Episode 37: Managing an Inherited IRA

Welcome to this week's episode where I cover managing an inherited IRA uner the new RMD rules. Thank you for listening and please reach out should you have questions. 

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JOSH KLOOZ, CFP®, MBA
WEALTH ADVISOR

Phone 281.719.0036
Text 281.699.8691
Fax 281.719.0156
jklooz@carsonwealth.com

1780 Hughes Landing | Suite 570
The Woodlands, TX 77380

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Transcript

Joshua Klooz  0:01  
Welcome to the wisdom and wealth podcast, a series of conversations designed to equip our listeners with helpful insights necessary to simplify the critical decision points of life. We believe true wealth is the thing Money cannot buy, and death cannot take away. Furthermore, we also believe our calling as to enable others to fulfill their role. And to that end, we endeavor investment advisory services offered through CWM LLC, an SEC registered investment advisor. 

Welcome in again to another wisdom and wealth Podcast. I'm Josh Klooz, the senior wealth planner here for Carson wealth in The Woodlands, Texas today, I want to focus in on what you should consider if you inherited an IRA in the past year. First and foremost, I want to express my sympathies for your loss if you did inherit something because that means you lost someone that was close to you. But beyond that, also, I want to ensure that you are equipped. And that together, you can best navigate and manage how best to steward those funds that you've now received and are now the owner of in order to maximize their value. So you may or may not be aware, but the secure Act passed back before 2020 changed the landscape, a little bit of how IRAs are are handled. And so essentially, you have 10 years in which to empty that inherited IRA or make sure that there's a zero balance in it. But the clock begins ticking the year after the death of the original IRA owner. So, you know, if you are able to act strategically, you technically might have 11 tax years or 11 payments in which to distribute those those funds. The IRS doesn't care whether you take it out all in one payment, whether it's five payments, or whether it's you know, 11, they just want you to make sure that you have those funds outside of that tax advantaged vehicle before that 10 year period. 

So obviously, this creates just some decision processes that have to be walked through. If you're still working, the first place I look at is make sure I look and make sure that you're maxing out your 401k as much as you possibly can to offset that additional income. Most people, when they do inherit an IRA are in their peak earning years. And so we need to look at what tax bracket you're in. Another often overlooked tax advantaged account, if you're still working is your health savings account. So I would want to make sure that you're fully maximizing that resources well. If you're not working, and you're currently retired, this is where I would do a deep dive of your income and your cash flow plan. And make sure that I've gone through everything with a fine tooth comb to ensure that you are looking at the best options and outcomes. I'm going to model what your current tax rate could be both now and after the tax plan sunsets and 2026. And I'm also going to model what it would look like once you've turned 72 and are required to take required minimum distributions. Because there could be potential tax savings there. 

The next place that I like to look, and that I don't think people quite take advantage of in all cases is I want to make sure if there's any charitable inclination or charitable desires within you and or your family, I want to take a look at that and see if there's a way to capture some of that inclination and and lower tax rate that would have otherwise been higher. Maybe we could use a donor advised fund in order to make one or two years worth of donations and put them inside the donor advised fund. And then the next filing year use the standard deduction. And while it may seem small, it overall adds up to tax savings. But even more so what better way to honor your loved one than through giving resources that they earned to something that both of you may have cared about, or to a cause that they may have care about. Again, I want to go back to what your current tax rate is and express that that is going to be a key factor of what what we're going to be looking at as time goes on because if you're currently in that 24% tax bracket, you could be paying a 33% tax in 2026 depending on what laws change and so on and so forth. because of just the the old tax provisions coming back into place I want to make sure that clients are aware of what that tax rate is, even regardless of what their their current situation would be if they were if they had inherited an IRA in this year. Now that we've covered the taxable portion and the charitable portion, I'd also like to provide a few creative ideas about gifting. 

So if you have kids and grandkids, another creative idea that you might consider is making a gift to your kids or grandkids in the calendar year that you have to take these distributions from the IRA, or inherited IRA rather. And while it may not shield you from any tax consequences, it all it gives you an opportunity to begin teaching invaluable principles, whether it's about investing, growth versus value, stocks versus bonds, balance sheets, sales to earnings, price to earnings, dividends, you know, all that stuff that you wish you had paid more attention to in school, or had been taught in school, that stuff. But first and foremost, it provides you an opportunity to have those discussions, and to capture the intangible worth of those different discussions with your loved ones, invites an opportunity to teach and to learn and to study and to grow. And so that's one of the ways in which I think it's often overlooked. Another creative idea that I think might help out is what we call colloquially here in the office, the family search fund, you may or may not be aware of what a search fund is, but it's it's basically a concept from Stanford and Harvard, where MBA graduates would go out and they would buy a company based off of the backing of a wealthy family or a wealthy group of investors. And they would basically become the CEO of that company and operate it. So my spin on this idea the family search fund, would be why not help your kids or grandkids start a summer business? Why not challenge them to start a company or to start thinking about what company they can start over their summer, that would meet a need, and that could help them earn money? Now, maybe those businesses don't require any capital intensive startup money. But what if they did? What if you could become a angel investor in their startup for, you know, so to speak? What if you could have many board meetings or shareholder meetings? What if you could be the person that helps them? Consider whether it's the right time to hire someone? Why should they hire someone I could go on, but I think you get my point, the lessons and potential learning that could go on in such an investment could be invaluable in might be the seed round of a budding entrepreneur for the for years to come. 

I'll go ahead and stop for now. But I think that gives you at least some starting place to begin within the IRA in the realm of inheriting an IRA. So again, just to recap, I want to make sure that you're aware that you have up to 11 equal opportunities to absorb that income, if it puts you in a disadvantageous tax bracket, you want to you want to spread those payments out as much as possible. If you're not working, there are different Roth conversion strategies that we would definitely want to take a look at. And then also we would Next we'd want to look at different charitable opportunities that you could take advantage of in the years that you're going to be taking these distributions. And then lastly, you know, beneath the tax considerations, what kind of growth intellectually and spiritually really could you help your kids and grandkids make through helping them start to learn about investing, or helping them start a business? Thank you so much for your time. If you have any questions, or further thoughts, or even if there's another topic that you'd like us to cover, please reach out. 

Well, that's all for today. Thank you again for joining us. We trust that you are better equipped to steward both your wealth and your financial resources. If you have questions or suggestions for a future topic, please direct those to info Houston at Carson wealth.com May you and your family encounter truth, beauty and goodness on the road ahead?

The opinions voiced in wisdom and wealth with Josh Cohen booths are for general information purposes only, and are not intended to provide specific advice or recommendations for any individual. Past performance is no guarantee of future results. investing involves risk, including possible loss of principal. No strategy assures success protects against loss. To determine what may be appropriate for you, please consult your attorney, accountant, financial or tax advisor prior to investing. Investment Advisory services offered through CWM LLC, an SEC registered investment advisor. Our address locally is 17 at Hughes landing suite 570 The Woodlands Texas 77380. Today's guest is not affiliated with CWM llc.

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