Dreams of Retirement…Retirement ACCOUNTS!

Submitted by: Serenity Lay

Cool fall breezes and cold weather on the horizon bring daydreams of retirement on a sandy beach in the sunshine. In affordable housing, thoughts of retirement might make us think of retirement accounts(maybe it’s just me?), and calculating retirement accounts can be just as challenging as getting that last bit of beach sand from your hair!

Here’s a quick look at how to determine if a retirement account is considered an asset, an income, or not considered at all(right now):

1. Balances in 401K/403B/IRA/Keogh accounts are considered assets if the money is accessible to the household according to the 8823 Guide(Page 4-16)…ask the financial institution a few questions to get the right answer!

   1. If your applicant is currently employed, do they have the ability to access funds without quitting or retiring(even with a penalty)?

      1. If yes, then it IS an asset to be included on the TIC/HEC. Be sure to calculate the fair market value and any income earned from the account.

      2. If no, then it is NOT an asset and cannot be included on the TIC/HEC. It’s a good idea to leave this verification in the file to prevent future audit issues.

   2. If your applicant is not employed but not drawing any periodic payments, the account would be an asset as long as they have access and would be reflected on the asset area of the TIC/HEC.

   3. Is your applicant receiving regular payments? Any retirement benefits received as periodic payments are included in annual income per 8823 Guide(Page4-16) and will need to be reflected on the income area of TIC/HEC. VRP: ONCE PERIODIC PAYMENTS ARE BEING RECEIVED, THE REMAINING BALANCE IN THE ACCOUNT IS NOT CONSIDERED AN ASSET.

2. Annuities(8823 Guide 4-16)

   1. Annuity as INCOME: If a member of the household is receiving annuity payments and is NOT able to withdraw the balance as a lump sum of cash, the payments are treated as income and no calculation of income from an asset is made. Report this as income on the TIC/HEC

   2. Annuity as ASSET: If the balance of the annuity can be withdrawn, the annuity is treated as an asset. In addition to the income earned from the annuity, the cash value of the annuity must also be determined(full value minus surrender and tax penalties). Report this as an asset with income from the asset on the TIC/HEC.

Keep in mind, while there’s no official definition of ‘periodic’, guidance from HUD indicates that payments can be as few as once per year as long as the payment is recurring. Lump sum payments are not considered income and the lump sum amount would be an asset, not an income source.