IRA Legacy

This is an informational post based on the brochure from American Funds titled, "Pass on more than your good looks". Many of us with IRAs focus on the short term goals of saving money but what about the long term? Learn how you can become better prepared to provide a secure future for your heirs.

A Powerful Tool
Since their introduction in the 1970’s, IRAs (Individual Retirement Account) have been a popular way for millions of people to build their retirement nest egg. An IRA allows you to accumulate assets over the course of your working life and can serve as a powerful estate-planning tool for passing along a legacy to future generations.
Costly Silent Beneficiary

Often times when a beneficiary inherits an IRA, they will cash it out due to a lack of understanding of the process or because they have pressing financial obligations and have no other choice. Unfortunately it's very costly from a tax standpoint to cash out an IRA. The problem with this is that it's taxable all at once. It gets added to your taxable income for that year so potentially, depending on your income that year, 38% to 40% would go to income taxes. The IRS and state of California is a so called "silent beneficiary" in this case.

Get Some Good Advice

As you know, as an owner of an IRA, you must start taking a minimum amount at age 70½. This amount is usually the most "ideal" amount to take out in order to have your IRA last throughout your lifetime. First your spouse, and then your children can do the same thereby "stretching" the benefit over several generations.

Ideal Amount

They will have the option is to do a non-taxable rollover to an Inherited or Beneficiary IRA, also known as a "Stretch IRA." This is a long established process that has been in the tax code for many years. There is no cost involved to utilize it and it can be done with any advisor and any IRA investment. One thing to keep in mind is that IRA rules require your child to start taking a small amount out each year based on his or her life expectancy.
Your husband or wife can become the new owner of your IRA and avoid paying that huge tax bill. But what about your children and eventually your grandchildren?

Stretch IRA

The decision you make today regarding your financial situation, will affect your heirs later on. Consult your financial advisor and discuss what would be the best option for your situation. For more information on this topic please contact Curt Reed at (858) 673-0878 or curt@reedwealth.com. He is more than happy to assist you in your quest of financial security for both you and your loved ones.