Jack and Diane will inherit about $4.5M from Diane’s parents. How do they manage the required minimum distributions? Which of three options should Matt take with his inherited IRA? Making the most of your inheritance, today on Your Money, Your Wealth® podcast 435 with Joe Anderson, CFP® and Big Al Clopine, CPA. Plus, Clay wants to know if it’s a good idea to take money off the table and rebalance to safer or more aggressive investments, depending on your risk tolerance? Can Elizabeth offset pre-tax IRA losses with the gains from the sale of rental real estate? Is it true that you can make one-time contributions from your IRA to your HSA that is, your health savings account? And finally, can Cory gift stock to his daughters and avoid paying the kiddie tax as a way to pay for college? And can Rich supercharge a 529 college savings plan with himself as beneficiary? Podcast show notes, free financial resources, episode transcript:

– 00:00 – Intro
– 00:58 – How Do We Manage RMDs on a Pending Inheritance? (Jack & Diane)
– 11:31 – Which of 3 Options Should I Take With This Inherited IRA? (Matt, San Diego)
– 18:09 – Estate Planning Organizer – download:
– 18:57 – Should I Take Money Off the Table and Rebalance to Safety? (Clay, Westerville (Columbus), OH)
– 23:50 – Can I Offset Pre-Tax IRA Losses With Gains from the Sale of Rental Real Estate? (Elizabeth, Lake Forest)
– 26:43 – Is It True We Can Make One-Time Contributions From IRA to HSA? (Scott, NC)
– 31:17 – Emotionless Investing Guide – download:
Watch Emotional Investing – YMYW TV:
– 32:06 – How to Pay for College: Gifting Stock and Avoiding the Kiddie Tax? (Cory, Bethesda, MD)
– 36:16 – Should I Supercharge a 529 Plan With Myself as Beneficiary? (Rich, NY)
– 41:17 – The Derails

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• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
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CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.
CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period….(read more)

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Inheriting money can be a significant financial windfall, but it’s important to have a plan in place to maximize your inheritance. One area that requires careful consideration is individual retirement accounts (IRAs) and required minimum distributions (RMDs). In this episode of the Your Money, Your Wealth® podcast, hosts Joe Anderson, CFP®, and “Big Al” Clopine, CPA, explore the various IRA options available to beneficiaries and how RMDs can impact your inheritance.

First and foremost, it’s crucial to understand the different types of IRAs and how they can affect your inheritance. Traditional IRAs allow for pre-tax contributions, meaning the money grows tax-deferred until withdrawals are made in retirement. Roth IRAs, on the other hand, are funded with after-tax dollars, allowing for tax-free withdrawals in retirement. Inherited IRAs can be either traditional or Roth, depending on the type of IRA you inherit.

If you inherit a traditional IRA, you will be required to take RMDs based on your life expectancy. RMDs are minimum amounts that must be withdrawn each year to avoid penalties. The IRS provides tables that determine the annual RMD amounts, and failing to take these distributions can result in a hefty 50% penalty tax.

One strategy to maximize your inheritance, particularly with traditional IRAs, is to stretch the RMDs over your life expectancy. By doing this, you can minimize the tax impact of the distributions and potentially allow the account to continue growing tax-deferred. This strategy can be especially beneficial for younger beneficiaries who have a longer life expectancy and can take smaller RMDs each year.

Another option for beneficiaries is to consider converting an inherited traditional IRA into a Roth IRA. This can be a powerful tool to reduce future taxes, as inherited Roth IRAs are not subject to RMDs and can continue growing tax-free. However, it’s important to note that converting a traditional IRA to a Roth IRA triggers an immediate tax liability, so careful planning and consultation with a tax advisor is essential.

For beneficiaries who are already in a high tax bracket, taking larger distributions may make sense to avoid being taxed at a higher rate in the future. This strategy can be particularly relevant for those who are near retirement and have a lower life expectancy, as it allows for the tax-efficient use of the funds.

It’s also worth considering the impact of RMDs on your own retirement planning. If you anticipate inheriting a significant amount of money, it may be necessary to adjust your retirement savings and withdrawal strategies to accommodate the additional income. Working with a financial advisor can help you navigate these decisions and ensure your inheritance aligns with your long-term financial goals.

In conclusion, maximizing your inheritance requires careful consideration of IRA options and RMDs. Understanding the different types of IRAs and the rules surrounding inherited accounts is crucial for making informed decisions. Taking advantage of strategies such as stretching RMDs, converting to a Roth IRA, or adjusting distributions based on tax brackets can significantly impact the after-tax value of your inheritance. Consulting with professionals and developing a comprehensive financial plan will help you navigate these options and maximize the benefits of your inheritance.