How to make it, spend it, and invest it

24 Dec 2019

Inheriting IRAs just got complicated thanks to a new retirement overhaul By Paola Peralta

Post by MoneyRadio Staff


Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.

Inheriting IRAs just got complicated, thanks to new retirement overhaul
The government’s latest year-end spending package includes provisions that would require IRA beneficiaries to withdraw their inherited assets within 10 years, according to this article in The Wall Street Journal. The change would affect seniors who converted traditional IRAs to Roth accounts and paid taxes for the benefit of their heirs. “People made long-term plans believing they could rely on the tax laws at the time. This revision changes the rules in the ninth inning of the game and causes savers to lose faith in long-term tax planning,” says IRA expert Ed Slott.

The biggest 401(k) mistake clients make
Liquidating old 401(k) assets can be a poor decision for working clients who switch jobs, as it will trigger income taxes on top of a 10% early withdrawal penalty, an expert in Kiplinger writes. Instead workers are advised to consider rolling over the funds to an IRA, move the money to their new 401(k) plan or leave the assets with their old plan, he writes. “Leave the money where it is, in your former employer’s 401(k) plan. Many plans offer low fees and good investment options, so consider this choice before you act,” according to the article.

Find out how advisors – not just investors – can be affected by behavioral biases.

What is the best retirement strategy for clients?
Clients will need to use a combination of strategies to secure their post-career life, according to this article in Motley Fool. That’s because an effective retirement approach is built to address a number of factors, including health care costs, living expenses, life expectancy and investments. Clients will also need to use the right retirement accounts, according to the article. For example, contributing to a traditional 401(k) and a traditional IRA can help them reduce their taxable income, while a Roth 401(k) or a Roth IRA offers no upfront tax deduction on the contributions, but distributions will be tax-free in retirement.

Seniors are advised to reduce their taxable income in retirement to avoid Medicare Parts B and D surcharges, according to this USA Today article. To lower their taxable income, they should start taking withdrawals from their traditional 401(k)s and IRAs early, as this strategy will minimize the RMD amounts. They should also maximize their HSA contributions, draw money from their after-tax Roth accounts and life insurance policy. Investing in tax-efficient mutual funds and opting for a home equity conversion mortgage are other strategies they can use to minimize their taxable income.