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

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

Dayton, OH – One of the more unreported concerns for retirees is how to protect your family when the time comes to pass along your IRA to your spouse and children when you’ve reached the end of your life.  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. Robert Russell 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 harvest millions from a well-designed IRA distribution plan.  Do it wrong, and the IRS becomes your IRA account’s biggest beneficiary,” said Robert Russell, President of Russell & Company.

“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 Russell. “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 post your death for their 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% to Tim, Jr and 10% to his sister Suzie, Theresa’s baby Ashley would get 10%, as well.
• 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 Robert Russell can help, please visit www.theirapros.com.

About Robert Russell:

In only nine short years, Robert Russell has amassed an impressive list of clients and credentials. He often contributes to CNBC, Fox Business, The Wall Street Journal, US News and World Report, and he also co-hosts “Retirement Rescue Radio” on 1290 AM and 95.7 FM WHIO.

Russell is an Investment Advisor Representative (IAR), 2nd generation wealth advisor and member of the Ed Slott Master Elite IRA Advisor Group. He was acknowledged as one of the top “40 Professionals under 40” by the Dayton Business Journal and was honored as a Five Star Wealth Manager – Best in Client Satisfaction by Cincinnati magazine.

Russell is also nearing completion of a book titled, “Retirement Held Hostage,” in which he outlines several of the strategies that have brought him to the top of his field.

Securities offered through Kalos Capital, Inc.,  Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA  30022,  (678) 356-1100.  Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.

Neither Kalos Capital, Inc. nor Kalos Management, Inc make any endorsements or opinions about the coursework required to become a member of Ed Slott’s Master Elite IRA Advisor Group and as such cannot guarantee the accuracy or completeness within.

A policy change may incur fees and costs, and may also require a medical examination.

This scenario is for illustrative purposes only and does not represent and actual client.  Results may vary.