After decades of working and saving, putting money into IRAs, 401(k)s, 403(b)s or whatever qualified account you are eligible to use, it’s suddenly time to retire and start drawing from your retirement nest egg. This is a huge shift, from saving to spending. How do you know what to do with your retirement savings, and in particular, your IRA?
The most common advice given is to withdraw as little out of your IRA as possible while taking your Required Minimum Distributions (RMDs). MarketWatch, in “IRAs are for retirement planning, not for retirement,” suggests thinking outside the box before simply following the masses, with regards to your IRA and its RMDs.
If your money manager is advising you to let your IRA sit and only withdraw the RMDs, remember that typically, money managers are making 1-2% in fees on the total amount of money under their management. As such, the money manager has a vested interest in you keeping most of your money under his or her care.
Here are few ideas:
If tax rates increase, qualified accounts don’t give you any protection from future tax liability. If you’re like most Americans who think that taxes will increase in the next decade, do you want to wait for your retirement savings to be taxed at a higher rate? If you're between the ages of 59 and 70½, you are at the perfect spot to start an IRA Exit Plan.
Another consideration is the way in which you’ve titled your IRA and the beneficiary designations. Talk with a qualified estate planning attorney when designating your primary, contingent, and tertiary beneficiaries, as well as when titling an IRA.
Remember that when you set up a trust, your IRA cannot be retitled to your trust. This inability to change ownership of your IRA can lead to gaps in planning for Medicaid and Veteran Benefits. The quick solution is to overcome this by simply changing the IRA's beneficiary to their trust. But beware—there can be dire consequences if your beneficiaries of your IRA are not done properly.
Talk with an estate planning attorney to be certain that the IRA's beneficiary is a trust that qualifies as "See Through Trust,” or else it can cost your families thousands of dollars in taxes by making it instantly taxable upon your death.
Regardless of where you are with regard to retirement, consider as you are saving that the next part of your retirement plan is spending. Prepare your investments and yourself for a changing tax environment and create an IRA Exit Plan, so that you and your assets will be ready for retirement.
Reference: MarketWatch (August 17, 2016) “IRAs are for retirement planning, not for retirement”