Transfers are annual movements of money from one account to another account. Transfers are done before any funds are collected from your accounts to fund your retirement expenses. This is done so that the available accounts will have their final balances adjusted before being tapped for retirement expenses.
By default, transfers are done after the year's earnings are calculated and added to all the plan account balances. In some instances, you may want to specify a transfer from one account to another before the year's earnings are calculated and added to either account's balance. This would simulate a beginning-of-year as opposed to an end-of-year transfer. To accomplish this, a check box is in the Transfer instruction data entry form that says "Transfer Before Year's Earnings Are Calculated". If left unchecked, the transfer is done from the account after the earnings are added.
Transfers do not result in any increase in the plan's funds. A transfer can result in a decrease in the plan's funds if the transfer results in a tax, or the transfer is an insurance premium payment. Transfers to an account owned by yourself or owned by your spouse may not result in a tax. Transfers out of an IRA or 401(k) account may result in a tax, unless they are to another IRA or 401(k) account in which case they may be considered to be rollovers. Transfers to an account that is outside your estate may result in a gift tax.
If you want to retain the account's capital, you can specify that the transfer is to be the earned income only. This transfer request will withdraw all the year's earned income. Any taxes due because of the transfer are deducted from the withdrawn amount.
You can also specify the transfer amount by a percentage rate. This rate is applied to the balance, the percentage is withdrawn and then any taxes due because of the transfer are deducted before the resulting amount is delivered to the destination account.
You can specify a fixed delivery amount if you want that exact amount delivered to the destination account. For instance you can fund insurance premium payments to an irrevocable trust in this way. This transfer may result in taxes due because of the withdrawal of funds for the transfer. This transfer may be considered a gift to the insurance's beneficiary and gift taxes may be due. If taxes are due, then the program will withdraw a total amount that includes the tax amount. The after tax balance is equal to the desired delivery amount.
You can specify a fixed withdrawal amount if you want only that exact amount withdrawn. This transfer may result in taxes due because of the withdrawal of funds for the transfer. This transfer may be considered a gift to the recipient and gift taxes may be due. Any taxes due because of the transfer are deducted and the reduced amount is delivered to the destination account.
You can use an indexed transfer instruction for a fixed withdrawal amount to account for inflation over the duration of the transfers.
You can specify multiple transfer instructions to handle varied situations concerning the same account. But only one instruction may specify the transfer of income, since it transfers all of it at one shot.
If there is more than one transfer instruction for this account, then each transfer instruction is examined in the sequence shown in the tree view to calculate the transfer amount. Each calculation of the transfer amount is done based on the specified amount or percentage rate.
There are situations that require a fixed transfer amount and then a transfer of the reminder. Take, for instance, a transfer of 1.000,000 to a child's trust and then a transfer of any remaining balance to a brokerage account. For situations such as these, a special instruction parameter named "Sweep Balance" is used. Specify this for the last instruction in a sequence when you want to move whatever balance remains, taking the final balance to zero.
Use the tree-view's drag and drop capability to re-arrange the sequence of instructions to control the sequence of transfers from the account.
Enter the transfer instruction's amount or percentage, or indicate income only. Enter the year that the transfers start and the length of time the transfers continue. A one-shot transfer has a duration of 1 year.
To handle penalty-free SEPP distributions from IRAs, a check box is available on "withdrawal" instructions and "transfer" instructions that are from IRA accounts. This gives you an option to define each specific distribution as one without penalty tax. In that way you can define your planned early distributions and have them done without a penalty tax calculation by the program. You have to specify each individual distribution and mark it as exempt from penalty tax. The Forecaster program does not verify the correctness of your specifications.
You can specify that a transfer instruction be active only periodically, skipping years, by specifying a yearly cycle parameter. The transfer instruction will be active once each cycle, beginning with the start year.
A transfer instruction can be indexed on an annual basis to keep pace with inflation.
You can enter a description to identify the transfer instruction.
Estate Planning Gift Taxes
Transfers to accounts that are not owned by you or your spouse are considered to be gifts for tax purposes.
Transfers that are for premiums for insurance policies owned by third parties are considered to be gifts to the beneficiaries for tax purposes. This assumes a Crummey trust arrangement - see your estate-planning advisor.