IRAs are Different

This is Chris shoes with the Christian perspective podcast with Chris Hughes.

We encourage our listeners to engage the culture with Jesus Christ your chosen Truth Network podcast is starting a just a few seconds. So enjoy it share but most of all, thank you for listening to The Truth Podcast Network this is Truth Network welcome to finishing well brought to you by Cardinal guy, certified financial planner on the child. Best-selling author and financial planner helping families finish well over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started.

Finishing well, finishing well is a general discussion and education issues facing retirees guide.com are no advisors. I'm sure I'll see if Pete insurance this show does not offer investment products or investment advice welcome to finishing well with certified financial planner, homicidal, and today show is IRAs are different lower to get into outer different end in what that exactly means. But before we get there. I think it's it's it's safe to say in the Psalmist said in Psalm 119. I'm a stranger on the earth. In other words, if you're Christian, I bet your different you just you know people think that that guy is a little different now used all he had to do.

I think his turn on the TV about 5 o'clock and watch for about two hours and if you're comfortable then then you know I don't know what to say but you just feel like I'm a stranger how to sell the stuff going. What are people thinking out what you know and you feel like your strength from the earth, which is what you know.

The Psalmist was saying in verse 19. But then he said hi not your commandments or your mitts for this from which these are the below from the standpoint of the Jewish faith that this is 613 different commandments, but you can kinda boil it down to the two that we do. We generally think about which is love your neighbor as yourself and write love the Lord your God with all your heart and all your soul and all your strength. With the second being the first because the first will be last. Sorry this had to throw that in here but anyway you know what would we do without God's word. I mean how would we have a map in a navigation system and it seems like I study and I'm sure you do this thing that that you study this all the time and why we need help to find a way well when it comes to IRAs. I think they're different to and so it's helpful today that were gonna provide a bit of a map, so Hans, how are they different what you really show different than what literary you go ahead and answer that there different kind of money you got this great but a lot of people my dad had this great big huge balance in IRAs and he felt like I got this but it's a different kind of money, but he did not fairly look upon it. Many nudity and pay tax on it yet, but you and your father is up in his 80s. I'm talking about people that are coming to me for retirement planning there in their 50s there in their 60s early 70s and their planning that after working early retirement in their planning their income and they got generally to buckets of money in the largest bucket of money. Most times this IRA money. The smaller bucket of money the other most of them understand the one money you already pay tax on the smaller and the pickpocket you pay tax on it yet and they're kind of licking their chops about the texting is grown and grown and grown okay that's good no what I want to explain to people and I want him to grass and this is really out of the excellent training manual. Every manually put together. This is about the fourth of the page. This document is IRAs are different yet what we're doing today is just how are they different just jump into it and start talking point by point. The first point here is that IRAs can buy contract generally not by will. What that means is your go to the other money. First, your other money unless it has a transfer on death or something. His past record your will, you had $10,000 in the bank you die, the will of the probate court is going to distribute that 10,000 ultimately to every name you will work that way with IRAs. IRAs have a beneficiary that have to many times they have multiple beneficiaries have a primary beneficiary which is most the time when people are married spouse then they have contingent beneficiaries which most of the time of the children are the adult children but not ours and when a person dies, that money goes very quickly to the named beneficiary very different than passing through the will. And so it speaks to what we always talk about the make sure your beneficiaries are who you want them to be many people when I'm pointing this out to them when I'm asked about what we Artie took care of that all done in the will. Okay that's good not to like family and ask about will beneficiary because the matter with the wealth that I can be really nice. We have the will completely in alignment with the beneficiaries when it comes the IRA that monies going to whoever's on the dot. Yes the next point is IRAs have required minimum distribution which currently they start at 72 Raftery 72. So many of you don't need to worry about those for a while as opposed to other money they don't have any sort of rules in your other account save a certain age you go to start drawing out money in a different amount of every age. But IRAs have and you need to be familiar with them is to come up all of a sudden and if you miss the minimum distribution penalties are gigantic.

The whole idea that the IRA is the government standpoint here for your retirement so that allowed you tax savings and investment growth without paying taxes on it and now they're saying by 72 if you're not retired you don't need this money yet will make you take some of them take every amount of it some amount of it every year until you pass away, and that's not enough to empty it just typically is not is why people end up dying with big balances so and unfortunately a lot of people use these are MDs as their guide from us to take out I'm a believer on another show, another day will talk about having a strategy to take out more than that you not pass along the tax burden until let's move along to the next one is IRAs have very complex distribution rules during life and after death. So just leave it at that. There is very me.

If you inherit bank account taxes so that other money distribution rules are pretty simple mean you inherited a bank account from your father is difficult to get it.

Once you got it. It was drawn out of the bank ensures nothing complex about that with IRAs. Let's just leave it at the fact that they're very complex and all those complex rules were changed by the spirit which was past few years can't IRAs distributions can interpreting her tax penalty. So you taken money out you don't do it the right fashion. You gonna pay penalties or if you don't take any money out. You should take a more you get penalties for that in addition to the tax so and many folks are familiar with the before age 59 and withdrawal. Got up at 10% penalty plus the taxes that really sing some people to take early distributions there IRA or 401(k) many times to live those tax penalties are there and they need to be paid. IRAs are highly taxed upon death or withdrawal in pointed out all the time because of the guys. Generally, the heirs of money you receive an inheritance. You want that you need you the next generation of the next generation down you needs and wants is to educate things to do and if you take a whole bunch of this money out one year gigantic tax bracket that can be devastating money. IRAs are double taxed to death.

That means four large IRAs were people are subject to the estate tax is a complicated one yet, but if you have a big IRA is just part of your assets to create a taxable estate. First you have to pay estate taxes on the whole amount, then you're also going to have to pay income taxes on that IRA balance creates an effective think about that for one minute to get it if you were writing with the lawyers CPA you got a flat meeting take much to get a thrill excited or angered or whatever, but really complicated ways to weave in and out of the estate tax and income tax large estates.

Now this next one word talk about IRAs have no stepup in basis so you know we talk about stepup in basis what were talking about is you. Grandpa owns the farm. Grandpa lived on the farm and the farm becomes worth a lot of money during his lifetime, and then grandpa dies and the children inherit the farm and of course they perhaps want to sell it after grandpa passed away but they're all worried about the income taxes because the farm is increased and values and what a lot of people are not aware of its just an asset or other money that you own outside of an IRA.

Typically, real estate would be this consent stepup in basis. They really won't owe any tax, income tax they sell the farm right after grandpa passes away so many of the looks of the land that's in there close to town near the freeway is the sky doing farm with her.

Keep in the land. Busy is a business and select generation passes away so they get the stepup in basis and then they can sell it for millions neighborhood, not all the time I thought before I start listening here I thought the stepup in basis was like some first what's on second different databases as well retirement it's BAS. I will about intelligent you're going on the radio and hear me die, you inherit at me again.

Eight and 300 is a really good place for a break. Listing the finishing well today show is IRAs are different.

I imagine your sameness a bit of a difference in what it is because we got a lot of information to cover, but I think it's can be really really helpful for you if you have IRAs things to be thinking about Elyse planning around and you can find out all about these in the Hans's book the complete cardinal guide to planning for and living in retirement. It's right available guide.com as well as a video on the subject. Cardinal advisors on that out will have more IRA are different.

Hans and I would love to take our show on the road to your church and Sunday school Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hans expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care.

Just go to cardinal guide.com and contact Tom to schedule a live recording of finishing well at your church Christian or civic group.

Contact Tom to cardinal guide.com that's cardinal guide.com welcome back to finishing well certified financial planner Hans Shotwell brought to force by cardinal guide and today show IRAs are different and if you've been listening as far you would save man I had no idea where you will continue on Hans yeah well we were talking about stepup in basis which people receive when they inherit the state you know where. In other words, when a person passes away their capital assets market, whatever their value was when the person died.

Should basically eliminate taxes on the gain on property which is same thing is true for stock.

If your grandfather your father about stock at $20 and now sold for $200 you think there be $180 gain.

He sold it during his lifetime, but if you sell it after he passes away. You've inherited it. There is no stepup. There is no basis, no income tax on that thing is the basis is $200 and so the point being with IRAs. There is no such thing as a stepup in basis because you can all ordinary tax on any distribution.

It didn't matter. When the stock was bought so high that investment gains are taxed as ordinary income is no capital gains tax rates inside of IRAs investment gains are not subject to the 3.8% investment income surtax so there's a surtax of 3.8%. We help our more well-to-do clients avoid war by smoothing out their income because you pay an additional almost 4% on investment income and IRAs.

You don't have to pay that on IRA distributions. IRAs cannot be gifted or transferred during lifetime.

This is one the people just don't get as they say, you know, this is my wife's and my name is in both of us okay. I was okay.

You know, because I'm told argument people but they're not community either in your name or your wife's name. It can't be invoked and you can't give it to somebody you can't put it in a trust IRA or 401(k) or anything of the like. Needs to stay in your name for your whole lifetime, simple with Roth IRAs as well as right through. So so person opened the Robinson elegant two kinds of IRAs are the two types they get to accounts in both of those accounts are going to stay in their name for their whole life and that as soon as they pass that money is going to go to the named beneficiary on both accounts is that simple. In the named beneficiary has some decisions to make. As far as when they want to withdraw on how they want to withdraw. You got a low set of rules for them when I can get into those today I know there's that there is an exception to that that you can give a direct direct gift to a charity under a qualified charitable distribution or Q CD you need to be 70 1/2 or older to do it. And there's also another exception that can be transferred as part of the divorce agreement from one spouse's name to another spouses name. Those are the only two exceptions other than testing your name. The life IRS IRAs cannot be transferred to trust during lifetime and after death we can use trust in regard to the beneficiaries. So so we can set up trusts that are going to control these things after you die, but we can actually transfer the asset into the trust. IRAs cannot change ownership during lifetime. This sounds a little bit like a going over the same thing.

If you do change the ownership triggers an immediate and complete distribution and ends the tax-sheltered IRAs cannot be owned jointly, like other property where he went over that IRA equity cannot be The same way home-equity can be Without triggering tax potential IRS penalties. I was even na�ve on this when I was a young person that will that IRAs over there balance can like my money so I go buy a house. I can just tap that no or I can put that up as collateral know you you do any of that stuff can be considered distribution.

The choice of IRA beneficiaries determines potential value to the beneficiaries. So who you choose as your beneficiary and I don't recommend you use the tax consequences to pick your beneficiary. I was thinking you're going to want to pick your beneficiaries as to who you want to get the money. After you pass away, but if you were interested in using your tax consequences within different beneficiaries depending upon their age without a disability or their spouse does different tax consequences to beneficiaries receiving inherited IRA really yeah so like if your spouse receives your spouse has a lunch option that needed it because only they were either living off of her pedal lived off the income of the IRA or distribution. Now the principal's disease and the money comes to them they can keep it in the deceased person name and treated as a spousal IRA there's a way to work that domain you try this at home, but just continue on distributions according to their spouses. Younger they can retitle the IRA under their name after the death and then they can still spread out the distributions. Wait till 72 when they get all the same benefits.

You know what they were. The initial IRA and the same thing for disabled beneficiaries, children, and her special needs children different things that they can. They got better way to pull the money out and spread the taxes out and regular beneficiary. No separate account rules for trust named as IRA beneficiaries so trust of the named beneficiary a trust is not a person so trust will need to distribute the money over 10 years and it could possibly be five years so naming a trust as your beneficiary is not a good idea where he could do all of these things with other non-that talking about urine and IRAs have no principal and income concept have none whatsoever that you don't really have the money that you put in over here and in the money that you've earned over here and they keep those separate are all mixed together like one because the taxation is to be the same on the monies coming out of there. It doesn't really matter that significant's so you know from the IRS standpoint as a matter that you put in a $5000 if the investment value went up to 25,000, you're still paying tax on the 25,000 different never pay tax on any of the money that's all they know to get so what will the call for is having a plan for distributions at retirement.

That's what we talked about all the time. Having a really good it is kind of tough to make it plan to pay the tax. That's what we do it we disco and all people and through this in some cases it may make sense to pay taxes sooner than later and their whole life they've been taught not paying taxes later as I was better than that's not true in the case of IRAs and IRAs require their own estate plan so with his IRA money we need to have our own. You need to have your own estate plan with your IRA and then that needs to be integrated in the overall state of things that I think would be helpful for our listeners. Hans is at the beginning you mentioned ad slot and and so you know I think is really helpful if you listened all this, you're like, man I need some help with this. Where do I get qualified help and and and part of the training that you've received from ad slot is really huge and so can you tell our listeners, who he is and how he fits in the picture is America's IRA CPA practice many years and they decided to do estate planning with IRAs just so so many mistakes and of people in with people clients with Diane Sawyer. Stacy decided to make that and they started training other professionals to do, like he does, CPA lawyers estate planning attorneys, financial advisors, CFP's like me, and he started running these clinics in teaching people.

Then out of clinics before saying we want more than that created his elite advisement group which I've been part of since 2012 and we go two times a year is just the tip of the iceberg. 20 point document we study this stuff a lot and I really have some concerns in the beginning, this guy can keep me interested for two and half days twice a year talking about IRAs when Artie know a lot of stuff and I couldn't of been more wrong. When I going that slot that the most engaged meeting that I'm in repeats itself twice a year round webinars we get emails get these big thick books every year and it you know it and we also have those people at our disposal because a lot of situations that come up. It is not covered in the book, judgmental things money moving out of retirement plans and special situation. People have special estate tax consequences estate divorces are so kind. We have their technical experts, and even if slot himself. I need to get him on the phone. I can to look through the situation and give advice to self with that and I were on the time there's a whole lot here. You can tell in the course will make sure that the that everybody's knows how easy it is to get up with Hans and and get this, planning it's it's Cardinal advisors.com where you got his book the complete cargo guide to planning for and living in retirement as well as actually cargo guide.com acid advisors did not get that YouTube video Cardinal advisors right is Cardinal guide.com or you can get up with Hans and his staff. Tom and Tara and all these people so that we heard from today for the first time in the show, so he brought a time of thank you Hans. Great show. Thank you. Finishing well is a general discussion and education of the issues facing retirees Cardinal guide.com Cardinal advisors upon trial CFP some insurance this show does not offer investment products or investment advice. We hope you enjoyed finishing well brought you by Cardinal guide.com visit Cardinal guide.com for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care and life insurance, investments and taxes as well as constant best-selling book, the complete Cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows when you get Hans book go to Cardinal guide.com if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word. Once again that's Cardinal guide.com Cardinal guide.com this is the Truth Network