IRA Distributions

#SafeMoney #JonHeischmanSr #IRADistributions
In this week's episode host Jon Heischman, Senior discusses IRA distributions.

Call Jon at [phone] with questions, comments or to get a free copy of Top 10 IRA Mistakes and How to Avoid Tax Traps. Visit www.heischmanfs.com/ for additional information

Episode Transcript

Speaker 1 (00:02):
People really don't know what their expenses will because they
don't know how long that they're going to live.

Speaker 2 (00:06):
The Americans are worried they won't have enough safe for retirement.
Now more than ever, retirement's going to cost for many
folks over a million dollars.

Speaker 3 (00:14):
He is no short thing in investing, but a lot
of people think that annuities may come close to that.

Speaker 1 (00:19):
It's going to more safe, safe, safe, safe things that
they know.

Speaker 4 (00:22):
If they know they're going to need that money to
supplement the retirement, well then you can't play that rest.

Speaker 3 (00:27):
This is the Safe Money and Retirement Show. But John
Heischman Senior, founder and partner of Heisman Financial Services serving
the Columbus and surrounding areas. John specializes in educating pre
retirees and retirees about safe money strategies and ideas. Now
it's the Safe Money and Retirement Show. Here's John Heischman, Senior.

Speaker 2 (00:48):
Welcome to the Safe Money and Retirement Show. I'm your host,
John Heischmann. I want to start the show by discussing
the importance of IRA planning. Individual retirement accounts, especially those

(01:10):
who were born between nineteen forty six and nineteen sixty four,
have the distinction of being baby boomers. As their parents
remember World War II, the Korean Conflict, and the era

(01:31):
of Frank Sinatra, Boomers are more likely to be tuned
into Vietnam, the Beatles, woodstock, and the electronic gadget their
parents never dreamed of owning. The baby boomer generation is
close to seventy eight million strong, and anyone who works

(01:54):
with this group or markets any type of product to
this group understands the size of this generation. Do you
know there's approximately ten thousand boomers that are reaching retirement
age every day and they control the majority of the

(02:17):
wealth of America. How well this generation manages this money
is of enormous importance to everyone. What I have seen
is that many boomers are having at least one, if

(02:38):
not several qualified retirement accounts. An example, an IRA A
four to one K. It's part of a group with
the highest probability of having their own IRA four to
one K, maybe an s VP plan, TSP plan, and

(03:04):
also inheriting iras or for one case, from their parents.
So I can't overestimate enough how important it is for
IRA planning, and many don't realize that the IRA they

(03:27):
currently own needs to be treated differently from the IRA
that they're probably going to inherit this distribution rules, they're
different from your personal IRA versus an inherited IRA. In

(03:47):
this area, making distribution mistakes can easily lead to costly
IRS tax traps. My objective, as it has been for many,
many years, is to work with my clients to make
sure they get the proper planning when it comes to

(04:12):
this topic of IRA planning. The key here is distributions,
which i'll get into a little bit. And you want
to make sure that you're getting the proper planning in
this area. And you know why I say that. I
come across many radio listeners in referrals that are not

(04:38):
They don't know the differences or when they have to
take distributions, and it's no fault of THEIRS, they just
haven't been educated or properly advised. And if you're in
that category, please give me a all we can discuss

(05:02):
your IRA planning to make sure it's done correctly. Eight
eight eight four two six zero one seven seven. I'll
give you that number again. That line is open twenty
four to seven triple eight four two six zero one

(05:24):
seventy seven. All right, Now, what about the IRA or
the four oh one k that you own. Most boomers
made substantial contributions to their iras four oh one ks
TSA four oh three b's TSPs, depending on your employment

(05:52):
during those years when you were in the workforce. Some
may also have been benefitted from employer matching funds and
have grown their retirement account into substantial retirement nest eggs.

(06:12):
The rules for the plans you contributed to they're the
same as the rules for your parents. You pay no
income tax on your contributions, and you don't have to
begin taking taxable distributions until the year you turn age

(06:37):
seventy three. Now here's where it gets complicated. In addition
to the IRA you own, you're likely to inherit a
retirement account from one or both of your parents. Having
these two different types of accounts can definitely create income

(07:01):
planning and distribution challenges. The distribution rules are substantially different
from an IRA that you own versus an inherited IRA,
so when inheriting an IRA or other qualified retirement account,

(07:24):
the beneficiary will be faced with the decision that will
actually need to be made quickly managing the trillions of
dollars from qualified retirement money in America is big business
and every potential custodian they want a piece of the action,

(07:51):
whether it's an insurance company, Wall Street Banks or whoever
manages IRA money. And the thing is and you have
to be careful. Everyone will be ready to give you advice,
but not all are skilled in the distribution rules. That's

(08:15):
why people get into trouble and end up getting tax
penalties because of the distribution rules. Acting on the wrong
advice or no advice very well could lead to one
of the many IRS tax traps. So you must be

(08:40):
armed with the right information and know who is giving
you that information. If you're in the category of those
that have had I are a distribution planning fortunate because

(09:02):
as I mentioned before, there's so many out there that
are not. You can and many times you should get
a second opinion, especially if you don't feel you're getting
the right advice when it comes to income and IRA

(09:23):
distribution planning. And these are the individuals that I want
to hear from to be able to help give ideas
on when to take income from, which plan or which
plan to start taking income from first. Regardless, at seventy three,

(09:48):
you're going to have to take income from all qualified
plans eight eight four to six zero one seven seven.
That's the number. All get the message and follow up
by contacting you to see what questions you have, what

(10:11):
concerns you have, and how I might be able to
help Triple eight four two six zero one seventy seven.
If you inherit an IRA or a four to oh
one K, it must be treated differently than the IRA

(10:34):
and the four to oh one K that you own
and have contributed to. You cannot delay taking distributions from
an inherited IRA or four oh one K until age
seventy three. You must pay the taxes within ten years

(10:56):
after you inherit that IRA. There's where it's different than
your own personal IRA. Now this is mandated by the
Secure Act of twenty nineteen, and this is where common
distribution mistakes can lead to higher taxes and unnecessary IRS penalties.

(11:25):
The company that's managing your inherited IRA will not always
make you aware of that ten year rule. After the break,
I'm going to continue my discussion on inheriting an IRA

(11:48):
because I think it's important that you have a general
idea about inherited iras, so be sure to stay tuned.
I'll be right back.

Speaker 4 (12:03):
Thanks for listening to The Safe Money and Retirement Show
with John Heischman. For more information, call one eight eight
eight or two six zero one seventy seven. That's one
eight eight eight or two six zero one seven seven,
or visit their website at HEISCHMANFS dot com. More of
the Safe Money and Retirement Show in a moment. Thanks

(12:30):
for listening to The Safe Money and Retirement Show with
John Heischman at Heisman Financial Services. No one is excluded
from receiving the help they need. Here's John Heischman.

Speaker 1 (12:41):
We don't care if you have fifty thousand save for
retirement or five million.

Speaker 2 (12:48):
We have no cutoff.

Speaker 1 (12:49):
As a matter of fact, personally, I feel those that
have let's say under two hundred and fifty thousand, or
even under one hundred fifty thousand in many ways need
more planning advice than somebody that has considerable assets available

(13:10):
to them at retirement. So whatever the case may be,
we're willing to work with you and give your accounts
the exact same attention as if you had five million.

Speaker 4 (13:25):
Call John Heischman at Heischman Financial Services one eight eight
eight or two six zero one seven seven. That's one
triple eight four two six zero one seven seven or
visit their website at heischmanfs dot com. Welcome back to

(13:48):
the Safe Money and Retirement Show with John Heisman. To
contact John, the number to call is one eight eight
eight or two six zero one seven seven. That's one
eight eight eight or two six zero one seven seven.
Once again, here's John Heisman.

Speaker 2 (14:05):
Welcome back to the second part of the Safe Money
and Retirement Show. I'm glad you stayed tuned and I
will continue my discussion on qualified plan distribution. Qualified any

(14:26):
money that you have in an IRA account four to
oh one K four toh three B. In other words,
you have not had to pay tax while you were
contributing to these plans and possibly getting an employer match,

(14:47):
and the time comes where you're going to have to
pay tax on the full amount that you receive as
a distribution. So very important to plan when to take
money out of which account after age fifty nine and
a half or wait until age seventy three somewhere in between. There.

(15:13):
I was talking about inheriting an IRA. Un Fortunately, when
you inherit an IRA, you're still in control of your money.
Even when you inherit this IRA or maybe a four
toh one K account. You can decide the best distribution

(15:35):
method for your needs. You have two options. Option one.
If you decide to use all of your money now
from an inherited IRA, you're going to need to pay
all of the income tax by the end of the

(15:56):
tenth year after you inherit the IRA. If you're still
working and have earned income, this approach could put you
into a higher marginal tax bracket. And I've seen this
where a client has inherited an IRA from parents and

(16:20):
they're in their late forties early fifties, and they're not
going to retire until age sixty five. So this has
to be planned out because they're going to have to
start taking money from the inherited IRA prior to retirement.
And again, as I mentioned, we now have a tax situation.

(16:46):
Option two. You pay a portion of the tax each
year as long as all of the taxes are paid
within that ten year rule. This approach will add taxable
income each year, but it may help you stay in
your current marginal tax bracket. And one side note, after

(17:12):
inheriting an IRA, under the current IRS rules, you can't
convert the inherited IRA over to a ROTH IRA. So
that brings up another situation when we're planning your IRA
and roth iras many people have both, We've got to

(17:36):
keep this in mind. I've had individuals come to me
that converted and inherited IRA to a wroth along with
other IRA money, and got in trouble because of that
rule that says you can't. It's really important that you're

(18:01):
working with an advisor that knows these rules and can
help you plan your distributions. That's why I like to
do this radio show to educate my listeners and to
let you know I'm able to offer assistance in these

(18:24):
different areas. My number is eight eight eight four two
six zero one seven seven. Once again triple eight four
two six zero one seventy seven. Another important point when
we talk about four to one case, unlike an inherited IRA,

(18:49):
you do have the option to convert an inherited four
A one K to a roth ira and now enjoy
the tax free growth and tax free income when you
take distributions. And it's surprising to me that so many

(19:10):
individuals are not aware of this and believe it or not,
there are a lot of inherited for a one case,
so it makes a great opportunity to take part of
that for a one K that you inherited and convert
to a rock that you can do. And I know

(19:34):
these rules get technical, detailed and can be very confusing,
but you don't need to worry about that when you're
working with an advisor that knows these rules. As I mentioned,
it's up to that advisor that planner to know the

(19:57):
rules and advise you correct It's kind of like getting
legal advice. It's impossible to know the law like an
attorney does, so you take the advice of the attorney
who knows the laws. And it's the same with a

(20:17):
planner or advisor. So very important going into retirement. In
distribution planning, there's a couple of tax traps that you
need to avoid. When we're talking about a four to
oh one K rollover, you have sixty days to complete

(20:41):
that rollover to an IRA and only one indirect IRA
rollover per year. Here we have to be careful because
I come across individuals that have several For a one case,

(21:02):
one let's say from a previous job and that's still
in effect with that employer. Another from the current job
that's available for rollover. You can't take distributions before age
fifty nine and a half ten percent penalty for the

(21:24):
amount that you take prior to this age. April first
of the following, the year that the owner turns age
seventy three is required beginning date to take your first
required minimum distribution. Now you can take more, but you

(21:47):
can't take less than the minimum distribution tables and we
talk about inherited iras what happens after the IRA owner's death.
Spousal beneficiaries they can become the new owner and take

(22:08):
the required minimum distribution over their life expectancy. A non
spousal beneficiary such as children, grandchildren, they're going to need
to pay the taxes of the inherited IRA over the
next ten years. As I mentioned previously, another very important

(22:34):
situation is controlling investment risk. If you're retired or nearing retirement,
too much risk can ruin your plan. The market has
the potential of great rewards, but its counterbalance is the

(22:57):
potential of loss. So in planning retirement distributions, we need
to take the time to examine the potential downside of
your investments that you're getting distributions from to be sure
it doesn't exceed your risk tolerance controlling fees and loads

(23:27):
over time, this can be an issue. Now most accounts
are going to have some type of fee possibly loads involved.
The question is how much you must know what the
fees are as well as compensation to the planner that's

(23:54):
involved with the IRA plan that you have. The lower
the fee or compensation, typically, the more money that stays
in your account for future growth and for retirement income.

(24:14):
The Wroth IRA conversion. Now, whether or not a Wroth
conversion is right for you, we have to run the numbers.
But I feel it needs to be addressed with every
client and again, whether it's right for you or not,

(24:36):
it needs to be addressed and applied to your situation
to see if it's in your best interest. Tax free
income at retirement is a good thing. In summary, it's
extremely important to get your distributions right. And if you

(25:01):
can start planning your distributions and your retirement income prior
to retirement, I think you're one step ahead. Possibly your
income distribution is going to change in retirement because situations

(25:22):
will cause you to increase or even decrease your income,
but you want the flexibility to be able to make
those adjustments. I would love to hear from you about
your concerns, your questions, and offer my advice in order

(25:45):
to plan a tax advantaged retirement income. Here's my number
eight eight eight four two six zero one seven seven
eight eight eight four two six zero one seven seven
a no cost, no obligation review. Thank you for joining

(26:11):
me this morning, and be sure to tune into the
Safe Money and Retirement Show next week. I'm your host,
John Heischmann.

Speaker 3 (26:21):
The Safe Money and Retirement Joe John Heisman Senior. To
get in touch with John, call one eight four two
six zero one seven seven. That's one triple eight four
two six zero one seven seven. For more information about
Heischman Financial Services, visit their website Heisman FS dot com.

(26:42):
That's h E I S C h M A n
f S dot com. Join us again next time for
the Safe Money and Retirement Joe with John Heisman Senior