GDP, Payable-On-Death and SEP IRAs

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Question:  I recently read that the U.S. GDP rose 1.1 percent in the first three months of 2016, and that this is less than desirable.  What is GDP?

Answer:  GDP stands for Gross Domestic Product (GDP). GDP is a statistic that economists use to measure the size of an economic region.  The 1.1% rate you mention is the annualized rate of growth of the U.S. economy based upon what happened last quarter.  Positive growth is favorable, because it means that our economy, as measured by the market value of all the final goods and services we produce, is doing well.  The most common way to determine GDP is to add the dollar amount that we all spend on goods and services to the dollar amount of goods and services we export and then subtracting the dollar amount of goods and services we import.  

Last quarter’s 1.1% was slightly better than the forecasted rate of 0.8% but not as high was we would like. 

Question:  When there is an account (bank, saving bond, etc.) with a single POD beneficiary (no secondary) and the POD beneficiary dies before the account holder, whose estate does the money go to? Obviously, it would have been better for the account holder to change the POD beneficiary, but if they don't, does the money go into the original account holder’s estate or into the estate of the POD beneficiary?  Does it matter what State(s) the account holder and POD beneficiary reside in?

Answer: Payable-on-death (POD) bank accounts – sometimes referred to as testamentary or Totten Trust accounts – offer the advantage of avoiding probate.  The beneficiary can work directly with the financial institution to collect the money in the account.  Another advantage, if you have multiple beneficiaries on a POD account, is that you get maximum FDIC insurance for each beneficiary.  Part of your annual estate planning checklist should be to update your beneficiaries on all your accounts, including your bank accounts.  If the POD beneficiary dies before you, then the designation is null and void and the proceeds revert to your estate and possibly probate.

Question:  I am self-employed and 70 years old.  I have been told that according to IRS Publication 560 it is okay for me to continue to contribute to my SEP-IRA retirement savings account, even after I turn 70 ½ (seventy and one-half).  My accountant says no.  I am trying to find the answer on the Internet and it only gets more confusing.  Can you help?

Answer:  There is no age restriction on contributing to a SEP-IRA (Simplified Employee Pension Individual Retirement Account) account if you are earning self-employment income.  Your 2016 contribution is limited to the lesser of $53,000 or 20% of your net self-employment income after making a self-employment tax adjustment.

Unfortunately, even though you are still working, you must begin taking minimum distributions from your IRA and SEP-IRA accounts once you turn 70 ½ (seventy and one-half).  However, by contributing to your SEP, you will be reducing your taxable income while you are still working, so it is good idea.  You may NOT contribute to a “traditional” IRA after you turn 70 ½, but you may contribute to a Roth IRA or a SEP-IRA if you are otherwise eligible. 


Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment advisor and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning.  Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to