Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA

How to Use Gifting and Life Insurance as possible solutions to the Death of the Stretch IRA

Using Gifting as a Soltion for Death of the Stretch IRA James Lange

This post is the ninth in a series about the Death of the Stretch IRA.  If you’re a new visitor to my blog, this post might not make much sense unless you read the preceding posts, which spell out the specifics of the proposed legislation that might cost your family a lot of money.  This post discusses some ways that you can use gifting and life insurance as a possible solution to the Death of the Stretch IRA.

If you’ve been following my previous posts, you know that the Death of the Stretch IRA legislation could spell devastating tax consequences for your beneficiaries (other than your spouse, who is considered exempt).  Strategic planning to minimize those taxes will become very important once this legislation is finalized.  And while the techniques that follow are not for everyone, they can be beneficial for people who are in a position to take advantage of them.

What is a Gift?

When estate planners talk about gifts, they’re not talking about the presents you exchange on birthdays and holidays.  Generally, they’re referring to gifts of assets – cash, investments, etc. – that, when transferred to someone else, can reduce your current tax bill and, ultimately, the tax that your beneficiaries will pay after you die.  Current IRS rules allow you to gift a maximum $14,000 every year, tax-free, to each of your children.  Your spouse can also gift $14,000 to each child and, if you wanted to, both of you could also gift $14,000 to your child’s spouse.  Let’s say that you have three children, and they’re all married.  This means that you and your spouse could gift $56,000 to each of their families, tax free.  It also means that you’ve just reduced the size of your own taxable estate by $168,000.  Gifting can help reduce the amount of income tax that you owe now, and can be an effective solution to help manage the taxes that will be due at your death.

Maximizing the Tax Benefits of your Gift

But why not maximize the value of your gift by making it tax-efficient for the beneficiary too?  One idea would be to fund a Roth IRA for each child.  Roth IRAs are not tax-deductible, but the future earnings on the account are, under current law, completely tax-free.  A gift of a $5,500 Roth IRA to a 25-year old could make a significant difference in his standard of living when he retires.

If you have grandchildren who are of school age, a gift of a college savings plan could be an excellent tax-savings strategy.  While the contributions to a Section 529 plan are not deductible on your own federal tax return, the withdrawals are tax-free as long as the proceeds are used for qualifying expenses incurred by a student who is enrolled at a qualifying institution.

But what happens if your family situation is such that, even if you gift the maximum amount legally possible to all of your beneficiaries, taxes will still be a concern after your death?  In that case, you may want to consider life insurance as a possible solution.

Using Life Insurance as a Solution for Problems After Your Death

I don’t recommend life insurance just so that your heirs will receive even more money when you die.  Rather, I recommend it so that your heirs, and not the government, will get the money you’re leaving behind.  Here’s why.  Monthly payments such as pensions, annuities and Social Security that you rely on for cash flow, will likely change (if your spouse survives you) or stop completely when you die.  Your bills, though, will keep coming until they’re settled by your executor.  Many of these bills will be caused by taxes.  Your executor will have to file an income tax return on April 15th, and estate and inheritance taxes are generally due nine months after you die.  If your assets are not liquid by nature (for example, if you own real estate or a family business), or if you owned investments that happened to have declined in value at the time of your death, life insurance can provide sufficient cash to pay those taxes.  Without it, your heirs may be forced to liquidate your assets for far less than what they are worth.  The proceeds from life insurance, if it’s set up properly, are free of state and federal estate, inheritance and transfer taxes.

Remember, life insurance is a gift – and if you can’t afford to give your children a cash gift, then it isn’t likely that you can afford to give them a gift of life insurance either.  If you can afford to give them a gift, though, then life insurance is an option that you might want to consider.

Gifting and the Death of the Stretch IRA

When the Death of the Stretch IRA legislation is finalized, gifting (and especially life insurance) will likely become even more effective solutions than they have been in the past.  Please stop back soon, because my next post will go into the details!

-Jim

For more information on this topic, please visit our Death of the Stretch IRA resource.

 

P.S. Did you miss a video blog post?  Here are the past video blog posts in this video series.

Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?

Are There Any Exceptions to the Death of the Stretch IRA Legislation?

How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?

What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

How Does The New DOL Fiduciary Rule Affect You?

Why is the Death of the Stretch IRA legislation likely to pass?

The Exclusions for the Death of the Stretch IRA

Roth IRA Conversions Early in 2016 Present Potential Advantages

Let’s face it. The stock market has declined a lot in the past few months.

Many people wonder if they should move to cash and do nothing with their investments. While we do not recommend trying to time the future moves in the stock market, the reality is that it is better to buy low and let it grow more in the future. This is especially true for Roth IRA conversions which result in long-term advantages when the account grows after the conversion. So maybe the time to convert is now.

Lange Roth IRA Money Nest Egg

But, what if the market continues to decline after you convert? One good thing about the current tax law is that you can undo a 2016 conversion as late as April 15, 2017 and perhaps even to October 15, 2017. This gives you a long time, over a year, to see if it grows. If it really dives after you convert, you can even do another conversion at a lower price and undo the first conversion later. The technical term for the undoing of a conversion is a recharacterization, because the Roth IRA is recharacterized as a traditional IRA by moving it back to the original or a different traditional IRA account. Converting early in the year is often recommended as it gives the account more time to grow before a decision must be made on a potential recharacterization.

We have written many articles about Roth IRAs and Roth conversions and included discussions of the extensive advantages they provide. We discuss conversions in our book Retire Secure! and we have written an entire book on Roth IRAs called The Roth Revolution. Both of these books can be purchased on Amazon, but we would be happy to send you a copy for free. To receive a free copy, call us at 412-521-2732, or email admin@paytaxeslater.com and ask for one. Just reference this newsletter offer! These articles and discussions go into much deeper detail on the many strategic ways to do Roth conversions to your advantage, depending on your current situation.

The Roth conversion amount will add to your taxable income, so there are many tax traps to consider when deciding how much to convert, such as …

  • Higher tax rates and related tax surcharges and phaseouts of deductions first implemented for 2013 could result in extra tax if you convert too much.
  • For people who are covered by Medicare parts B and/or D, and pay Medicare premiums, converting too much in 2016 can raise the Medicare premiums in 2018.
  • Also, for medium- or lower-income people who get Social Security income, a conversion can make more of the Social Security subject to tax and also can turn tax-free long-term capital gains and qualified dividends into taxable amounts.

However, paying extra tax can sometimes be worth it in the long run if the Roth IRA account grows a lot after the conversion. These are just some of the things that should be considered in determining the best conversion amount.

Other considerations include the current and future financial and income tax situations of you and your beneficiaries. As we move further into an election year, the possibility of tax law changes looms ahead. Since future tax laws can affect the long-term success of a conversion early in 2016, they should also be considered.

Due to all these considerations and more, we stress the importance of “running the numbers” to be certain that the decisions you are making about Roth IRA conversions are absolutely right for your situation. In general, we like Roth IRA conversions for taxpayers who can make a conversion and stay in the same tax bracket they are currently in, and have the funds to pay for the Roth conversion from outside of the IRA. It is best to run the numbers to determine the most appropriate time and amount for your situation. This is a service that we have provided for hundreds of clients and currently offer free for our assets under management clients. We like to do these number running sessions with the clients in the room. This allows them the opportunity to bring up questions, adjust the scenarios, and feel extremely comfortable with the final decisions.

We usually find many people hesitant to make any changes in their investments when they decline in value. However, you should not pass up the opportunity to do a Roth conversion in a troubled market, as it could provide you and your family more financial security in the long run. Because of the many things to be considered when doing a Roth conversion, we suggest you discuss how much to convert in 2016 with your qualified advisor.

If you are interested about learning about whether a Roth IRA conversion is right for you, please click here and fill out our pre-qualification form. If you qualify, we will contact you to schedule an appointment with either James Lange or one of his tax experts.

Unfortunately, this Free Second Opinion is for qualified Western Pennsylvania residents only.

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4 Reasons Why We’re Excited that Retire Secure! is Interactive on the Web!

If you haven’t made your way to www.langeretirementbook.com yet, now is the time!

Here at the Lange Financial Group, LLC, we are very excited to bring you an interactive version of Retire Secure! A Guide to Getting the Most Out of What You’ve Got.

Reason #1 – The entire book is on this website. Yes, all 420 pages of the book, including the front and back covers, all about the best strategies for retirement and estate planning.

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Reason #2 – The book is divided into chapters for ease of reading. Meaning, you don’t have to flip through 400-some pages to get to Chapter 11 – The Best Ways to Transfer Wealth and Cut Taxes for the Next Generation.

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Reason #3 – We honestly haven’t seen anything like this before. Granted, I’ve read magazines on viewers where you can flip the pages as you read. But not a website for a book that includes a viewer, as well as a forum where readers can engage with each other.

The comments are moderated by the Lange Financial Group, LLC staff and myself. One of us will reply to your comment as soon as we can. To leave a comment, all you need to do is connect with your Amazon, Facebook, or LinkedIn account. This measure is for your protection, as well as ours. We don’t want spammers posting comments or incorrect information about such an important topic.

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Reason #4 – We are hoping this interactive website encourages you to purchase the book! Retire Secure! is available from Amazon and JamesLange.com. Once you’ve read the book, feel free to return to LangeRetirementBook.com to ask questions, as well as Amazon and Goodreads to review the book for the benefit of others.

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Disclaimers: Who on Earth Would Refuse to Accept an Inheritance?

inheritance stretch ira james lange the roth revolution blogWho on Earth Would Refuse to Accept an Inheritance?

Plenty of people!

The concept of disclaiming, which means that you refuse to accept an inheritance, is often surprisingly difficult for clients to accept. Who on earth would refuse to accept an inheritance? When I get this question, I have to laugh because the obvious assumption is that the beneficiary is turning away a rare opportunity to increase his or her wealth with little or no effort. So let’s look at a hypothetical situation. Suppose your rich uncle wrote his will twenty years before he died, and the will provided that, at his death, you would inherit a small apartment building that he owned. In the twenty years since his will was written, though, your uncle’s health declined and he did no maintenance at all on the building. The angry tenants moved out long ago, and the building has been vacant for ten years. Vandals broke the windows and stripped the building of its plumbing and wiring. The city has condemned it because it is a nuisance, and the owner is going to have to pay to have it demolished. Do you still want your inheritance now?

Beneficiaries always have the right to disclaim (or refuse) all or part of an inheritance. This idea has traditionally been a cornerstone when planning for the multi-generational benefits of a Stretch IRA. Under the current law, if the named beneficiary chooses to disclaim an IRA or retirement plan, the contingent beneficiary is able to use his or her own life expectancy to determine the Required Minimum Distribution from that account. In a case where a surviving spouse disclaims to children, this allows the IRA to be “stretched”, allowing maximum growth as well as income tax savings.

If the Stretch IRA is eventually eliminated, disclaimers will likely play less of a role in estate settlements. There is, however, a rapidly growing group of attorneys (including me) who use and will continue to use at least some form of disclaimer in the estate plans of most clients. I have used them in my practice for years, and have found that they can give families a lot of flexibility during what is usually a very stressful time.

One final note about disclaimers: beneficiaries who are on Medicaid may be disqualified from their benefits if they receive an inheritance. They may be able to refuse the inheritance and keep those benefits, but this depends on the laws of the state that they live in and the terms of the grantors will.

These ideas are presented in Chapter 14.

My next post will continue to expand on the concept of the Stretch IRA, but will specifically address the ramifications of choosing one beneficiary over another. Stop back soon!

Jim

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Thank you.

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The Death of the Stretch IRA: It’s Time to Review the Retirement Plan Beneficiary Rules

The Death of the Stretch IRA, James LangeThose of you who have been following me for a while know that that one of my most cherished mantras is “Pay Taxes Later!” An extension of that mantra was my recommendation that, upon your death, your beneficiaries continue to take advantage of the minimum distribution rules to “stretch” your IRA for as long as possible so that they could achieve the maximum tax-deferred growth possible. This used to be a fairly straightforward concept but, with the increase in second and third marriages, as well as non-traditional marriages, it has become much more complicated.

To add to the confusion, there is increasing pressure from Congress to eliminate the Stretch IRA. This would be a very good time to review your retirement plan beneficiary rules, because you might want to change your designations. Non-spousal beneficiaries may soon be required to withdraw and pay taxes on inherited IRAs within five years. This idea was first introduced by Senate Finance Committee Chair Max Baucus in 2013, and was thankfully withdrawn for lack of support. It reappeared in 2013 as part of President Obama’s budget proposals, and again in 2013 as part of a bill to reduce student loan debt. Killing the Stretch IRA, they felt, would provide enough revenue to reduce student loan rates for college tuition for one year. That bill was passed by the House but died in the Senate by only two votes. Then in 2014 and 2015, President Obama’s budget proposals again included a provision to kill the Stretch IRA. It seems clear to me that this measure, or a similar one, may eventually pass.

So who should be named the beneficiary of your retirement plan? Is one option better than another? Chapter 13 answers these questions assuming that the benefits of the Stretch IRA will continue under the current rules, and also presents some options that you can consider if the Stretch IRA is eventually eliminated. This chapter also offers some guidance in naming trusts as beneficiaries. If done properly, this can protect your assets from your child’s creditors, including their former spouses.

Don’t forget to stop back soon for a sneak peek at Chapter 14, which expands on some concepts critical to understanding the benefits of the Stretch IRA!

Jim

P.S. Here’s a video on The Death of the Stretch:

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

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Tax Free Roth IRAs: Don’t Believe Everything You Read

Tax Free Roth IRA, Don't Believe Everything You Read, James Lange, The Lange Financial GroupMy wife recently told me that she didn’t think that there was anything that could keep me from blogging about my upcoming book, Retire Secure!  While she was joking, she was also right, I thought. But then, an article that was published in US News and World Report yesterday (April 20, 2015) was inaccurate on so many points that I could not let it go without commenting on it. I submitted a comment to the article and asked that the article be retracted. I can only hope that the magazine will publish a retraction, and quickly, before an unsuspecting reader takes the writer’s recommendations to heart.

The writer is a certified financial planner and registered investment advisor, as well as a published author, from Virginia. He begins by telling readers about Roth IRAs. He says that you can contribute $5,000 to a Roth IRA – that limit was increased $5,500 in 2013. If you have a Roth account in your 401(k), he claims you can add $6,000 to it if you are over 50 years old. (If you are over 50, you can add $24,000 to a Roth 401(k) in 2015this is made up of the $18,000 basic contribution limit plus a $6,000 “catch-up” contribution limit.) He claims that, if you contribute to a Roth, “the money you invest will be taxed”. (Everyone knows that, if you follow the rules, Roth accounts aren’t taxable, right? I sincerely hope that what he was trying to say was that there is no tax deduction for Roth contributions!) Then he tells readers that, after age 59 ½, “when you begin to take distributions” from the Roth, they will be tax-free”. That statement is not inaccurate, but it does omit the very important fact that your contributions can be withdrawn from a tax free Roth IRA before age 59 1/2.  (Earnings on your contributions are treated differently.) It is the traditional IRA that, in most cases, you cannot withdraw from without penalty until age 59 1/2.

The worst advice, though, came when he tried to present the pros and cons of Roth conversions.

He recommends that you take one of your existing IRAs or qualified plans and convert the entire thing to a Roth, but then warns you that you will need to pay tax on that entire conversion at once.What is omitted here is that, if you convert your entire account at once, your tax bill may be so large that you move up in to a higher tax bracket. It would be imprudent to make such a recommendation to a client! What generally makes more sense is to make several smaller conversions, in amounts that ensure that you stay in the same tax bracket. He recommends not making tax free Roth IRA conversions later in life, on the basis that you will not live long enough to enjoy the tax-free benefits. Tongue in cheek, I might argue that that’s a risk at any age, but even if you don’t live long enough to enjoy them, the tax-free benefits to your heirs, who are likely much younger than you, are indisputable. The strangest statement against Roth conversions, I thought, was that “you will potentially have to write a big check to the IRS”. It is true that you will have to pay tax on any amount converted from a traditional to a Roth IRA. But even if you don’t need your retirement money to live on, you will have to start taking withdrawals from your traditional IRAs every year once you turn age 70 ½. Those mandatory withdrawals will be taxable, and at that point you will be writing a big check to the IRS. The question is, does it make more sense to make Roth conversions while your retirement account balance is likely to be smaller, pay tax on a smaller amount of money, and generate tax-free income on all of the future earnings on the converted amount? Or, does it make more sense to wait twenty or thirty years, let the taxable traditional IRA grow as large as possible, and then pay the tax on the larger mandatory withdrawals?

In this age of electronic communications it’s easier to offer opposing points of view, and I have to admit that I wasn’t surprised when I saw the sheer volume of dissenting opinions that the article produced within hours of its publication. I also wondered if there were other individuals who read it and took the advice to heart. That made me think of another question – what would my readers have thought about that article, especially after receiving such dramatically different advice from me? Who are you supposed to trust?

My advice to you is this – trust yourself first. If a financial professional says something that does not make sense to you, ask for clarification. If the answer you are given still doesn’t make sense to you, trust your instincts. Get a second, third, fourth or fifth opinion before you act. Or, look up the answer yourself. There are number of resources that my staff and I use all the time, that are also available to you.   These include the Internal Revenue Service’s website (www.irs.gov), the Social Secure Administration’s website (www.ssa.gov), and the website established by Medicare (www.medicare.gov). Educating yourself about your options is the best defense against making a potential mistake that you have available to you.

I’ll get off my soapbox now. Stop back soon for another update on my book.

Jim

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Is It a Good Idea to Roll Over Your 401K to a Traditional or Roth IRA?

Earlier this year, President Obama announced that he wants to create new rules that give financial advisors a “fiduciary” status under the law. I welcome this wholeheartedly because a fiduciary is required to always put his clients’ interests ahead of his own. This means that a financial advisor cannot make investment recommendations based on the commission they would receive from the investment, and that they must first consider the benefits that would be received by their client. As a fee-based advisor I have always served as a fiduciary to my clients and believe that it is an immensely important role.

I find it sad that we have to pass laws to make sure that the client’s interests are protected, but think that the President is on the right track with this one. More often than not, I hear of financial advisors who are only looking for a commission telling retirees that there’s no reason to not roll their old retirement plans to an IRA. That is simply not true and, in fact, there are circumstances where a retiree will be well served by keeping all or part of his or her retirement money in the original work plan.

These scenariosare discussed in detail in Chapter 6 of the new edition of Retire Secure! If you’ve wondered if rollingyour old 401(k) to an IRA is a good idea, you may very well find that you could save yourself from making a terrible financial decision by weighing all the potential advantages and disadvantages.

Many work plans give employees the opportunity to contribute to both pre-tax and after-tax accounts. If you ultimately decide that rolling your 401(k) to an IRA is the best course of action, you should make sure that you read Chapter 6 to educate yourself about the brand new IRS ruling that applies to your after-tax contributions. This ruling gives retirees an unprecedented opportunity to roll part of your 401(k) to a Roth IRA and, if done properly, the transaction will be completely tax free.

Check back soon for the latest information on Roth conversions!

Thanks for Reading!

Jim

Jim Lange A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Thank you.

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The Optimal Order for Spending Assets: Roth IRA or Traditional IRA First?

Roth IRA, James Lange, Retire Secure A Guide to Getting the Most Out of What You've GotThose of you who have attended my workshops or read the previous editions of my book may remember a rule of thumb I used to use that said, “Spend your after-tax dollars first, tax-deferred dollars second, and then your Roth IRA”. Well, guess what? The changes in the tax laws now mean that there are no more rules of thumb! My new advice is, “Spend your after-tax dollars first, and then withdraw traditional IRA and Roth IRA dollars strategically to optimize tax results.”

Changes in the tax law that affect capital gains and individual tax brackets, as well as new taxes that are aimed specifically at high income taxpayers mean that the advice I used to give in the past is now far too simplistic. Chapter 4 presents detailed information on how capital gains and other taxes should affect your decision to withdraw money from a traditional versus a Roth IRA account. Would you have thought that your marital status could affect your decision too? Is it possible to minimize the tax on your IRA withdrawals? (Hint: oh, yes!) If you have IRA and Roth IRA money left over when you die, is it better to leave one type of account over another to a child at your death?

Chapter 4 covers many new issues that you did not have to worry about in the past, which should certainly affect these decisions. I’d like to give you one word of caution, though. Each of the scenarios presented in this chapter is based on a specific set of variables. In one scenario, I changed only the account from which the taxpayer made the withdrawal, and the outcome is significantly different. Please don’t assume that your personal circumstances will result in the same outcome shown in these scenarios. Ask us to run the numbers for you!

Be sure to stop back for my next post, which will cover some ideas for managing your Required Minimum Distributions!

Thanks,

Jim

Jim Lange A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

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IRA Withdrawals: Should you withdraw from your Roth or traditional IRA first?

IRA Withdrawal
Those of you who have attended my workshops or read the previous editions of my book may remember a rule of thumb I used to use that said, “Spend your after-tax dollars first, use traditional IRA withdrawals second, and then withdraw your Roth”. Well, guess what? The changes in the tax laws now mean that there are no more rules of thumb! My new advice is, “Spend your after-tax dollars first, and then withdraw traditional and Roth IRA dollars strategically to optimize tax results”.

Changes in the tax law that affect capital gains and individual tax brackets, as well as new taxes that are aimed specifically at high income taxpayers mean that the advice I used to give in the past is now far too simplistic. Chapter 4 presents detailed information on how capital gains and other taxes should affect your decision to withdraw money from a traditional versus a Roth account. Would you have thought that your marital status could affect your decision too? Is it possible to minimize the tax on your IRA withdrawals? (Hint: oh, yes.) If you have IRA and Roth money left over when you die, is it better to leave one type of account over another to a child at your death?

Chapter 4 covers many new rules that you did not have to worry about in the past, which should certainly affect these decisions. I’d like to give you one word of caution, though. Each of the scenarios presented in this chapter is based on a specific set of variables. In one scenario, I changed only the account from which the taxpayer made the withdrawal, and the outcome is significantly different. Please don’t assume that your personal circumstances will result in the same outcome shown in these scenarios, but ask us to run the numbers for you!

Be sure to stop back for my next post, which will cover some ideas for managing your Required Minimum Distributions!

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WSJ Article: Jim Lange Examines Proposed New Laws & Financial Planning

Don't Let Obama Proposals Sidetrack Financial Planning, WSJ, James Lange, Jonathan ClementsJim was recently quoted in the Wall Street Journal (for the 35th time) by Jonathan Clements, a long-respected personal finance journalist. They discussed several topics including many that Jim has included in his new book due out in summer 2015, Retire Secure: A Guide to Getting the Most out of What You’ve Got.

The article, titled: Don’t Let Obama Proposals Sidetrack Your Financial Planning, mentions several legislative proposals that have been introduced since 2014 that could have a large effect on your personal financial planning. Specifically, Jonathan asked Jim about his thoughts on the proposals and how they might change Social Security and Inherited IRAs and Roth IRAs.

Jim’s advice? Even if changes are made for allowing Social Security maximization strategies like Apply & Suspend, traditional planning advice will likely remain the same. Hold off on Social Security as long as you can and collect the full delayed retirement credits.

“Let’s say the husband dies at 70, but the wife lives to 95,” Mr. Lange says. “The extra 32% in survivor benefits could mean the difference between her being in poverty and her being just fine.”

And what about the potential death of the Stretch IRA? Does it still make sense to do a Roth IRA conversion should a law pass that limits the effectiveness of Inherited IRAs? Jim explains that if a law passes that obligates a beneficiary to drain the account in five years, such an event could push that beneficiary into the highest tax bracket for those years. Because of this:

“It might still make sense to do the Roth conversion, so the kid won’t have this horrible tax burden,” Mr. Lange says.

You can read the full article here: http://blogs.wsj.com/totalreturn/2015/03/20/dont-let-obama-proposals-sidetrack-your-financial-planning/

To learn more about nearly all of the subjects discussed in this article in greater detail, read Jim’s book! Go to www.retiresecurebook.com to receive a free 4 page summary and email reminders for the release of the Third Edition of Retire Secure!.

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