IRA Planning & Protection

Aler Stallings

IRA tax planning is most one of the most overlooked aspects of asset protection. Everyone focuses their efforts on growing their IRA over their lifetime and retirement. But very few people consider the tax ramifications when it comes time to pay tax or how their inherited IRA will be taxed by their kids.

IRA Basics & Education

When we talk about IRA tax planning, we are including any accounts you have deferred paying the tax on (403, 401, Deferred Comp Plans, Etc.).  When you withdraw money from these accounts income tax is due, similar to if you earned the money working at your job.  The IRS has rules PREVENTING you from taking money out of your IRA until your 59 ½ and REQUIRING you to take a certain amount of your IRA at 70 ½.  This minimum amount is call a required minimum distribution (aka RMD) and this percentage increases as you age.

IRA Tax Problem

Most folks know when you MUST take money out of your IRA (70 ½) but almost nobody knows when you are allowed to start drawing down your IRA (59 ½).  This oversight occurs because almost everyone waits until 70 ½ to start drawing and when they do, they only take out the minimum required by the IRA (~5%).  The IRAs usually continue to grow, but when they pass it on to their children it can be disastrous.  Their kids don’t get to wait until 70 ½.  They have to immediately start drawing it out, but now it is taxed at the working kids’ tax rates, not their parents’ tax rates!  With the kids in their highest earning years and paying much higher tax rates, Uncle Sam can take much more of the IRA in taxes.  If only their parents would have done tax planning utilizing their lower retirement tax rates.  Unfortunately, you could lose considerable tax savings if you don’t have an IRA tax plan.

Our IRA Tax Strategy

Simply put – we make sure Uncle Sam gets as little of your IRA as possible.  Our firm works with our client’s financial planners and accountants to create plans that ensure they pay the lowest amount of tax possible on their IRA.  IRA tax planning considers important decisions like when to turn on social security, how much to draw out of your IRA each year to ensure we are hitting targeted tax rate goals, and what expenses we can use to offset tax liabilities.

We are NOT simply trying to keep you in the lowest tax bracket each year.  Instead, we are helping you “detax” your IRA money at a lower rate than it would be if your kids inherited it.  Or put another way, in retirement you are at the lowest tax rates you’ve been in your entire life.   For you, “Taxes are on Sale.”  So we want to make sure you take full advantage of this bargain time period that starts to go away at the passing of the first spouse and ends at the passing of the surviving spouse.   If you have an IRA, you should schedule time to talk to an AlerStallings attorney about the details.