In Matthew 5:18, Jesus says “For verily I say unto you, till heaven and earth pass, one jot or one tittle shall in no wise pass from the law, till all be fulfilled”. In other words, God’s law won’t change in the slightest until the end of days. Similarly, the jots and tittles that name IRA beneficiaries are the letter of the law and will supersede your Will and financial intentions.
Recently, at a conference hosted by Ed Slott, Tom said he learned that a court will uphold your IRA’s listed beneficiaries over the those listed on your will. It can be heartbreaking when mothers and wives who need that money to support their families don’t get it but an ex-wife does. People often make the mistake of naming someone as their beneficiary at their first job and then forgetting to change it when they get married, have children, or their life situation otherwise changes.
Hans says most financial accounts, including life insurance, annuities, and investment have some sort of beneficiary you can name. For investments, this is called a Transfer on Death or TOD. Tom says most clients don’t know this because these institutions typically don’t provide these forms up front. However, these forms are available upon request and can be filled out quickly. This saves families a lot of trouble getting money out of the bank when someone dies; they don’t have to figure anything out and can claim what’s rightfully theirs.
Hans says some people make the mistake of listing the estate as a beneficiary. In that scenario, taxes will be due on your IRA all at once in a lump sum. This will drastically decrease the amount of money you may have intended to be left to your heirs. Robby says his own father labeled a trust he wanted to create as his beneficiary, but that trust was never actually created.
Tom says most people want to focus on IRA investments but, in reality, IRA taxes are by far the most discussed issue by experts and will affect heirs the most. Hans says while the goal is to minimize the taxes on your IRA, you will have to pay some taxes in the future no matter what. Consumers need strategies on how to manage their IRAs and advisers need to be informed at risk of malpractice for poorly handling these accounts.
Hans says he knew of an advisor who had failed to transfer a client’s beneficiaries when he switched jobs. As a result, when the client died, the money was left to his estate and virtually wiped out by taxes. If the money had been left to the children as intended, they could’ve stretched the IRA over their lifetimes and greatly increased the amount of money inherited. The adviser ended up being charged with malpractice.
Tom says that while Roth IRAs are a great strategy when appropriate, they’re not for everybody. Your retirement plan should be highly individualized for your situation. For some, Roth IRAs don’t make sense because you can still make a lot of money and stay within lower tax brackets.
Also, at age 70 1/2 you can donate up to $100K of your minimum distribution to your church or charity without paying taxes.
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You can contact Hans and Cardinal by emailing firstname.lastname@example.org or calling 919-535-8261. Learn more at CardinalGuide.com.