Retirement, for many, is the most important thing you DONT talk about. For some, it is too far in the future to warrant a legitimate concern. But for those of soon-to-be retired, or already actively living a retired life, there may be some key facts about your retirement plans or accounts that even you have overlooked.
Todays retirees are all-too familiar with Individual Retirement Accounts and the fundamental precepts that govern them. IRAs have been around for decades, and though this 3 letter acronym is on the tip of most financial advisors tongues, holders of these accounts often miss some of their important mechanisms. These facts should help guide you in your approach to your IRA and also give you some fodder for conversation with your investment professional.
4th and 10
As of 2010, 4 thdown is not the only conversion that you should be thinking about. Football analogies aside, thats because as of 2010, income-based and filing status restrictions were lifted when converting to a Roth IRA. As an IRA account holder, you need only notify your bank or financial institution that you wish to convert part (or even all) of your traditional IRA account to a Roth IRA. This allows you to keep your investments, balance, and even the same custodian should you be happy with them. What changes is simply the tax treatment of your account. A Roth IRA conversion from a traditional IRA is considered a tax distribution and therefore, you pick up an income tax on the amount converted in the year of the conversion. 2010s lifting of income and filing status restrictions allows greater latitude in considering a Roth IRA conversion.
NOTE: an important metric is the tax consequence associated with the conversion. As all good football coaches do, your financial advisor should analyze the tax implications and discuss your options should you choose to go for it.
Your Will, Won't
It has likely been a while since you filed for your IRA and filled out the requisite paperwork. Whether you are far into retirement, or beginning your estate planning, there is an important fact to keep in mind: Your Will may not govern your IRA. IRAs are governed by the Adoption Agreement that you filled out when opening your account. These legal documents generally trump the dispersion of assets set forth by your Will and leave IRAs outside the auspices of probate court. That means whomever you designated as your beneficiary/contingent beneficiary will receive your IRA when you die. Review your IRA paperwork and make sure you are comfortable with who will receive your money!
Tax deferred (as well as tax free) growth does not die when you do. That means your IRA continues to grow within the bounds of its tax structure. Some folks fail to take this into account when making investment and beneficiary decisions during estate planning. Proper set-up of your Individual Retirement Account can mean that your loved ones to whom you have named as beneficiaries of this asset (as an Inherited IRA) can benefit from the same tax sheltered growth that you did during your life. Remember: Your IRA may be alive, even if youre not!