $400,000 in her traditional IRA. Her IRA was substantial because when her husband Bill passed away, she rolled over his IRA into her IRA. The combined IRA is now half of her estate.

Mary has two children and decides to transfer the home and CDs to the children in equal shares when she passes away. They each receive $200,000 in value from the home and CDs with no income or estate tax.

After Mary passes away, the $400,000 IRA is transferred into a charitable remainder trust. It receives the IRA proceeds and invests the full $400,000. The trust pays 5%, which is divided between the two children for a term of 20 years. At the end of 20 years, the trust principal plus growth is given to charity.

Mary was pleased with her plan because she had achieved several goals. First, she provided both principal and income to her children. This is a very good plan because some children will benefit from a period of time to improve their money management skills. Second, she saved all of the income tax on the traditional IRA. Because the unitrust is tax exempt, it receives the entire IRA tax free. The trust earns income for the children for a term of 20 years and is then transferred tax free to charity.

Because the trust benefits the children with more than $400,000 in income and then is given to charity, it truly may be called a "Give It Twice" trust.

5. Trust for Spouse and Children

For individuals with larger estates, it may make good sense to create a trust for surviving spouse and then a term of years for children. After the first person passes away, the IRA is transferred into the trust for the surviving spouse. The trust will distribute income for his or her lifetime and then to the children for a term of 20 years. Following the life of the spouse plus 20 years for the children, the trust remainder is distributed to charity.

This trust has several benefits. First, it may save very large income taxes because the trust is tax exempt. Second, the trust can be a "net plus makeup" plan that allows the spouse to choose to save taxes by taking reduced income during life. This will allow the trust principal to continue to grow and build up the trust so there is greater income to the children.

This plan is an excellent way to benefit the surviving spouse, children and charity.

Do you know of any financial assistance programs that can help seniors with home improvement projects? I would like to help my grandparents make a few modifications to their house so they can continue living there safely, but they live on a fixed income.

There are a number of financial aid programs available that can help seniors with home modifications and improvement projects for aging-in-place, but what may be available to your grandparents will depend on their financial situation and where they live. Here are some different options to explore.

Medicare Advantage benefits: While original Medicare does not typically pay for home improvements, if your grandparents are enrolled in a Medicare Advantage (Part C) plan, it may offer some aid for modifications based on need. Contact their Medicare Advantage provider to see if this is available.

Medicaid waivers: If your grandparents are low-income and eligible for Medicaid, most states have Medicaid Home and Community Based Services waivers that provide financial assistance to help seniors avoid nursing homes and remain living at home. Each state has different waivers, eligibility requirements and benefits. Contact your Medicaid office or visit Medicaid.gov for more information.

Government assistance: Many state governments and several agencies within the federal government have programs that help low to moderate income seniors who are not eligible for Medicaid with home modifications. For example, the Department of Housing and Urban Development (HUD) offers HUD Home Improvement Loans by private lenders. Contact a HUD approved counseling agency. You can call 800-569-4287 or visit hud.gov/i_want_to/talk_to_a_housing_counselor to learn more.

The U.S. Department of Agriculture has a Rural Development program that provides grants and loans to rural homeowners. Contact your local USDA service center or visit offices.sc.egov.usda.gov for more information.

Many states also have financial assistance programs known as nursing home diversion programs. These programs, which may include grants or loans or a combination, help pay for modifications that enable the elderly and disabled to remain living at home. Covered modifications typically include accessibility improvements like wheelchair ramps, handrails and grab bars.

To find out if there are programs in your grandparents' area, contact the city or county housing authority, the local Area Aging Agency (800-677-1116) or the state housing finance agency – see NCSHA.org/housing-help.

Veteran benefits: If either of your grandparents is a veteran with a disability, the VA provides grants like the Specially Adapted Housing (SAH), Special Housing Adaptation (SHA) and Home Improvements and Structural Alterations (HISA) grants that will pay for home modifications. Visit Benefits.va.gov/benefits/factsheets/homeloans/sahfactsheet.pdf for details and eligibility requirements.

Some other VA programs to inquire about are the "Veteran-Directed Care" program and "Aid and Attendance or Housebound Benefits." Both programs provide monthly financial benefits to eligible veterans that can help pay for home modifications. To learn more, visit VA.gov/geriatrics or call 800-827-1000.

Nonprofit organizations: Depending on where your grandparents live, they may also be able to get assistance in the form of financial aid or volunteer labor to help with modifications. You should check with local nonprofit organizations to see if they offer programs in your grandparents' area.

Another option is a community building project that may provide volunteer labor to help seniors with home improvements. To search for projects in your grandparents' area, do a search online with the phrase "community building project" followed by their "city and state."

Reverse mortgage: Available to seniors age 62 and older who own their own home and are currently living there, a reverse mortgage will let your grandparents convert part of the equity in their home into cash that can be used for home improvements. A reverse mortgage does not have to be paid back as long as they live there. Note that a reverse mortgage may impact the ability of the heirs to inherit the home. Use caution because reverse mortgages are expensive loans, so this should be a last resort.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

The IRA charitable rollover was created in 2006 and made permanent by Congress in 2015. This giving plan is available for IRA owners who are over age 70½. It is a direct transfer from an IRA to a public charity. Prior to the IRA charitable rollover, some individuals would take withdrawals from their IRAs, report the distribution as taxable income, make a cash gift to charity, obtain the required receipts for charitable gifts over $250 and take a deduction on their tax returns.

Not only was this process rather cumbersome, it also resulted in increased adjusted gross income. With higher income, you may pay more income tax on Social Security or pay a higher Medicare Part B premium. That's why an IRA charitable rollover may be a great option.

The IRA charitable rollover is very simple. An IRA owner who has reached the age of 70½ may transfer up to $100,000 per year. The transfer is made directly from the IRA to a qualified public charity. The IRA rollover is not taxable on your income tax return, so there is no need for a tax deduction. It is a simple and effective way to make a charitable gift.

Mary Makes a Convenient Gift

Mary Smith is a retired teacher who recently turned 72. She regularly volunteers for her favorite charity and makes a gift each year of $2,000. Last year, Mary withdrew $2,000 from her IRA, reported that amount in her taxable income and then wrote a check to charity. Because the gift was over $250, the charity sent Mary a receipt. She deducted the $2,000 charitable gift on her tax return.

Mary heard from a friend about the IRA rollover option. She called the development director at the charity and asked about using an IRA rollover to make her annual gift. Mary would simply need to contact her IRA custodian and have the IRA gift transferred to her favorite charity.

Mary contacted the large financial company that managed her IRA and filled out a distribution form. She asked that the financial company make a "qualified charitable distribution" of $2,000 to her favorite charity. The financial company then transferred the $2,000 directly to her favorite charity. The balance of her required minimum distribution for that year was distributed to Mary. She reported her IRA distribution on her tax return, but did not pay tax on the $2,000 gift to charity.

Mary loved the simplicity of the IRA charitable rollover. The $2,000 gift to charity was not taxed on her income tax return and she did not have to itemize to take the deduction. The simplicity and convenience of this gift was a wonderful benefit for Mary.

Judy Takes the Standard Deduction

Judy is a retired nurse and a volunteer for her favorite charity. During her working years, Judy had sufficient income and lived a moderate lifestyle. She saved regularly and contributed to her IRA. With good investments and tax-free growth, Judy's retirement plan has increased to over $435,000.

Judy is now age 78, owns her home and has more income than she needs. Each year she makes a gift of $1,000 to charity. Because she does not report home mortgage interest or have enough other deductions to itemize, Judy takes the standard deduction. But she has heard about the IRA charitable rollover and wonders if that will be a good option. She asked her best friend, "Do you think that I should give the $1,000 from my IRA?"

Each year Judy withdraws the $1,000 from her IRA. It increases her income by $1,000. Because she gives the $1,000 to charity and takes the standard deduction, Judy does not reduce her income taxes with her charitable gift. The $1,000 IRA withdrawal increases her income, but Judy does not benefit from a charitable deduction.

A better plan is for Judy to gift the $1,000 directly from her IRA to charity. The IRA charitable rollover reduces her income by $1,000 and saves taxes.

Judy was pleased to learn that she could roll over $1,000 from her IRA to her favorite charity. Best of all, Judy was able to make the gift and reduce her current taxes. Judy spoke with her best friend and noted, "An IRA charitable rollover is a great plan. I helped those in need through my favorite charity and also lowered my taxes!"

Bruce is a Very Generous Donor

Bruce retired several years ago, but remained active during his retirement years. Recently, Bruce started volunteering with a local charity. He devotes several hours a week to his volunteer work and receives great satisfaction through helping others.

Since Bruce lives fairly moderately and has good income from his retirement plan and investments, he is a very generous donor. In fact, Bruce donates 60% of his income each year and lives on the balance. He feels that this is an opportunity for him to "give back" to society for the good life he has been able to lead. But Bruce would like to do more. Is there a way for Bruce to help even more?

The charity has a special project underway. Bruce understands the importance of this charitable project and would like to make an additional gift of $20,000. He checked with his CPA, who explained that he qualifies for a tax-free IRA charitable rollover. As a result, Bruce was able to contact his IRA custodian and have a gift of $20,000 sent to the charity. The charity honored Bruce for his generous gift. Bruce is happy with his rollover gift. It was not included in his taxable income and he was able to deduct his regular charitable gifts.

Bruce noted, "I am very pleased with my IRA gift. Because it was not included in my income, I am able to deduct my regular gifts and still help with an added gift of $20,000!"

Claire Simplifies Her Taxes

Claire is a retired investment advisor. Over the years, she watched her IRA blossom and grow into the largest asset in her estate. When she reached age 72, she started taking her required minimum distributions. Based on her age of 78 and the increased IRA value, her required distribution this year is nearly $100,000!

Claire is a frequent volunteer for her favorite charity and wants to make a major gift to a special project. In November, she decided that she had sufficient other income and did not actually need the IRA distribution for this year. With the growth of her IRA, it was logical to make the charitable gift from her IRA. But how can this work? Is this a good tax planning strategy?

Claire contacted her CPA Susan to discuss the best way to make her major gift. Susan explained to Claire the benefits of making a tax-free IRA charitable rollover. By not taking the $100,000 into her income, Claire will benefit in several ways. Her income will be lower and she will not have other tax benefits phased out. She will have a reduced income level and pay a lower Medicare Part B premium.

Claire responded, "I don't understand all of that tax talk, but it does make sense that with $100,000 less in taxable income, my return will be easier to complete. Plus, there are those other savings that you mentioned. This sounds like a great idea!'

The next day, Claire contacted her IRA custodian and had the full $100,000 IRA distribution sent to her favorite charity. She and her CPA Susan were both delighted. Claire made a wonderful gift and her tax situation was simplified.

How to Give From an IRA

The IRA rollover will require a payment by your IRA custodian to a qualified public charity. IRA custodians are generally familiar with the IRA charitable rollover.

Your first step is to contact the IRA custodian. Most IRA custodians have a standard IRA distribution form. Some IRA custodians have added the IRA charitable rollover as an option to this form. As the IRA owner, you will need to sign the application and indicate the amount of the gift and the correct legal name, city and state of the public charity.

After your IRA custodian has received the form and processed the transfer, it will pay the specified amount to the public charity. This gift can be made for a specific purpose. For example, the gift could be to a specific relief fund, to a scholarship fund or to another "field of interest fund" with a charity. If you have a specific goal for your IRA charitable gift, you will want to contact the charity to confirm the gift will be used for that purpose.

My pharmacist highly recommends that I compare Medicare Part D prescription drug plans each year, but it is such a hassle sorting through all those different plans. Is there an easier way to shop and compare Medicare drug plans?

Because Medicare's prescription drug plans can change their costs and benefits from year-to-year, comparing Part D plans every year during the open enrollment season from October 15 - December 7 is always a smart idea.

Even if you are happy with your current coverage, there may be other plans out there that offer better coverage at a lower cost. You never know until you look. Here are some tips to help you shop and compare Medicare drug plans.

Medicare Online

If you have internet access and are comfortable using a computer, you can easily shop for and compare all Medicare drug plans in your area and enroll in a new plan online if you choose. It only takes a few minutes.

Use Medicare's Plan Finder Tool at Medicare.gov/find-a-plan and choose your preferred type of coverage. Enter your ZIP code and financial assistance (if you receive any), select the drugs you take and their dosages, and choose the pharmacies you use. The plan finder does the math to identify the plans in your area that cover your drugs at the lowest cost.

This tool also provides a five-star rating system that evaluates each plan based on past customer service records and suggests generic or older brand name drugs that can reduce your costs.

When you are comparing drug plans, look at the estimated drug costs plus the premium costs. This shows how much you can expect to pay over a year in total out-of-pocket costs.

Be sure the plan you are considering covers all the drugs you take with no restrictions. Most drug plans today place the drugs they cover into price tiers. A drug placed in a higher tier may require you to get prior authorization or try another medication first before you can use it.

Any changes to coverage you make will take effect Jan. 1, 2022. If you take no action during open enrollment, your current coverage will continue next year.

Need Some Help?

If you need some help choosing a new plan, you can call Medicare at 800-633-4227 and they can help you out over the phone. You can also contact your State Health Insurance Assistance Program (SHIP) for free Medicare counseling. Typically, each SHIP conducts seminars during the open enrollment period at various locations throughout each state. To find a local SHIP counselor see ShiptaCenter.org or call 877-839-2675.

Financial Assistance

Individuals who are having a hard time paying medication costs may be eligible for Medicare's "Extra Help" program. This is a federal low-income subsidy that helps pay Part D premiums, deductibles and copayments.

To be eligible, your income must be under $19,320 for individuals or $26,130 for married couples living together, and your assets (not counting your home, personal possessions, vehicles, life insurance policies or burial fund) must be below $14,790 for individuals or $29,520 for married couples. For more information or to apply, call Social Security at 800-772-1213 or visit SSA.gov/extrahelp.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

While Social Security will provide approximately 40% of the average person's retirement income, an Individual Retirement Account (IRA) is an essential addition for a successful retirement. Your IRA has two main benefits—contributions to a regular IRA are from pre-tax income and there is tax-free growth. There is another version of an IRA called a Roth IRA, which is funded with after-tax income.

Linda is in her middle working years and anticipates receiving Social Security when she retires. But she has several questions about whether she should also start funding an IRA.

• How should I fund my IRA?
• Is it a good idea to do an IRA rollover?
• At what age should I start taking IRA distributions?
• Should I take the minimum required distribution or a larger amount?

Funding the IRA

If you are not actively participating in another type of qualified retirement plan and are within an adjusted gross income limit, you may qualify to transfer a substantial sum each year into an IRA. The IRA contribution amount is $6,000 this year. If you are over age 50, you may also make an additional $1,000 "catch-up" contribution. The maximum IRA contribution amounts are indexed for inflation in increments of $500. In future years, the contribution amount will increase.

Because Linda is over age 50, she is able to contribute $6,000 and her catch-up amount of $1,000, for a total of $7,000 to her IRA this year.

Linda considers the options to create a regular IRA or a Roth IRA. Because she wants to receive the income tax deduction, she transfers the funds into a regular IRA and deducts the $7,000 on her federal tax returns.

IRA Rollovers

The majority of larger IRAs are funded through rollovers from retirement plans through your employer. If you have a qualified plan through your employment, upon separation from service or reaching a specific age, such as 70, you will usually have an option to rollover to a self-directed IRA.

Normally, your qualified plan through a business has been funded with pretax income. The IRA account also benefits from tax free growth. Therefore, the rollover will be from the other qualified plan into a regular IRA. Your IRA will continue to grow tax free, but future distributions to you will be taxable.

IRAs may be rolled over to a new custodian. The preferred method is to have a custodian-to-custodian transfer. If the funds are transferred directly from one IRA custodian to the new custodian, there is no tax.

While it is permissible for your custodian to transfer funds to you and then for you to make the rollover, your IRA custodian will withhold 20%. Because of the 20% withholding requirement, virtually all IRA rollovers are completed with the custodian-to-custodian method.

An IRA to Roth IRA rollover may also be permissible for you. Generally speaking, people with any adjusted gross income are permitted to transfer a regular IRA to a Roth IRA. The value of the IRA will be included in your taxable income, so you may owe a substantial income tax for the conversion.

The primary benefit of the conversion to the Roth is that a Roth IRA does not have a mandatory distribution requirement at age 72. The funds may be permitted to grow tax free and, at the discretion of the owner, may be withdrawn tax free during retirement years. If the owner of a Roth IRA does not make withdrawals, then the Roth may be transferred to children, who may make tax-free withdrawals over their life expectancy.

IRA Distributions

For a regular IRA, there are specific rules on both contributions and withdrawals. Withdrawals for distributions are generally not taken before age 59½. With limited exceptions, such as uniform distributions over a lifetime, disability, separation from employment after age 55, or other exceptions there is a 10% excise tax in addition to the regular ordinary income tax on withdrawals before age 59½. Therefore, very few individuals take early withdrawals before age 59½.

Between ages 59½ and 72, there is an optional period for withdrawals. The withdrawals are not required, but you may take withdrawal of any amount. Of course, for a regular IRA the amount withdrawn is taxable to you and no longer grows tax free in the fund. Therefore, you may not want to take withdrawals unless you actually need the funds for living expenses.

After you reach age 72, there are required minimum distributions (RMDs). The distributions start at approximately 3.9% at age 72 but increase with age each year. The distribution is calculated using your balance on December 31 multiplied by the appropriate percentage, and must be taken by the end of the next year. If you fail to take your distribution, there is a 50% penalty, so an error or an intentional disregard of the RMD rules is quite rare.

Who qualifies for Social Security survivor benefits? My ex-husband died last year and I would like to find out if my 17-year-old daughter and I are eligible for anything?

If your ex-husband worked and paid Social Security taxes and you and your daughter meet the eligibility requirements, you may be eligible for survivor benefits, but you may need to act quickly because benefits are generally retroactive only up to six months. Here is what you should know.

Under Social Security law, when a person who has worked and paid Social Security taxes dies, certain members of that person's family may be eligible for survivor benefits including spouses, former spouses and dependents. Here is a breakdown of who qualifies.

Widow(er)s and divorced widow(er)s: Surviving spouses who were married at least nine months are eligible to collect a monthly survivor benefit as early as age 60 (50 if disabled). Divorced surviving spouses are also eligible at this same age, if you were married at least 10 years and did not remarry before age 60 (50 if disabled), unless the new marriage ends.

How much you will receive will depend on the amount of your spouse's earnings that were subject to Social Security taxes over his lifetime. It will also depend on the age at which you apply for survivor benefits.

If you wait until your full retirement age you will receive 100% of your deceased spouse's or ex-spouse's benefit amount. Full retirement age is 66 for people born from 1945 to 1954 and will gradually increase to age 67 for people born in 1960 or later. If you apply between age 60 and your full retirement age, your benefit will be somewhere between 71.5% and 99% of his benefit.

However, surviving spouses and ex-spouses who are caring for any children of the decedent under the age of 16 are eligible to receive 75% of the worker's benefit amount at any age.

Unmarried children: Surviving unmarried children under age 18, or up to age 19 if they are still attending high school, are eligible for survivor benefits too. Both biological and adoptive children are eligible, as well as children born out of wedlock. Dependent stepchildren and grandchildren may also qualify. Children's benefits are 75% of the worker's benefit. Benefits can also be paid to children at any age if they were disabled before age 22 and remain disabled.

You should know that in addition to survivor benefits, a surviving spouse or child may also be eligible to receive a special lump-sum death payment of $255.

Dependent parents: Benefits can also be paid to dependent parents who are age 62 and older. For parents to qualify as dependents, the deceased worker would have had to provide at least one-half of the parent's financial support.

Be aware that Social Security has limits on how much a family can receive in monthly survivors' benefits. This is usually 150% to 180% of the worker's benefit.

Switching Strategies

Social Security also provides surviving spouses and ex-spouses some nice strategies that can help boost their benefits. For example, if you have worked you could take a reduced survivor benefit at age 60 and later switch to your own retirement benefit based on your earnings history – between ages 62 and 70 – if it offers a higher payment.

If you are already receiving retirement benefits on your work record, you could switch to taking survivors' benefits if the payout is higher. You cannot, however, receive both benefits.

If you collect a survivor benefit while working, and are under full retirement age, your benefits may be reduced depending on your earnings. See SSA.gov/pubs/EN-05-10069.pdf.

For more information on survivor benefits, visit SSA.gov/benefits/survivors.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

What are the rules regarding inherited IRAs? When my mom died this year, I inherited her traditional IRA and would like to know what I need to do to execute it properly.

I am very sorry about the loss of your mother. Inheriting a traditional IRA from a parent has a unique set of rules you need to know which will help you make the most of the money you inherit and avoid a tax-time surprise. Here are some basics.

Set Up an Inherited Account

Many people think they can roll an inherited IRA into their own IRA. But if you inherit an IRA from a parent, aunt, uncle, sibling or friend you cannot roll the account into your own IRA or treat the IRA as your own. Instead, you will have to transfer your portion of the assets into a new IRA set up, formally named as an inherited IRA. For example, it could be titled [name of deceased owner] for the benefit of [your name].

If your mom's IRA has multiple beneficiaries, it can be split into separate accounts for each beneficiary. Splitting an account allows each beneficiary to treat their own inherited portion as if they were the sole beneficiary.

You can set up an inherited IRA with many bank and brokerage firms. However, the easiest option may be to open your inherited IRA with the firm that held your mom's account.

10-Year Withdrawal Rule

Due to the SECURE Act, which was signed into law in December 2019, many non-spouse (but not all) IRA beneficiaries must deplete an inherited IRA within 10 years of the account owner's death. This applies to inherited IRAs if the owner passed away after Dec. 31, 2019.

There is no limit on when or how often you withdraw money from the account, as long as the account is empty by the end of the 10 years. This means you can choose to withdraw all of the money at once, you can leave it sitting there for a decade and then take it all out, or you can take distributions over time. Be aware that just as with a non-inherited traditional IRA, each withdrawal will be counted as income and subject to taxes in the year you make the withdrawal.

Exceptions to the Rule

There are several exceptions to the IRA 10-year rule, including for a surviving spouse, minor child, disabled or chronically ill beneficiary or a beneficiary who is no more than 10 years younger than the original IRA owner. These beneficiaries may have more time to draw down the account and pay the resulting tax bill.

For example, when you inherit an IRA from a spouse, you can rollover the IRA balance into your own account and delay distributions until after you turn age 72.

Minor children do not become subject to the 10-year rule until they reach the "age of majority," which is age 18 in most states. Disabled and chronically ill beneficiaries, and individuals no more than 10 years younger than the original account owner have the option to stretch required withdrawals over their lifetime.

Minimize Your Taxes

As tempting as it might be to cash out an inherited IRA in a lump-sum withdrawal, tread carefully. This option could leave you owing a hefty sum when it is time to file your taxes. Withdrawals from a traditional IRA are generally taxable as income, at your income tax rate.

For some people, it can be a smart tax move to gradually draw down the account over the 10-year period to avoid a large tax bill in a single year and potentially being bumped into a high tax bracket. If you are approaching retirement, you may want to wait to start withdrawing from the account until you are retired and your income drops, potentially putting you into a lower tax bracket.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Linda asked, "When should I take my Social Security? I will turn 57 this year and have a strong earnings history, having paid into Social Security for nearly 35 years. Given the year I was born, my 'regular' retirement age for purposes of Social Security will be age 67 but I can take 'early' benefits starting at age 62 or even wait until age 70. Which is better for me?"

Social Security Benefits

The average American retires and receives Social Security to cover part of his or her retirement expenses. A typical Social Security payment replaces approximately 40% of your pre-retirement income. To qualify for Social Security, you need to have contributed to the fund for 40 quarters or 10 years. Your Social Security payout will be dependent on your highest earning years.

Full Payments at Age 67

In the 1980s, Congress decided to slowly increase the age for full Social Security benefits from 65 to 67. For anyone born after 1960, the full Social Security retirement benefit is available at age 67.

Based on the tables, at age 67 Linda would qualify for $3,075 per month (in current dollars). If she waits until that age to start payouts, she receives a larger amount than if she selects an early payout at age 62 and it will be adjusted for inflation.

The favorable news for Linda is that she would receive this larger amount plus cost-of-living increases for her lifetime. In addition, if she works after age 67, there's no reduction in her Social Security payment. She can continue to receive the full income of her work and the Social Security benefit. Of course, because both she and her employer are contributing to the Social Security system while she is working, her actual Social Security benefit is significantly reduced. Her Social Security payout will be taxed and her net after-tax benefit will be reduced.

Because Linda is still working, she is contributing about $600 per month of after-tax income to Social Security. Her employer is also contributing a similar sum. The net Social Security benefit to her, after payment of income taxes on her contribution and the contribution by her employer from her salary, is now approximately $300 to $600 of added after-tax monthly income.

Early Payout at Age 62

Linda could join many Americans and start taking payments when she is age 62. In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. If the number of reduction months is 60 due to retirement at age 62 when normal retirement age is 67, then the benefit is reduced by 30 percent.

This amount will be adjusted every year based on the Social Security cost-of-living increase. While her benefit is adjusted for inflation, the actual value or purchasing power of this amount will not change. Linda's mother is still living and her grandmother lived to be 96, so she may be wise to plan for a fairly long retirement.

There is one other challenge for Linda. If she continues to work, and many individuals do work until their late 60s, she will lose part of her Social Security payment. For every $3 in income (over an indexed limit) she earns between age 62 and her full retirement age, she loses $1 in Social Security benefits. By taking her payment at age 62, she receives both a lower payout for her lifetime and reduced payments for the years until her full retirement age.

Delaying Payments to Age 70

If Linda continues with her present employment and does not need her Social Security income, she can receive an increased benefit by delaying the start of payments to age 70. The benefit starting at age 70 for Linda is currently 21% higher than what she would receive at age 67. With inflation adjustments, Linda's benefit could be even higher by the time she reaches age 70.

This represents a significant increase over her normal retirement amount. The amount increases by about 8% per year because the government has held her funds longer and she has a shorter period of time before beginning to receive her payments.

If Linda lives to her mid-80s, then she will have received a greater total Social Security benefit. If she joins her long-lived relatives who have survived to their mid-90s, her net economic benefit from Social Security by delaying the first payouts to age 70 is dramatically greater than her total payouts starting at age 62 or 67.

Tax-free Social Security Payouts

Individuals with lower incomes do not pay any federal tax on Social Security. Generally, single people with incomes under $25,000 per year do not pay tax.

50% of Social Security Taxable

For many Social Security recipients, their income is in the middle range and 50% is taxable. For example, a single person with taxable income of approximately $25,000 to $34,000 would pay tax on half of his or her Social Security. The taxable income is called the modified adjusted gross income and includes adjustments for some types of tax-free income.

Because Linda has a substantial IRA, she expects to have a higher level of income.

85% of Social Security Taxable

With other pension income and IRA income, Linda anticipates a modified adjusted gross income of over $36,000 per year. As a result, 85% of her Social Security is taxable.

Linda is not very pleased with this plan. Because she already paid tax on her half of the Social Security, she feels that this is a very substantial tax. However, with the increasing need to fund Social Security in the future, the high probability is that Linda will pay tax on 85% of her Social Security during her lifetime.

Social Security for Spouses

A spouse may have different options for receiving Social Security. First, if he or she qualifies based on employment, then the best choice may be to take his or her normal benefit at the selected retirement age.

However, a surviving spouse can receive a reduced spousal benefit starting at age 60. At a later date they may transition to a full benefit under their own qualification.