The New 10-year-Rule for Inherited IRA Distributions
Fairness and honesty…I think these are things that most of us want in our daily dealings. Then, enter the IRS; more of a political entity than a fair and honest public trust institution. After all, the IRS does stem from the Executive branch of the US Government. Do we really trust our elected officials as a society, I mean really, do we?
Maybe individually some do, but collectively, do we? I do not know the answer, so please do not look at me, we can all point our puzzled looks right back at each other (I think that’s definitively American politics…an indescribable look of confusion and wonderment).
What I do know is just as NON-finance/accounting-professional members of the public were starting to understand the IRS policy on Inherited (Beneficial, Stretch) IRAs and the term “Required Minimum Distribution” or RMD (for the intellectual types), the IRS changes the rules again.
Fine, I have no issues with that, if that is what our elected officials feel is the best thing for our country. But if you are making the rules, shouldn’t you know the details, the why, the potential impact in real life and understand how to communicate all this effectively to the public? It is the IRS, so I will digress and finally begin my points.
Did you recently inherit or are you about to inherit an IRA or Roth IRA? Want to skip my incessant run-on sentences and schedule a 20 Minute Consultation with me? Click here for access to my calendar.
Old IRS Inherited IRA and RMD Rules for Non-spousal Beneficiaries:
THE IRS WANTS THEIR MONEY and will take it at their pleasure! (I think this should be a common saying like “Don’t Fight the FED” in financial circles.)
Well, I guess the old way was not getting the revenue the IRS wanted from hard-working, thrifty and diligent American families. By the way, I thought the US had a retirement crisis?!?!? I thought the government was telling us that US citizens did not have enough saved for retirement and Social Security was not meant to be the only source of income people relied on?!?!? Oh well, the heck with that, when the cupboard is bare, the IRS will always come knocking.
New IRS Inherited IRA Rules for Non-spousal Beneficiaries (in a nutshell):
How does this impact your investment strategy if you inherit an IRA?
In the rocky landscape of my analytical mind, this change impacts people’s investment strategies for retirement greatly. However, it now impacts every individual and family differently. And therein lies the rub. Prior to 2020, someone, your mailman, your landscaper, your neighbor, could have told you that “the best thing to do is to open a stretch IRA, minimize taxes and invest the money for the long-term,” as they console you over the loss of a loved one. They probably would have been right.
Now, what if you are planning, want to or need to work another 5-10 years to live the lifestyle you want in retirement? Then, you lose someone that you cared about, and they cared about you. They left you their hard-earned retirement savings, so you and your family could have security and hope in the future they knowingly will not be a part of. Do you choose option 1, 2, or 3? Are there any “good” options from a tax perspective? Maybe, but it is much more complicated now. That is just one of many scenarios likely to happen in real life.
After you choose your distribution option, how should you invest the money? If you must take the money out by 12/31/xxxx date, when do you eliminate volatile assets from the portfolio, like common stocks? What if six months prior to 12/31/xxxx date, you own a large percentage of stocks and there is a major unforeseen economic, geopolitical, health or other event that causes your well diversified portfolio value to get slashed?
Who knows, maybe the government will come to everyone’s rescue and tell everyone to not make the demanded IRS RMD distribution until the economy and market recovers. Then you can have the luxury of investing these funds with a nice interest rate and reasonable yields for risking your money…oh I forgot again, that did not happen the first several times the government stepped in to save us all.
Is that the world we live in now? One with overly complex IRS tax rules that do not seem to really be in the “peoples” best interest, but the government will step in to save us all if needed. Maybe, and maybe it always has and always will be that way.
I believe you need effective financial planning at all stages of life.
Thanks to the IRS, I now have another reason to tell my clients and others that you should have a financial plan. A financial plan that is living, flexible and changes when it needs to change. Guess what? The planning only works if it is in-advance and it is only based on what we currently know.
I hate to state the obvious but believe me it does come up often as modern life demands our attention every second; many people fail to think about what they want money to do for them in the future and what they might be willing to give up today to make it happen.
What do you want? How can your future financial independence help you be happy? Do you have a plan to get there that is dynamic and protects those you care most about?
If we go back to the rocky cliffs of my mind (I know this may be a scary place to some), personal investing, investing for human life-expectancies and family generations, and financial planning are synonymous. It all starts with you. What you want. What your vision of the future is.
It is my job to be your financial guide, understand you and figure out the financial puzzles to fit the vision of your personal future. It is my job to be getting bounced around by the IRS, the markets and know how to keep the ship on course like the Skipper in Gilligan’s Island…no, no, no…I mean like a worthy sea captain that doesn’t crash the boat and get everyone stranded like Captain Nemo in his super submarine, the Nautilus, helping out those in need.
Investing is just one tool in the trusted financial advisor’s bag and, of course, it is an important one. But it is also important to consider how much you, or your family get to keep for your hard work. Therefore, understanding tax, estate, risk management and economic strategies are very important to people’s lives and future generations.
Trust me folks, financial planning is far from easy, ever evolving and can be the best way for you to get the maximum value from a “Financial Advisor” at any stage of your life. You should get help from a trusted, fee-only, fiduciary advisor that will not sell you down the river like the IRS, always acts in your best interest and always has your back.
An “advisor” will never sell you a product. That is the job of a salesperson. I do not think there is anything wrong with either if the person has self-identified themselves appropriately. Unfortunately, the vast majority of “financial advisors” are Financial Salespeople and not “advisors” at all.
I work with other trusted professionals in the areas of tax, estate, insurance and lending, etc. Some of those professionals rely on selling a product to generate their revenue and there is nothing wrong with that business model, because they are not going to confuse you by telling you they are your advisor and then sell you a product. They will be transparent, fair and honest upfront.
I am a trusted advisor to my clients and will never sell you anything (especially down river!). Let us start the journey together! Whether your retirement accumulation journey is just starting or you’re ready for the best journey of your life, your financially independent, non-working life. I am here to help you and create a lasting, long-term relationship together. I am a fee-only, fiduciary, trusted advisor (really, I am an advisor, sorry it gets confusing out there).
You can schedule a 20 Minute Consultation on my calendar here.
Let me know how I can help you. Contact me at:
Mike Weber, CFP®
Investment Advisor Representative
Blue Bell Private Wealth Management, LLC
As a client of Blue Bell Private Wealth Management, LLC (“Company”), by selecting the “I Agree” button, I elect to participate in the password-protected access portion of Company Internet web site. I understand that my participation will allow me to review certain investment-related information published by Company and unaffiliated third parties. This password-protected access is made available to clients of Company free of charge. This authorization shall continue until canceled in writing.
I understand that the password-protected section is a secure web site intended only to allow a client access to information relative to his/her/its specific account. I also understand that I will be assigned an individual password. I agree not to share my password with any other person. I hereby release and hold Company harmless from any adverse consequences relative to any failure by me to keep the identity of my password secure.