How to avoid ruining your estate plan

Michael Piershale appears in a podcast to highlight one of the largest estate planning mistakes that individuals and couples can make -- being complacent when titling their beneficiaries. He explains that too often, people overlook this important element, especially when it comes to non-spouse beneficiaries. 

In addition, he offers an explanation around inherited IRAs and the rules regarding this type of account, such as the IRS taxation, distribution rules, and more. Click the link below to watch the full podcast:

How taxation impacts cash flow

During a recent podcast, Michael Piershale weighs in on retirement concerns and how individuals and couples can protect their assets during the remainder of their life as a retired person. A major concern among this demographic continues to be the impact of taxation on cash flow and certain assets. 

Michael explains the benefits on converting a traditional IRA into a Roth IRA as a strategy to consider for individuals in specific tax brackets, as it can be a wise tax-saving alternative. Watch the podcast to hear more:

Want more investment options than what’s available in your 401(k)?

Controversy continues to surround the investment options and fees associated with many of today’s 401(k) plans. The 401(k) is increasingly the sole investment vehicle people are utilizing for retirement planning; as such, the vehicle has been put under the microscope in recent years.

We recommend that some of our clients consider using a little known maneuver called an in-service rollover to escape a plan with high fees or lack of investment options. For retirees hoping to take full advantage of their last few years of saving before retirement, the in-service rollover can be an opportunity.

Mike on FOX Business discussing in-service rollover

The in-service rollover allows people at the age of 59 and a half (and sometimes even younger) who are still working to roll money from their 401(k) into an IRA without paying tax now, a move that offers more investment options. The rules are complicated, but for a pre-retiree who is eager to take advantage of a larger basket of investment choices, it’s a good fit. 

A Potential Tax Trap for Heirs

A disadvantage of retirement accounts is that they cannot be re-titled into a trust account. Doing so will cause immediate taxation of the entire account. Therefore, there is no estate planning document that directs the distribution of retirement assets. Instead, this is done by a beneficiary election form that often names a different heir then is named in the trust document, which causes serious problems for the heirs. 

To complicate things further, different types of retirement beneficiaries are subject to different IRS rules. For example, children are not allowed to roll the parents IRA over to their own IRA, but can establish another tax-sheltered account called an Inherited IRA.

Michael talks Inherited IRAs on Fox Business

Using trusts as beneficiaries can subject the retirement money to trust tax brackets in some states, which can trigger significantly high taxes. Leaving money to a charity through a retirement account beneficiary form can create powerful tax savings for other heirs since the charity gets retirement money tax-free, whereas heirs that are named persons do not.

Coordinating beneficiaries with estate plans is an important step toward successfully passing money to heirs with minimum tax consequences. 

Inherited IRAs Provide Heirs Shelter from a Tax Storm

An inherited IRA offers non-spouse beneficiaries shelter from a potentially large tax burden. The only person who can take a deceased persons' IRA and put it in their own IRA is a surviving spouse. Non-spouse beneficiaries, like children, cannot.

Non-spouse heirs have two options. They can cash out the IRA and pay the taxes, which could cause a huge tax loss, or the government will allow them to establish what is known as an inherited IRA. An inherited IRA protects the money from tax, but the heir is required to take a small taxable distribution every year - resulting in a smaller tax burden.

The Piershale team

When using an inherited IRA strategy, you must keep these key factors in mind:

• The deceased IRA owners' account needs to be re-titled into an inherited IRA by September 30 of the year after the person passes away. The first distribution has to be taken by December 31 of that year.
• The IRA custodian is required to re-title an inherited IRA for non-spouse beneficiaries by the above deadline, but is not required to contact the non-spouse heir to take out the first distribution by the December 31 deadline. If this deadline is missed, the heir will be subject to a 50 percent penalty. 
• If the deceased retirement plan owner leaves money in a company plan such as a 401(k) until death, the non-spouse heirs do have the right to transfer it to an inherited IRA. However, the responsibility to transfer and re-title it by the September 30 is now that of the non-spouse heir.

Check back to our blog for continued coverage on IRA-related topics.

Piershale Financial Group hosting seminar to share IRA strategies

On July 9, 10, and 11, Piershale Financial Group hosted a seminar workshop that reviewed retirement strategies and how to properly protect assets to solidify a secure retirement.  With new tax laws and distribution rules, we understand that clients can have a challenging time in transferring any wealth. With that in mind, our workshop highlighted ways to successfully determine the beneficiary of an IRA, the ins and outs of inherited IRAs, how to reduce income taxes by allowing the beneficiary to stretch distributions, and much more. 

Before clients take any action in passing wealth, we stress the importance of understanding all rules and laws connected with inherited IRAs. While it can be complicated, it’s vital to be knowledgeable in this area so that plans can be streamlined and your heirs will not suffer any financial consequences. 

We host a number of seminar series throughout the year, so check back to the blog soon as we will announce our upcoming workshops.