Over the years, I’ve met with many clients who have managed to accumulate small fortunes over the course of their working careers – even though their incomes were never even high enough to put them in the top two or three tax brackets. I call these clients my “savers.” These individuals seem to share one trait – mainly that they simply don’t feel the need to spend money if they don’t have to. Instead, they set the money aside for the times when they absolutely must spend and, more often than not, they spend far less than what they could.
It’s these clients who seem to suffer the greatest shock when they turn 70 ½ and are required to start withdrawing money from their qualified retirement plans. They object, “But I don’t need the money! I just want to leave it sit there in case I need it some day!” And I have to tell them that it doesn’t matter if they need the money or not. The money that they squirreled away in their retirement plans for a rainy day has grown all these years without being taxed, and now the government wants their tax money!
There’s no avoiding the Required Minimum Distribution rules on traditional retirement plans. Failure to take a distribution when required, in fact, will cost you a penaly tax of 50% on the amount not withdrawn. Individuals who hate the RMD rules and have a spiteful streak might enjoy an interesting (and legal) tip presented in Chapter 5 that allows them to take advantage of the withholdings on the distribution to wait until the very last minute to pay the IRS their due, while also avoiding a late payment penalty. They can also learn of a possible way to completely avoid tax on their Required Minimum Distributions – and also a general increase in their tax bracket – by sending their RMD direct to a charity. I encourage everyone, though, to read Chapter 5 so that you have a good understanding of the RMD rules. Later chapters address proposed legislative changes to the rules that may not strike you as being significant, and unless you have a good understanding of how they currently work.
My next post will talk about rolling your old retirement plan to an IRA. There have been a lot of changes in the laws about this, so I hope you will stop back to get a summary of what you can expect.
Happy Reading!
Jim
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.
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Over the years, I’ve been challenged by clients who present me with questions that even King Solomon in his infinite wisdom couldn’t answer. Other questions, complicated though they might be, are much easier to manage because they can be solved by running the numbers.
The third edition of Retire Secure! has been completed and will be going to the printer shortly. Some of you may be thinking, “So what? I already read that book.” Since the second edition of Retire Secure! was published in 2009, there have been two major revisions to the tax code and several landmark court decisions that have significantly changed the way we approach the cases we handle in our office. We try to keep you informed of these changes through our newsletters. If you’re a client, we also meet with you at least once a year to review your situation and, if needed, we help you make changes so that you can achieve the best results possible based on the current laws.
The third edition of Retire Secure!, Retire Secure! A Guide to Making the Most Out of What You’ve Got is set to be released in the coming months, (stay tuned for exact date). This revised Third Edition of Retire Secure! covers how to develop an estate plan that, among other goals, seeks to continue the tax-favored status of your retirement plans or IRAs long after your death using the stretch or inherited IRA—a strategy that has been, and continues to be, threatened by congress. Lange has a history of staying ahead of the curve, seeing trends and changes in the tax laws and developing strategies for his clients in advance to keep them on the right path toward their financial goals. He was among the first to predict the coming changes to the tax law on Roth IRAs and wrote a peer-reviewed article for The Tax Advisor (official journal of the AICPA) that would go on to win article of the year in 1998. He is continuing this trend in this Third Edition by laying out the possibility of the death of the stretch or inherited IRA as we know it, and providing avenues to reach the same or better outcomes for your family including the use of charitable remainder unitrusts, or CRUTS and life insurance.