Individual Retirement Account Archives - The Free Financial Advisor

Six Simple Tips for Beginner Investors

October 19, 2012 by Joe Saul-Sehy 17 Comments

My parents are in town! While I’m partying with my peeps, this guest article was written by our friend Julian over at Frugaal. Frugaal is a website that provides online stock and forex broker reviews, and it also contains a blog focusing on a broad range of financial and frugal-living topics. Enjoy!

You may think that investing is too complicated and difficult for you–especially if you have a very small amount that you’re able to invest. But over the past few years, the internet has made investing a possibility for anyone. Now, using online brokers, even if you only have a very small portfolio you can get all the benefits that the large investors do, just on a smaller scale. Of course, make sure you check out all the options available for you at the different brokerage companies but, in the meantime, take a look at these six simple investing tips for beginners.

Start small, and also don’t be deterred if you don’t have much cash to invest

In the past, it was impossible to start a portfolio with a very small investment. However, now you can get started with as little as $100. In fact, this it’s a good idea to start of small so you can learn the ropes before you start to take things seriously. So get your feet wet by buying a small portfolio containing mutual funds for example; this will give you an idea of how the stock market works and will mean you won’t risk more than you can afford to. However, by choosing wisely, you can find funds that are highly unlikely to ever lose major ground; they just may not have as high of a return as those that are more volatile. When purchasing stocks, beginners should also ideally go to discount online brokerages where, although the level of service will not stretch beyond deal-execution, you will avoid any expensive fees.

Do your homework

This tip doesn’t mean to say it’s a good idea to shell out a ton of money on books and even online or offline tutorials and courses. Instead, it means harnessing the wide range of readily available, free educational tools that are out there. So follow blogs that specifically focus on stock investing; read the financial papers to get an idea of what stocks you might like to purchase; join online forums (often found on the websites of online brokerages) to pitch your questions and ideas to others who have been in the game for longer and are more knowledgeable than you; and, as the very first starting point, be sure to understand some of the basic principles and rules of economics, accounting, and corporate finance. Ultimately, remember that a few Google searches and a few hours spent reading will get you a long way to begin with all this.

Monitor your investments

After you buy your first stocks, check up on them regularly. While you don’t want to become obsessed with checking them several times a day, this is your money that you’ve invested, so you should keep an eye on how things are going. Only by carefully monitoring the investments will you start understanding what makes them go up or down in value over time. A great way of monitoring your investments is by harnessing the capabilities of Google Finance. You can then also get yourself a Google Docs stock portfolio monitoring spreadsheet. The best thing is, both of these services are completely free.

Diversify

In some ways this should be on this list, but in other respects, it shouldn’t. If you have a diverse portfolio you’ll be mitigating against the risk of losses by spreading your investments across a diverse portfolio. Although in principle this is great, the reality is that it’s not possible to get your hands on a truly diverse portfolio with only a small amount of funds unless you buy into an index fund. So don’t be too hung about not being able to foster a diverse portfolio yourself if you don’t have the funds to do it.

Make investing a priority

If you want to add to your portfolio regularly, make investing a priority in your life. The old adage is that you should pay yourself first, meaning you should put aside money for savings before you pay your bills and buy things you need or want. This is excellent advice. Each paycheck, set aside a certain amount that you wish to invest, say 5% for example. It may not be much, but over time it will add up and your portfolio will grow. Investing is also a great thing to get into if you want to reel in your spending sprees and start to look towards the future, particularly if you’re a young adult. This is because unlike placing money into a savings account – a fairly passive and dull activity – investing can be exciting and it can become a new interest of yours, but one that will also allow you to build a healthy nest egg for later on in life too.

Have patience

Investing is not about getting rich overnight. Have patience with your chosen investments. There’s a very good chance they’ll grow and over time will begin to provide you with the financial return you were after. So if you’re after a quick return, investing won’t be the right method of savings for you; remember, investing is for those with time to wait for the market to dictate the rewards. Also, at the very basic level, make sure you’re not duped by any advert or website suggesting ‘get rich quick’ schemes through stock investing either. Put simply, there’s no magic bullet when it comes to stock investing, so don’t try and look for one.

Thanks for filling in, Julian! With the 4th quarter here, it’s time to cha-ching! on your investments. Okay, crew, your turn. Any tips to pile on top of Julian’s for your internet friends (or as my buddy Kathleen says, “the friends in your computer?”

Joe Saul-Sehy

Joe is a former financial advisor and media representative for American Express and Ameriprise. He was the “Money Man” at Detroit television WXYZ-TV, appearing twice weekly. He’s also appeared in Bride, Best Life, and Child magazines, the Los Angeles Times, Chicago Sun-Times, Detroit News and Baltimore Sun newspapers and numerous other media outlets. Joe holds B.A Degrees from The Citadel and Michigan State University.

joesaulsehy.com/

Are Senior Workers As Respected As They Should Be?–A Cuppa Joe Discussion

March 29, 2012 by Joe Saul-Sehy 21 Comments

My dad is a GM retiree.

Where do your thoughts jump when you read that statement?

I was in a coffee shop recently where two men were talking about legacy costs…paid out to people like my dad. These were both younger workers, and the opinion seemed to be that people like my dad are an unnecessary tax on the system.

One guy said, “Those people should have saved more money. If they’d saved, they wouldn’t need that pension.”

I know that immediately many people who read this will think my dad is part of the reason GM went bankrupt. He receives a generous pension, has health care coverage and lives comfortably. He’s relatively young still and I hope he lives for a long time. That means that his benefits will continue to weigh on the company.

No Savings? Why Not?

My uncle also is a GM retiree. Around the year 2001, as the stock market experienced day after day of unnerving free fall, I happened to be standing next to him at a funeral.

Uncle: The stock market sure is all over the place. Your job can’t be easy right now.

Me: No, it’s not. Lots of people with 401k plans out there taking a beating and looking for advice.

Uncle: 401k plans?

Me: Yeah, like the one you have at GM.

Uncle: You know, I’m glad I never bothered with that. Look at all the money those people lost. I’ll stick with the pension.

At first, I thought poorly of my uncle. But for him and many others working in industry, a 401k plan was always considered “icing on the cake.” He also receives a generous pension and has health care coverage. Why should he risk hard won dollars in investments that could tank?

Because he didn’t invest online, mainly to practice internet safety for seniors, he’ll now be a burden on the system for years to come. However, the course he chose was a viable option at the time.

Reworking the Implicit Deal

This article at Timeless Finance recommends (among other things) that older Canadians should be forced into retirement by age 60. According to the author, this will energize the workforce and help young people get jobs….all at the expense of older workers.

Would this really work as intended? Will it help?

Before we tackle that argument, let’s evaluate the historical situation: it was a different game for my dad than it is for many of you and I. He worked in an era of “work for a large company to care for your family for 30 years, and then the company will take care of you.”

It was an implicit deal.

Now the deal has changed, and there’s a push to change it further. I’m sure many older workers wish the deal had been explicit.

You have to be a moron to not understand the shaky economics of our world financial situation.

There’s more fallout to come from the housing crisis.
The student loan bubble is about to pop.
European states are ready to topple like dominos.

But do we have to immediately jump to changing the deal for people who played the game “correctly” only to find the rules changed later?

Will Eliminating Older Workers Help?

I only told you half of the story about my dad and uncle. The other half is that both my uncle and dad are gainfully employed at the moment. They both play by the rules (their income is low enough that it doesn’t affect their guaranteed income stream from Social Security or their pension plans).

It isn’t just good for my relatives; it seems it’s good for business. According to this Entrepreneur magazine article, companies that hire older workers reap benefits as wide-ranging as:

Higher quality work
Punctuality
Listening skills
Organizational skils
Honesty

According to the Timeless Finance author, both my dad’s and uncle’s part time jobs should be handed to younger workers.

But I’ve seen my uncle and dad work at their jobs. Young coworkers ask their opinion frequently. In fact, the owner of the golf course where my dad works often consults him about overall operations. Customers gravitate toward them, thinking these men know what they’re doing. Both of these men possess tons of insight and knowledge help their employers succeed.

My opinion: If I still had my boner of the week segments, this Timeless Finance article would have been on it. While some of the suggestions make sense to me, and we clearly need change, I believe that we should look elsewhere for money rather than eliminate experience for youth. I also think it’s a mistake to penalize people who played by the rules as they knew them until we’ve looked under other stones.

Okay, everyone….your thoughts? Do we treat seniors fairly? Should we have a mandatory retirement age?

(photo credit: Hubert Elliot in the Rowan County Maintenance Yard Office: NCDOT Communications, Flickr)

Joe Saul-Sehy

joesaulsehy.com/

The Roth IRA – Like Ice Cream, But in the Tax World

March 27, 2012 by Joe Saul-Sehy 7 Comments

Today’s post is part of a larger effort in the personal finance community to discuss Roth IRAs. Congratulations to Jeff Rose of Good Financial Cents for organizing such an effective Roth IRA movement day.

I remember when I was maybe nine. My dad FINALLY let me order my own banana split at the local Tastee-Freeze.

I’d watched him down banana splits with pride. First he’d take care of the cherry and whipped cream. Then he’d cut into the bananas and shovel them into his mouth along with heaping helpings of three big scoops of ice cream.

At age nine I was firmly convinced that more = better in the world of ice cream.

More = better with retirement accounts also, and the Roth IRA is like the banana slices along the side of those three big piles of ice cream.

Some of you may be thinking, “why isn’t the Roth IRA those three wonderful scoops of ice cream?” ….or maybe “how come it isn’t the cherry on top of the whole thing, like the crown jewel?”

The answer is simple: there are other ways to save, and the Roth IRA goes better along with them than without. In other words, you can have a banana or you can have ice cream.

The Roth IRA allows you to eat your bananas with ice cream on the same spoon. Confused yet? So am I, so let’s move on. I’ll explain that later.

What is a Roth IRA?

A Roth IRA is a tax shelter available to US taxpayers. Unlike a Traditional IRA, which gifts the possibility of a tax break today, Roth IRA contributions don’t help your current tax situation. Instead, Roth IRA money is distributed for your later goals on a tax free basis, assuming you follow some fairly simple IRS rules.

How Much Can I Contribute?

Roth IRA contribution amounts change yearly, so it’s best to consult the IRS website for the official answer to this question. Use Google or Bing to search “Roth IRA Contribution Limits (YEAR) .gov” and you’ll find the site. Here’s the most current page at the time of writing.

Persons over age 50 are allowed to make additional contributions above those persons who are younger. These are commonly referred to as “catch up” provisions.

Are There Income Limitations?

Yes, there are. As with contributions, income limits change often, so it’s best to consult the IRS website for these details.

In general, there is a top amount of money you’re allowed to earn each year and still make full contributions. Then, there is a phase-out income zone. If your income falls in this zone above the full contribution limit, you may contribute, but not the full amount.

Finally, people earning above the phase-out zone are not allowed to contribute to a Roth IRA. However, you may use a conversion Roth IRA tactic that we describe in detail in another piece. See: Help! I Make Too Much Money to Contribute to a Roth IRA!

What Type of Investments Are Available?

You can invest in nearly any type of investment, but most people stick with the basics: stocks, bonds, mutual funds, exchange traded funds, and certificates of deposits.

While it’s possible to invest in actual real estate property or actual pieces of precious metals, there are complicated rules around these investments and you should consult with experts who are knowledgeable in these areas before trying to invest.

When Can I Withdraw Funds?

The Roth IRA has different rules for your contribution and the interest your account earns.

Your contribution may be withdrawn at any time, without penalty. We discuss this in detail in this piece. See: Emergency Fund or Roth IRA?

The interest the account earns must stay in the account until you’re age 59 1/2 or older. At that time, you may remove interest without penalty as long as the money has been in the account at least five years.

You may also remove money for other goals pre-59 1/2, such as a first time home purchase or for qualified college expenses. In these cases, funds aren’t considered tax free, but are only tax deferred. However, you do have the flexibility to save for goals other than college without worrying about dividend interest or capital gains taxes.

Can I Change Existing IRA Accounts Over to a Roth IRA?

Sure. However, these accounts have different rules. Here’s a link to the IRS website which explains Roth Conversion IRAs.

Why is a Roth IRA Like the Banana?

Remember how I mentioned that my dad would spoon some Roth IRA into his mouth along with some of the ice cream?

When I finally was allowed to order my own banana split, I learned the magic: bananas and ice cream are flippin’ awesome together.

People ask all the time which is better, a Roth IRA or a Traditional IRA or 401k plan? My answer is this: it isn’t about one or the other. Traditional IRA plans and 401k plans give you nice tax breaks today. You should utilize those. But a Roth IRA gives you healthy tax breaks and flexibility down the road.

Because we don’t know what tax brackets are going to look like in the future, a Roth IRA allows you to hedge your bet on tax brackets and instead have plenty of options later.

How Do I Maximize My Roth IRA Contributions?

Because you’re allowed to change Roth IRA contributions back out, there are strategies which can take advantage of possible market fluctuation during the year. Here’s one such strategy: Your Roth IRA Conversion: Super-Sized

(photo credit: Gabrielsaldana, Flickr)

Joe Saul-Sehy

joesaulsehy.com/

HELP! I Make Too Much Money to Contribute to a Roth IRA…Now What?

March 13, 2012 by The Other Guy 22 Comments

First of all, you make how much money?

Congratulations!

If you make so much money you can’t contribute to a Roth IRA, then a certain amount of back slapping and high-fiving are in order.

If you need a refresher on the Roth IRA limits to determine if you can contribute, we’ve got your back:

If You Have Taxable Compensation and Your Filing Status Is…	And Your Modified AGI Is…	Then…
married filing jointly or qualifying widow(er)	Less than $173,000	you can contribute up to the limit.
	at least $173,000 but less than $183,000	the amount you can contribute is reduced.
	$183,000 or more	you cannot contribute to a Roth IRA.
married filing separately and you lived with your spouse at any time during the year	zero (-0-)	you can contribute up to the limit.
	more than zero (-0-) but less than $10,000	the amount you can contribute is reduced.
	$10,000 or more	you cannot contribute to a Roth IRA.
single, head of household, or married filing separately and you did not live with your spouse at any time during the year	less than $110,000	you can contribute up to the limit.
	at least $110,000 but less than $125,000	the amount you can contribute is reduced.
	$125,000 or more	you cannot contribute to a Roth IRA.

Information courtesy of the IRS

A couple things to point out in our table above:

– First, don’t think just because you make a lot of money and your spouse doesn’t that you can just file “married and separate.” The IRS thought you might consider that maneuver, and now caps income at $10,000 for those who consider that loop-hole.

Also, be aware of what “Modified” AGI means. Leave it to the government to complicate an already complex issue.

Here’s how you calculate your “Modified” AGI (also courtesy of the IRS)

Modified AGI. Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return modified as follows.

Subtracting the following.
1. Roth IRA conversions included on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Conversions are discussed under Can You Move Amounts Into a Roth IRA, later.
2. Roth IRA rollovers from qualified retirement plans included on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.
Add the following deductions and exclusions:
1. Traditional IRA deduction,
2. Student loan interest deduction,
3. Tuition and fees deduction,
4. Domestic production activities deduction,
5. Foreign earned income exclusion,
6. Foreign housing exclusion or deduction,
7. Exclusion of qualified bond interest shown on Form 8815, and
8. Exclusion of employer-provided adoption benefits shown on Form 8839.

Here’s the point: Knowing your Modified AGI is not as simple as just looking at your W2 to figure out if you’ve made too much money.

If you haven’t done your taxes yet, Turbo Tax or HR Block software will help you find this amount automatically.

Let’s assume–after all these funky calculations–that it’s true: you’ve earned too much money.

Here’s some good news: You, Mr. or Ms. High Wage Earner, still can contribute to a Roth IRA.

You just have to do it the right way. Luckily for you, I’m going to show how:

First, open a non-deductible IRA at your favorite brokerage house (Fidelity, E-trade, Schwab, etc.).
Next, fund your non-deductible IRA up to your maximum IRA contribution limit ($5,000 for those under 50; $6,000 for those turning 50 in the tax year of the contribution);
Wait at least 30 days, or a statement cycle so you can show the money was in an IRA – *DO NOT INVEST YOUR MONEY DURING THIS 30 DAY WAITING PERIOD;
Then, call your brokerage firm and perform a Roth IRA Conversion of your IRA money. You’ll owe tax on the gain (probably just a couple cents of interest), but other than that…pretty easy!

You’ll likely have to fill out a special tax form next year (IRS Form 8606) discussing the conversion, but there will be no tax, no penalty, and now you have a Roth IRA.

A couple of rules:

If you have other IRA money (other than the $5,000 you just put in), you cannot just tell the IRS you want to convert the non-taxable kind. You have to convert IRAs pro-rata which mean only a percentage of your money will be tax free. If you have other IRA money (not 401(k) money, IRA money), before embarking on this strategy – discuss this with a knowledgeable tax advisor who knows what they’re taking about.
Unlike a normal Roth IRA contribution, you do not have immediate access to these dollars. You can access them after 5 years – just like any other conversion monies.
Don’t tempt fate and try to do this at the end of a tax year. There are too many chances for last minute screw-ups. Complete this process during the middle part of the year so you have plenty of time to fix problems before the year’s over. The IRS doesn’t like multiple 1099 forms and stuff like that…as an aside, neither does your accountant.

So there…badaboom, badabing. Now even the 1%-ers can have a Roth. Just like Congress intended.

Your Roth IRA Conversion: Super Sized

March 6, 2012 by Joe Saul-Sehy 9 Comments

This is part 1 of a series of posts by theOtherGuy over the next three Tuesdays on Roth IRA strategies.

Among the greatest inventions created by man are:

1) The wheel.

2) Fire.

3) Internet blogs.

4) The Roth IRA.

If you’ve been living under a rock and have no idea why a Roth IRA made the list, let’s take a five word primer: Tax. Free. For. Ev. Er. (I know they’re not all words, but get used to it; I’m a finance guy, not some kind of English guru).

If 100 percent tax free retirement money doesn’t get you all hot-and-bothered, I’m not sure what will.

Houston, We Have Some Problems

Contributions are limited by your income. In 2012, for a single person to contribute to a Roth IRA he or she would have to have a Modified AGI of less than $110,000 to contribute the full amount. For married couples, income limits are phased in beginning at $173,000.

The amount you can contribute per year is capped. You’re allowed to contribute $5,000 per year ($6,000 if you’re over age 50). At most, married couples are limited to $10 – $12,000 per year per family. That still gives you plenty of money to save if you’re 30 years old, but if you’re more…shall we say…”middle aged” (editors note: take it easy on us older people—AvgJoe) then you may be running out of years to max fund this terribly awesome retirement savings vehicle.

So, how can you get more money in a Roth IRA if you’re only able to contribute $5,000 per year? Use a Roth IRA conversion instead.

Disclaimer: What I’m about to share with you could cause MAJOR financial harm if you don’t complete the steps perfectly. I strongly recommend you work this out with a tax and financial professional who knows your unique situation and who can help you make sure you get this right. We can’t be responsible for the zillion dollar tax bill they received because they missed a step.

Why Should I Convert?

Let’s say you’re 28 years old and have $40,000 sitting in an IRA that’s from your old 401k plan(s). You also have an existing Roth IRA–and you’re contributing–but it’s growing slowly.

If we assume your $40,000 grows at 7% per year, then that account should be worth about $685,000 by the time you’re 70 years old.

You probably don’t care, but here’s why you should: at age 70 and 1/2 (well, technically, by April 1, the year following the year in which you turn 70 1/2) you have to take money out of your IRA. It doesn’t matter if you don’t need the cash. Your friends at the IRS want their tax money. So, if you have $685,000 in an account at age 70, you’re going to need to take out approximately $25,000 that year. Then you’ll take out more each year until you die.

All of this money will be taxable. Ouch.

Let’s do a Roth IRA Conversion for 2011 this year instead.

What Would Happen To Your Old 401k Money In a Roth IRA?

You guessed it; no taxes, no minimum withdrawals. One hundred percent tax free forever. That’s why turning old 401k money into Roth IRA funds is a great idea for most people.

Here’s a Plan to Super Size Your Gains:

Each year for the next four years, take all $40,000 from your IRA and perform what’s called a Roth IRA Conversion. I’ve been throwing this phase around quite a bit, so let’s explain how it works.

With a conversion, you agree to pay taxes today on the amount you flip to a Roth IRA Conversion in 2011 in exchange for never paying taxes ever again on that money. It’s a great deal – provided you do it right.

You may think, “But it’s 2012 now!” Remember: it’s currently 2011 tax time.

Most people are familiar with the Roth Conversion concept, but let’s Super Size it.

Making Lemonade From Lemons

What happens if you convert your $40,000 on January 1 and invest it in some crappy investment that loses 30% of it’s value? Now, on December 31, you have an account with $28,000 in it…but guess what? The IRS wants it’s taxes paid on the full $40,000 you converted.

Rotten deal, right?

Well, not-so-fast, my friend! The IRS allows you to “Re-characterize” those funds back to a Traditional IRA for whatever reason you please.

So if you converted $10,000 and it lost value, then you could “un-do” it and say, “Nah, I changed my mind.” No taxes. No penalties. Just some paperwork.

Here’s the Cooler Part

You have until your tax filing deadline plus extensions to undo your Roth Characterization. For most of us, we can file an extension until around October 15, instead of the normal filing day of April 15th.

Follow me here: you can perform a Roth Conversion on January 1 and have an “Un-do” switch available until October 15 the following year!

Motivational speakers will tell you that life is about making good use of time.

IRS rules allow you over a year and a half to change your mind.

Here’s what we do with that time

Let’s say you’re like most people without supernatural powers and have no idea how the financial markets are going to perform – nor do you know what asset class is going to be the big winner over the next year.

Convert your $40,000 and split the investment into four different asset class buckets:

If you do this on January 1 (or the middle of February, it doesn’t much matter) you’ll now have until October NEXT YEAR to make a decision on what you’d like to do. After the next 20 months have gone by, maybe your chart now looks like this:

If you keep the Small Cap section, (which grew from $10,000 to $20,000), you’ll pay taxes only on the original $10,000 conversion amount from 20 months ago! Then, you “re-characterize” the other three sections back into their original Traditional IRA bucket and viola! You have big bang for your buck.

You only recharacterized the portion that was sure to grow tax free. The remainder you waited until next year and did it again.

Less tax and more money. I know. I’m brilliant. You don’t have to tell people you read this and can claim it as your own personal strategy. It’ll be our secret.

There are Plenty-o-Caveats

1) You MUST pay taxes due by the normal tax filing day (around April 15th most years) on the conversion amount. If you converted all $40,000, you’ll owe the government a HUGE bill on tax day, BUT you’ll receive that money back when you file taxes by October 15.

2) You’ll need to file an extension on your taxes by the normal filing date. There are IRS failure to file penalties.

3) If you screw this up, there are no do-overs. The IRS has very specific rules and they are to be followed to the “T”. Don’t beg forgiveness for incompetence later. It won’t work.

4) If you use this strategy, you must wait at least 31 days before you “re-convert” these funds.

This strategy can be done with any amount, it doesn’t have to be the full $40,000. I recommend this approach regardless of dollar amount – if you decided to only convert $5,000 of your old 401k savings to a Roth it would make still make sense , why pay more taxes than you need?

With Tax Time Approaching, Know Your Options

If you did a Roth IRA conversion last year, you have the option of “un-doing” it until your tax filing deadline plus extensions this year. If you have old 401k money in an IRA – consider moving it out piece-by-piece to a Roth IRA.

Part two of this series will cover what happens if you make too much money and don’t have money to convert…that’s a good problem to have, but then what?

Joe Saul-Sehy

joesaulsehy.com/

Unplug Grandma’s Life Support…Quick! Inherited IRA rules changing?

February 29, 2012 by The Other Guy 21 Comments

Why You Might Have the Awful Hope That Grandma Dies This Year.

According to this Wall Street Journal article, Congress is toying with the idea of getting rid of (or at least seriously modifying) Inherited IRAs.

Here’s why you should care: getting an inherited IRA is like winning the lifetime income lottery.

What is an Inherited IRA?

An inherited IRA is just what it sounds like – it’s an IRA that you didn’t start, i.e., you inherited it. In most cases, when someone passes away, they’ll leave retirement accounts to their spouse, but sometimes those spouses are pre-deceased. In this case IRA assets fall down to the next (or sometimes the third) generation.

When you inherit a spouse’s IRA, the IRS allows you to convert it to your own, delaying any and all taxes until at least age 70 ½ (assuming you don’t remove the money to spend). If your spouse is substantially younger than you, couples are allowed to treat it as an inherited IRA for tax purposes.

What are the Current Benefits of an Inherited IRA?

The major benefit is the ability for non-spouse beneficiaries to distribute those taxable dollars over the lifetime of the beneficiary.

Grandma is 68 and goes to what crazy uncle Jim called “that big tax shelter in the sky,” but leaves her $500,000 IRA to her 4 year old grandson. Because the distribution is based on his life expectancy…around 80 years or so… if structured correctly it would provide him income for the rest of his life.

Apparently, the IRS and Congress think it’s too long to wait another 80 years or so to wring all the tax money from Granny’s IRA, so thye’re thinking about changing the law to require distributions from an inherited IRA within 5 years of the original account holder’s death.

Yikes.

That’s a change.

Thankfully, this isn’t anywhere near the President’s desk yet, but I wanted to put it on your radar screen…in case…you know…someone has a little “slip and fall.”

Don’t quote me later.

– TheOtherGuy