IRA Beneficiary Mistakes Part 1 of 2

I am Rick Loch with ixrayretirement.com Hosted by Calrima Financial and Insurance Agency, ixrayretirement.com utilizes a proprietary system to create your personalized 30 year retirement plan that addresses all of your retirement needs and wants. I'm a member of Ed Slott's Master Elite IRA Advisor Group. Ed Slott is what the Wall Street Journal calls the nation's best source of AIRA advice. I have Ed Slott's entire team of AIRA technical analysts on call. I'm the founder and president of the Silicon Valley Chapter of the Society for Financial Awareness, also known as SOFA. SOFA's mission is to create financial literacy.

Which we do through providing pro bono training sessions at local companies and civic organizations. Once again, this is IRA Beneficiary Mistakes.

IRA Beneficiary Mistakes Part 1.

As we go through this series of videos or webinars, we're going to be unveiling some potentially unnerving or uneasy concerns for you. And one thing that I would want to reassure you with at this point is the beauty is as you see these mistakes, you're still alive and something can be done to correct these possible mistakes or issues that you may experience during the next two or three presentations. Here's a list of terms to get yourself very well acquainted with and as we go through this series of presentations, you will certainly see definitions of each one of these. If you don't know the definition of each one of these terms by the time we get to the end of the presentation, certainly give our office a call at.

5899366 and ask to speak with myself and we can provide these listed terms or definitions to you.

Stretching an ira first of all, what does it mean to stretch an Iraq and why would one want to stretch an ira?

That's the important question to ask is why stretch an ira? You may or may not have heard of the term stretching an ira. Basically, when you have a retirement account, it can be handed off to a beneficiary. Initially, the beneficiary is typically a spouse and then that spouse hands it on to the next generation. And when the next generation or a non spouse beneficiary receives the ira, they can what we call stretch it. That is to take a minimum distribution over their lifetime up through about age 83.

A classic example of this is imagine if you will, $100,000 worth of an IRA. It could be all or even just a portion of an IRA being handed off to a newborn child. That newborn child takes that $100,000 and takes just the required minimum distribution over their lifetime through age 83. That $100,000 earning approximately an 8% rate of return, would net over that period of time, $8,167,629. It's pretty amazing to see the impact of what $100,000 stretching over a child's lifetime can do.

Let's look at inheriting an IRA first. Before you can look at that, we need to understand there's somebody called a custodian in the middle of this. You have your money sitting in an IRA account. That IRA account is being held by a trustee or a custodian.

An IRA custodian is the firm holding the money. Now, what do you need to know about that firm and that custodian? Well, as one of the huge benefits of being an ED slot advisor, we've created comprehensive checklists and there's 10 questions that you need to ask your IRA advice that your IRA advisor needs to ask.

So once again, there are 10 questions that you need to ask the custodian or that your advisor needs to ask the custodian to ensure that your IRA will be processed the way you want it to be processed when you pass away.

Now, quickly, plans, retirement plans. That is to say, 401ks with your company, with your employer, those are called retirement plans. They are actually distinctly different than an ira. For the majority of the presentation tonight, when I talk about IRAs, 401s, 403s, I'm lumping all of those into one category and calling them an IRA. Technically, as you'll see on this slide, 401k plans are different. They're outside of the scope of this series of the presentation, and there are different restrictions and rules. Sometimes, sometimes these retirement plans make it difficult for beneficiaries to inherit the IRA the way you would like them to inherit that.

So how does one inherit an ira? The mission, if you will, of your beneficiaries is to not lose that IRA status as a spouse. Your spouse has many options. The spouse can still mess up inheriting an ira. It isn't outside of the realm of possibility. Although it's much easier for a spouse to fix potential mistakes. Non spouse beneficiaries cannot fix mistakes. Let me say that again. Non spouse beneficiaries cannot fix mistakes. The biggest mistake that can be made is for a non spouse beneficiary to receive a check made out directly to them.

Inherited is very different from inheriting. So it's easy to inherit an ira, but an inherited IRA has Two letters that distinguish it. It's called inherited Ed on the end. Anyone can inherit an ira. You can name your children, your neighbor, your postal person, whoever you would like to be your beneficiary. However, when the custodian is ready to transition the money from being in your name to their name, that needs to be done properly. And as a non spouse, that needs to be done via a custodian to custodian transfer. If they write a check to your beneficiary other than a spouse, they've lost the ability to stretch that ira.

Now, proper titling of an IRA is the first thing is once the account is split during that process, as what Ed Slott points out is that the title of the account needs to be something along the lines of this John Smith IRA in parentheses, deceased 112709 FBO. Which means for the benefit of John Smith Jr. Beneficiary.

There's a classic case. There's a couple of classic cases, common mistakes in setting up inherited IRAs. The Kennedy case went all the way to the Supreme Court and this went between a mother and a daughter. Imagine this. So the father and mother separated and divorced. The mother was granted access or the rights to the ira. And then the husband was supposed to go through and go back to his retirement plan and update the beneficiary forms. He had mentioned to his daughter that the 401k with his company was to be his, was to be hers. When he passed away, she would inherit it and manage to update all the beneficiary forms except for the 401k at the office.

So this went all the way to the Supreme Court and the Supreme Court said sorry. Well, they probably didn't even say sorry. They said that the beneficiary form trumps all. It was a unanimous decision and the ex wife got to keep the whole 401k. Imagine causing that little bit of family stress. What do you say? Here's another classic case where the beneficiary form. You've heard the term prenuptial, I'm sure. Well, when it comes to a 401k, a spouse must sign off on their spousal rights to the 401k assets. This gentleman was married, got divorced and he remarried. He died a short period of time after remarrying his new wife. His new wife had signed a prenuptial form. But get the definition. Prenuptial means before for the marriage ceremony. Right? And Ed Slott jokes that, well, have a pen ready at the altar because she needs to sign a post nuptial when it comes to the 401k assets.

So this one also.

The children were named as the beneficiaries, but the wife sued. The new wife sued and ended up winning all that money from the 401.

IRA Beneficiary Review Complimentary IRA Beneficiary Review for those of you who have watched the video or any portion of the video series, you may call us and request your complimentary Comprehensive IRA Beneficiary Review. Our toll free number is 866-589-9366. Once again, that's 866-589-9366. Make a phone call, request the Beneficiary Review and I look forward to speaking with you in the future. Thank you.