How To Help Your Family Maximize Your “IRA”: And AVOID Immediately Ruining a Great Asset

Financial Advisor Allen Neuenschwander explains how you can maximize the effectiveness of your IRA when passed along to children

Houston, TX – One of the most unreported concerns for pre-retirees and retirees is how to protect your family when the time comes to pass along your IRA to your spouse and children after your death.  Finding ways to maximize the value of your IRA for your family and avoiding painful tax implications is an important strategy that needs to be planned and implemented by a qualified financial advisor. Allen Neuenschwander, CPA, CFP^®, provides some simple straightforward guidance on how to navigate these dilemmas and even find ways to help enrich your family in the process:

“Make a good move and your family can potentially harvest millions from a well-designed IRA distribution plan.  Do it wrong, and the IRS becomes your IRA account’s biggest beneficiary,” said Allen Neuenschwander, owner of Outlook Wealth Advisors, LLC.

“Let’s focus on doing this right and what the tax law permits you to do that can enrich your family.  The concept is called many things. Some call it a “stretch IRA” (some like to call it making an IRA “multi-generational.”) The idea is simple –  it’s to take only what is required and stretch payments out over as long of a period of time as possible.”

“A quick true-life story about time and money – specifically, the power of compounding money over time – comes from Benjamin Franklin,” said Neuenschwander. “Ben Franklin died in 1790 and left his $4,000 estate to the State of Pennsylvania and the City of Philadelphia with one stipulation.  That restriction being that the money could not be accessed for 200 years and it had to be very conservatively saved.  In 1990, the State and City had a fund with $1,500,000, most of which went to support scholarships at Penn State University, with the compounded rate of return at just 3% (certainly conservative).”

“The power of compounding money safely is within your family’s grasp.  It is one of the few tax plans that favors the family over the taxman.  Here it is: when you reach the age of 70 ½, you must take Required Minimum Distribution (RMD).  Your spouse may use your IRA after your death for his or her retirement income and manage the account as their own.  This is in stark contrast to an “inherited IRA” where distributions are required at ALL ages.  So, if a widowed female died today with a $400,000 IRA and had two children ages 51 and 55 – her adult children MUST take distribution based on their single life expectancy or face penalties.  If she left her entire IRA to her grandchildren who were ages 23 and 25, they MUST take distribution – it’s called Required Beneficiary Distribution (RBD).  The key to maximizing your IRA’s value is having a great advisor who knows this math. Here is an example of what you can do:

Let’s go back to the beginning and assume your friend is John, he’s 70 years old and has a $1,000,000 IRA, (congrats to John, he’s a hard worker like you!) and his wife Jane is healthy and 65 years old.  They have two children Tim and Theresa ages 47 and 42; PLUS, three lovely grandchildren: Timmy, Jr. age 10, Suzie age 6 and the baby Ashley who just turned 4.  John being a well-educated and financially savvy guy made sure his account could be stretched out so that his family had the possibility of getting the following outcome:

• • John from age 70-88 would take out $1,074,860 of Required Distributions (at 6%)
  • At his death Jane would inherit $1,233,823 and by age 90 she would take $604,684 of distributions at 6% and leave her beneficiaries $1,137,007.
  • At Jane’s death the beneficiaries were 30% Tim, Sr., 40% Theresa, 10% Tim, Jr., and 10% each to his sisters Suzie & Ashley.
  • Tim, Sr. would inherit the IRA at age 72 with an initial balance of $341,102 and take distributions of $636,752 out over his 16-year life expectancy (assuming a 7% rate of return).
  • Theresa would inherit $454,803 at age 67 and take distributions of $998,298 over her 20-year life expectancy (assuming a 7% rate of return).
  • Timmy, Jr. would inherit $113,701 at 35 years old and assuming a higher rate of return of 8% he would take out $1,391,223 over his 49-year life expectancy.
  • Suzie at 31 would take out $1,758,091 on her inherited $113,701 and 53 year period of distribution (at 8%) and Baby Ashley on her inherited IRA of $113,701 would take $1,972,976 over her 55-year life span (again assuming 8%).

How does it all add up?  Well the family gets total distributions of $8,436,886 stretching out dad and Grandpa’s IRA – not too bad at all BUT there are a couple of catches here: first, tax laws could change (an ever present risk) and we are talking about a long time.  Also, the chance of everyone following the schedule is slim – but here’s the hook ……

If you don’t structure your IRA account this way then the chance of anyone taking advantage of this compounding opportunity is zero for the same reason you wouldn’t think about the taxes until after you won the ‘big prize’ from the prize patrol above.  Through good estate planning you can leave a great ‘set of instructions’ to your family so that wealth building opportunities like the stretch IRA aren’t missed.”

For more information on this topic, or to learn how Allen Neuenschwander can help, please visit http://www.outlookwealthadvisors.com.

About Allen Neuenschwander:

Allen created Outlook Wealth Advisors after a devastating family tragedy caused him to redirect his life toward helping people achieve financial security while eliminating unnecessary risk. Unlike many estate & financial planning firms, Outlook has a true fiduciary responsibility to take care of its clients’ interests first, not the firm’s.

Over the years, Allen has passed numerous exams to become a Chartered Life Underwriter (CLU) and Certified Financial Planner™. He has taught financial and retirement planning courses for several Houston area colleges and universities and for employee groups at several Fortune 100 companies. Allen has also served on the investment committee of the Houston Chapter of the Texas Society of CPAs, and on the Board of Directors of the Financial Planning Association of Houston.

A major focus of Allen’s practice is working with retired people and those who are about to retire. He has a CD, “How to Avoid Common Retirement Pitfalls,” that is currently available and he is in the process of writing a book. It was recently announced that Allen has been awarded the prestigious 5 Star Wealth Manager Award and was recently recognized in the September issue of Texas Monthly Magazine.

Investment Advisory Services offered through Global Financial Private Capital, LLC, an SEC registered Investment Advisor.  Securities offered through GF Investments Services, LLC with principal offices at 2080 Ringling Blvd, Sarasota, FL  34237. Member FINRA/SIPC.