IRA & Retirement Plan Investing Mistakes:Beneficiary, Inheritance, Contributions
An IRA retirement account is one of the critical pieces of planning for retirement. Millions of Americans have an IRA account that they contribute to. If you are eligible for an IRA account, contributions should be made consistently, each and every year. This is the best way to financially plan for your retirement. To take advantage of all the benefits associated with an IRA, there are some common mistakes that should be avoided. The following will discuss 4 of the 9 most common mistakes that are made.
IRA Mistake #1: Not Naming a Beneficiary
Upon opening an IRA, you are not required to name anyone as a beneficiary to the account. Even though this action is not required, it is highly recommended. If something happens to you and there is no beneficiary named for the account, it will end up in probate. This will be a long, drawn out process that will cost money that didn’t need to be spent. The money in the account will be disbursed over the remaining life expectancy of the deceased account holder. This is usually a shorter amount of time than the expectancy of a beneficiary. In short, this means that money will be disbursed faster which will place a very heavy tax burden on the person who is receiving the money, which is determined in probate.
Naming a beneficiary when you open the IRA account will eliminate this. You will then be absolutely sure where your remaining IRA account will go after your death. You can also determine how fast the funds will be distributed.
IRA Mistake #2: Forgetting the Deadline for IRA and Roth IRA Contributions
Don’t forget the core purpose of Roth IRA’s – to fund it as much as possible for retirement! Many people believe that the last day they can make a contribution is on December 31, of the last day of the year. This is not true! You may continue to contribute up to April 15 of the following year. IRA contributions are based on the tax year – not the calendar year, so don’t miss this extra time by assuming the end of the year means the end of contributions.
The best way to avoid this common mistake is to fund as much as you can early in the year. If you meet the maximum simple IRA contribution limit or Roth IRA contribution limit, you will not miss out on saving more money. The date of April 15 is referred to as an extended contribution deadline. These few extra months could make a huge difference for most savers in your IRA retirement account.
IRA Mistake #3: Not Knowing Spousal/Non-Spousal Inheritance Rules
There is a difference in the rules of inheritance that applies to spousal and non-spousal beneficiaries. If you are a spousal beneficiary, you have two options. You may roll the funds into an IRA that is already in your name, or you may change the name on the inherited account. After this is complete, the money will be viewed as if it were yours all along. Contribution and withdrawal rules will apply as if it were your own account.
Non-spousal inheritances work differently. You will not be able to roll the funds over to your personal IRA. You are also not allowed to make any contributions to the original IRA account.
IRA Mistake #4: Not Contributing Because of Stock Market Volatility
Due to the recent stock market meltdown, many people are questioning whether they should continue contributing to their IRAs. The answer is simple. Never stop contributing! Regardless of what the market is doing at any given time, you should take full advantage of the numerous benefits offered by an IRA retirement account. One of those benefits is a tax break. No matter what the state of the market is, you will continue to get tax breaks on all money contributed. If you are lucky enough to work for a company that will match your contribution, you make even more money with the account, as well as with the added tax breaks which will of course lead to IRA retirement income when it is time to spend it.
Roth on Roids for IRA: Retirement Plan Investing: CPA or Lawyer Viewpoint
With a Roth IRA on Roids, you could contribute $5,000, $20,000, $50,000 and $100,000 depending on how much money you have and how much you want to contribute and when you want to begin to withdraw your money.
It is powerful wealth building tool. When I heard about this from Roccy DeFrancesco, I was completely overwhelmed because I spent my lifetime looking for tax-advantaged products that are safe, legal, that you can use, with very little risk. You are not going to get this from your lawyer or your accountant. Your lawyer’s stock-in-trade answer is “possibly, maybe or I’ll look into it.” And even if he knows he’s not going to tell you because, traditionally, he works on both sides of the fence.
Your accountant and lawyer would typically not look to at any type of these products because he could become an IRS target. Whenever there is a criminal investigation, his papers would be the first thing they go after, summonses. I work with accountants and I teach them and this is their usual stance on the matter. I teach lawyers and accountants for credits. They’re generally intimidated. For the price of preparing your income tax return, they’re not going to look at these types of wealth-building tools. The wealth-building strategies of a Roth IRA on Roids are completely legal. You do not have to hide your money. You do not have to go offshore. You do not have to provide a lot of documentation, and you do not have to report your requirements to the feds.
With a Roth IRA on Roids the following basic information would be required: your age; how much money you wish to deposit into your account; when you wish to withdraw from the account. Based on this information, a specific financial chart can be drawn for you.
To summarize the main benefits of your Roth IRA on Roids: your money never goes backwards; you’ll be able to take your money out tax free; there is a guaranteed return. So let’s discuss how you can fund your account using other people’s money.
Roccy DeFrancesco’s wrote a book, “Home Equity Management.” The book is very well written. Roccy is a very meticulous guy and I have a lot of respect for him. The book describes how you can reposition your home equity. Let us look at your home equity for a moment. If you are in your home with a 95% mortgage, does your mortgage diminish the value’s home? The answer is, “No.” If your home is fully mortgaged it would not diminish the value. But, if you live in an area like California, with mud slides, or Florida with hurricanes and tornadoes and you own 100% of your home (i.e. not mortgaged) then whose problem would it be if your house slides down the hill or it goes under water? It would be your problem. On the other hand, if it’s heavily mortgaged, then it would not be your problem. It would be an insurance problem and it would be a mortgage company problem.
So what is the relation of your home equity with your Roth IRA on Roids? If you leverage your home equity and reposition it to fund your Roth IRA on Roids then, effectively, your money is sitting in your Roth IRA on Roids account and in investment opportunities and it’s safe. Real estate is the only leverageable asset class. Everybody understands that you buy real estate with 5% down, 10% down, depending on how well financed you are. It’s the only leverage that is recommended, people accept, people understand, the banks do it. So by repositioning your home equity in order for you to fund the Roth IRA on Roids, financially you are using other people’s money. And this could also be accomplished with commercial real estate. If you have equity in commercial real estate, refinancing it in order for you to reposition your assets definitely makes a lot of sense. At the end of the day, you still have the same assets. If you have equity in your home or commercial estate, that’s an asset. If you have equity in Roth on Roids, or other investment opportunities, together they are the same number. You’re just repositioning. You are relocating your assets. That’s all you’ve done.
IRA Retirement Plan Investing & Stretch IRAs
How would you like to discover little known IRA retirement plan investing tools that practically pay for themselves and yet do not need to worry about Roth IRA contribution limits? You don’t have to go off shore to get tax free retirement income. You don’t have to worry about tax free distributions and you don’t have to hide your money. It’s all perfectly legal right here in the United States, and your assets never leave the United States. The principle is guaranteed, you will never lose your money in the stock market, real estate market, commodity market, or any other market. There is a minimum return on your contribution, and if you die, your family will get a death benefit.
Solutions for your Jumbo IRA and Estate Tax Problems
I want to talk to you about another matter – that is, traditional IRAs. How do you get a million dollar IRA? Well, let’s assume for a minute if you were an executive of a major company, and you were just laid off, and you have a million dollars or more in your qualified pension plan, like a 401k, a retirement plan, etc. If you have a million dollars or more, it is what we refer to as a Jumbo IRA. If you also have an estate tax problem, there is a double tax. I’ll talk about that in a minute.
If you ask your accountant, your lawyer, your financial planner and ask, “Hey Joe, what’s the best way that I can minimize my taxes on my traditional IRA? It’s gotten up there and I don’t need the money yet. I don’t need to go out there and start taking the money out. I’m over the age of 59 ½, I don’t need the money, I have other sources of income, so I’m going to let it grow and leave it there.” He’s going to come back to you and say, “Stretch IRA, stretch IRA!” What does that mean? In simple terms, it means instead of making distributions to you, the owner of the IRA, the beneficiary of the IRA is your children and your grandchildren; you’re going to name a beneficiary who is younger than you. It can be your children, your grandchildren so the required distribution is going to be over their lives. Obviously, they are going to be able to have a greater life than you because the assumption is that you have so many years left on your life, your children have more years on their life (after you), and your grand children have an additional amount of time left on their life (after your children). So you’ll stretch the payments and the assumption is that stretching the distributions from the IRA, the individual is going to be in a lower tax bracket. And that’s going to work out fine; but if you are having an estate tax problem when you die, we look at what assets you own. The fair market value is what is included in your estate, not what you paid for it. On the date of death, what do you own at its fair market value?
401K Rollover to Traditional or Roth IRA with Estate Tax Problem: Internal Revenue Code Section 691c (Income Respect of a Decedent)
If you have an estate tax problem, and you have a traditional $1- $3 million dollar IRA, it’s going to be double taxed, I can guarantee you that. It’s a guarantee from me to you that you’re going to be double taxed. On the date of death, the trigger that is going to guarantee your double taxation is, number one, Internal Revenue section 691c. Look it up, that is called income in respect of a decedent, IRD. It is a very important code; this is what triggers the income tax. Essentially, here’s what it says: When you took your 401k rollover to IRA, you rolled your 401k, pension or other pension money into a traditional IRA. You rolled into it because you wanted to avoid the immediate taxation. But the bottom line is this: you have a million dollar IRA, and you have an estate tax problem which triggers the event of section 691c, income in respect to a decedent or IRD. What this section states is you saved money, we didn’t tax you and we now want to tax you; hence, there is a forced distribution at 70 ½ years old.