While reasonably basic to an IRA specialist, the 9 ideas below are often
overlooked by consumers and many financial practitioners alike who do
not specialize in IRAs. Used appropriately, these ideas may often help
individuals and families preserve their retirement wealth. Perhaps they
can help you too. Consider researching in more depth on your own, or perhaps
broach any of the topics you feel may apply to you in more detail with
your financial consultant(s).
The 9 ideas have been separated into three different life stages, so at
least one of them could apply to you regardless if you are contemplating
retirement, already retired, and/or interested in how a surviving spouse
can maximize benefits
after retirement (ok, at death).
Strategies BEFORE Retirement
1. The Non-Deductible IRA Contribution
Almost anyone still working and under age 70½ with earned income
can make an IRA contribution, regardless of how much money they make.
Even with no deduction, the more you have in a tax-deferred IRA, the more
you can convert to a tax-FREE Roth IRA later.
2. The 401(k) Mega Roth IRA Contribution
If you cannot contribute to a Roth IRA, but your employer has a 401(k),
you may be able to still make after-tax contributions to your 401(k) and
later, due to the new rules, directly roll over those after-tax contributions
into a Roth IRA.
3. Avoid RMDs after age 70½ using a Reverse Rollover to a 401(k)
If you are still working and have a 401(k) with your employer, you may
be able to move one or more of your IRA accounts to your 401(k) account
temporarily. This could be a strategic move, because you aren’t
forced to take Required Minimum Distributions(RMDs) from your 401(k) account
(even if you’re over age 70½) until after you have separated
from that employer.
Bonus Idea: Contribute to a charitable cause you believe in for the tax deduction it provides.
Strategies DURING Retirement
4. The Roth IRA Conversion
Once you retire, especially if prior to age 70½ and you do not
need the income from your IRAs, consider converting a portion of your
tax-deferred IRA to a tax-FREE Roth IRA. Even if you just convert 5% or
10% of your account(s) per year, in just 5 years you can potentially have
25% to 50% respectively of your retirement assets in a tax-FREE Roth IRA
for the rest of your life – and possibly for the lives of your beneficiaries
too. You’ll pay some tax now, but reap the rewards for the future.
5. Plan ahead for your income strategy and age 70½ RMDs
Take the time before you reach age 70½ to learn how you can determine
which accounts you should take money from first, how much to take from
each, how often, how it integrates with other income sources (pension
or Social Security) and why that strategy may be more efficient toward
saving money from taxes and/or helping your money last longer.
6. Using the QLAC to reduce taxable income at age 70½
New IRS rules allow contributions to a Qualified Longevity Annuity Contract
(QLAC) to potentially enable a portion (25% of your retirement account
balance or $125,000, whichever is less) of your RMDs to be postponed beyond
age 70½ while still locking in a guaranteed income amount in the
future. This could allow you to pay less in taxes at age 70½.
Bonus Idea: Use the Qualified Charitable Distribution (QCD) to contribute to a charitable
cause you believe in.
Strategies AFTER Retirement (for surviving spouse)
7. IRA Choice #1: Spousal Rollover Beneficiary Option
A spousal rollover option is the name given to the planning strategy where
a surviving spouse moves a deceased spouse’s retirement account
into their own retirement account.
8. IRA Choice #2: Treat IRA as Own Option
A second option available to the sole surviving spouse beneficiary is
to treat the deceased spouse’s IRA account as their own, essentially
pretending as though they owned it all along. This can be useful if the
surviving spouse wants to maintain an existing IRA investment, but would
not be able to do so if the deceased spouse’s IRA account was closed.
9. IRA Choice #3: Remain as Beneficiary of IRA Option
The third and final option a sole spouse beneficiary has upon inheriting
a deceased spouse’s IRA account is the ability to remain a beneficiary
of the account. Using this option may either help the surviving spouse
avoid a 10% penalty or defer the age 70½ RMD, and may be strategic
depending on the age of the deceased and the surviving spouse.
Bonus Idea: Use the IRA beneficiary designation to contribute to a charitable cause
you believe in.
Like it or not, most retirement assets have yet to be taxed. To be fair,
many people may not have actually saved nearly the amount they have today
had they not been incentivized to do so due to the seemingly tax-deferred
benefit. The key, therefore, is not to look back and question what you
did right or wrong, but rather, think proactively of how to make the best
choices going forward. Making smart choices, of course, assumes you have
been made aware of your best options. Ask yourself if you and/or your
advisor(s) have considered these 9 options – and which may be worth
learning more about.
A better understanding of how to plan for the distribution of your wealth
before, during and after your retirement, combined with a proactive plan
to maximize tax efficiency, can help you and your family reduce the imbedded
tax debt of your IRA accounts and preserve your wealth.
Click here for a more detailed account of these nine strategies.
For additional financial health information, please attend Torrance Memorial's
Financial Health Seminars.
Christian Cordoba, RFC®, CFS is a personal wealth manager and the founding partner at California
Retirement Advisors, a financial consulting and services firm in El Segundo,
California. He is a Registered Principal offering securities through First
Allied Securities, Inc., a registered broker/dealer, member FINRA/SIPC.
Christian is a member of the Torrance Memorial Professional Advisory Council.
. (310) 643-7472.