Never Die With a Loaded IRA/401k
Chances are you’ve probably invested wisely and now find yourself “wealthy” by definition, although you may not realize that you are.
Your diligent savings habits combined with the bull markets of the last two decades may have turned your modest 401k and IRAs into large accumulations of money.
Now, you’re faced with tax issues with these investments because you’ve NEVER paid taxes on them before.
Congress, through the IRS, has made 401k and IRAs appealing retirement savings vehicles for many Americans. However, Congress has also made it possible for Uncle Sam to be a partner in both.
You see, 401ks and IRAs are tax-deferred accounts and as such, they enjoy the benefits of compounding growth without immediate taxes on the earnings.
However, when you reach the age of 70 ½ , the IRS mandates that you must begin taking minimum distributions. It is then that you must pay ordinary income taxes on those distributions.
And, when you die, you may even lose up to 75% of the value of your 401k or IRA to estate and income taxes!
If you do not have any intentions to spend your 401k or IRA, what can you do with them to avoid these potential problems?
Regular 401ks and IRAs Are POOR Vehicles to Transfer Money to the Next Generation.
401ks and IRAs are great for accumulating wealth, however, they are very inefficient at transferring wealth to the next generation.
Consider this. Is losing up to 75% of the value of your 401k or IRA a good way to transfer wealth to your loved ones?
Probably not!
Better Alternative IRA Transfer Strategies
IRA Transfer Strategies are aimed at reducing taxes when a 401k or IRA is transferred to the next generation. These strategies include:
- Roth IRA Conversion– While you pay into a Roth IRA with after-tax dollars, the growth and distribution of those assets are tax-free.
- IRA LegacyMax– Like the Roth IRA, the growth is tax-deferred during your lifetime. Upon death, it is passed tax-free to your loved ones.
- Stretch IRA– The Stretch IRA is an estate planning strategy that allows you to lower the taxes your beneficiaries have to pay, and that reduces your retirement income in case you don’t need all of your IRA or 401k funds in retirement.
- IRA Tax Rescue— Through this technique, you may be able to pay ZERO taxes on your IRA distributions simply by creating deductions using your home.
- IRA Conversion— By strategically converting your IRA/401k and paying Uncle Sam his share NOW, you divorce him as a Partner, and therefore, eliminate any future penalties and taxes.
These IRA Transfer Strategies involve exchanging tax inefficient assets for tax efficient assets.
Why would you want to make these exchanges? Because using any of these strategies is a better alternative to passing along wealth to the next generation than just keeping a traditional 401k or IRA.
Who May Benefit From These Strategies?
- Individuals who are retired
- Those living comfortably retirement income
- And, those who have earmarked certain assets for their heirs or charity.
Benefits of These Strategies
Regardless of the asset, the benefits may result in a far superior outcome for your beneficiaries, may they be your heirs or your favorite charities.
To learn how the Wealth Transfer Strategy may benefit you and your loved ones, click here to contact us. Never die with an IRA, 401k or Annuity.
