How to Treat Residents' Investment Accounts

Q How should we treat IRAs and annuities if the holder has access to the balance, the account earns interest, and the holder is receiving distributions, such as the IRS Required Minimum Distribution? The HUD Handbook 4350.3 still has conflicting advice on this subject.

A According to housing expert A.J. Johnson, if an investment account is being treated as a retirement-type account, such as an IRA or an annuity, and regular distributions are being taken from the account, those distributions are to be treated as income, and the account itself is to be disregarded as an asset.

“Even though the household has access to the balance of the account, because they are treating the account as a retirement-type account, and they are taking regular distributions and living on them, you would count those distributions as income as you would a pension or Social Security, and the account itself will be disregarded as an asset,” he says. “So you would not count it as an asset, nor would you count the interest earned as income.”

Site managers may perceive a conflict in the HUD Handbook since Chapter 5 (Determining Annual Income), Section 4, on Balances Held in Retirement Accounts, states:

• Balances held in retirement accounts are counted as assets if the money is accessible to the family member. For individuals still employed, accessible amounts are counted even if withdrawal would result in a penalty. However, amounts that would be accessible only if the person retired are not counted.

• IRA, Keogh, and similar retirement savings accounts are counted as assets, even though withdrawal would result in a penalty.

However, Johnson explains, HUD goes on to address the issue of regular distributions, counting the income, and disregarding the asset: “The withdrawal of cash or assets from an investment received as periodic payments should be counted as income. Lump-sum receipts from pension and retirement funds are counted as assets. If benefits are received through periodic payments, do not count any remaining amounts in the account as an asset.

“They're basically instructing us to disregard the asset in this case, don't count the interest earned, and count the regular distributions as regular pension-type income,” he says.

Insider Source

A.J. Johnson: President, A.J. Johnson Consulting Services, Inc.; (757) 259-9920; http://www.ajjcs.net.

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