18 Reasons why IRA’s Are Different!

As a Master Elite member of Ed Slott’s IRA Advisor Group and because of my on-going commitment to the clients of Secured Retirement Advisors, I dedicate at least 2 of my weekends a year to attend advanced and intensive continuing education programs in the complex area of IRA’s and other retirement plans. My mentor, Ed Slott, is named “The Best" source for IRA advice by The Wall Street Journal and called "America's IRA Expert" by Mutual Funds Magazine and is the recognized leader in educating advisors in this area of planning.  Because we specialize in working with families that are nearing and entering retirement at Secured Retirement Advisors, we believe it is crucial to maintain an up-to-date understanding and knowledge surrounding the latest IRA distribution and tax rules.

During last weekend’s semiannual conference where I visited with Ed’s organization and fellow colleagues committed to IRA planning, I was reminded of the many ways that IRAs differ from other retirement savings vehicles. The following are18 reasons why IRA’s are different: 

• IRA’s pass to your heirs by contract (generally not by will)
• IRA’s have required minimum distributions (RMDs)
• IRA’s have their own set of complex distribution rules both during life … and at death
• IRA distributions can incur tax penalties
• IRAs are highly taxes upon death or withdrawal
• IRAs are subject to double tax at death, both Federal estate and income taxes, plus our own special Minnesota version of estate taxes, in addition to IRS penalties that can apply to the withdrawals made by the owner
• IRAs receive NO tax basis step – up
• IRA’s investment gains receive no capital gains tax rates
• IRAs cannot be lifted or transferred during lifetime with only one exception: a direct gift to charity (a qualified charitable distribution) under Pension Protection Act of 2006.  This provision was extended through 2011 by the 2010 tax act
• IRAs cannot by transferred to trust during lifetime
• IRAs cannot change ownership during lifetime – this would trigger an immediate and complete distribution and end the tax shelter
• IRAs cannot by owned jointly, like other property can be owned
• IRA equity cannot by tapped the way home equity can be tapped without triggering tax and potential IRS penalties
• The choice of IRA beneficiary determines the ultimate future potential value of that IRA to beneficiaries – THIS IS THE AREA WHERE WE MOST COMMONLY SEE MISTAKES
• Trusts named as IRA beneficiaries must qualify under specific IRS rules so that trust  beneficiaries are eligible for stretch IRA tax benefits and there are no separate account rules for IRA trusts
• IRA beneficiaries may qualify for special tax breaks that are often missed
• IRAs have no principal and income concept.  The entire IRA (principal and income) may be distributed to the income beneficiary of a trust leaving little or nothing to remainder trust beneficiaries.  IRAs in a trust are all principal because under trust law, IRD (income in respect of a decedent) is principal in a trust and IRAs are IRD
• IRAs require their own estate plans and then those estate plans must be integrated within the overall estate plan that includes all other assets

There are a lot of details to keep track of and they are constantly changing with the tax laws. Would you believe that over 99% of all financial advisors are unaware of the latest IRA distribution and tax rules? For many retirees, IRA’s provide a key and central component to the comprehensive planning process.  My fellow colleagues and I that are in Ed Slott’s Master Elite program  place a priority on studying and remaining educated through an advanced and intensive year round program on all the IRA’s in order to ensure that we are providing our clients with the most current and valuable advice possible. Feel free to visit Ed’s website at http://www.irahelp.com/findAdvisor.php to learn more about how you can find a knowledgeable advisor in your area.  Secured Retirement Advisors offers a free, down-loadable report on our website to help you determine if your current advisor has an expertise in this area called “10 Questions to Ask Your Financial Advisor”.  Feel free to visit us at www.securedretirements.com and help yourself this or any of our other educational materials.  If you would like a complementary “3 Step Review” of your own retirement plan, call Secured Retirement Advisors at 952-460-3260.