Beyond IRA Fundamentals

Speaker 1:           From the Clear Channel Studios, a Professional Edge by scene g Todd Tax Attorney CPA and Certified Financial Planner is providing general information related to taxes, investments, and estate planning. This information is not to be perceived as providing individual legal, tax or investment advice as each individual’s circumstances are unique. Being a listener does not create an attorney slash CPA or an investment advisory client relationship. Each individual’s personal situation is [00:00:30] different and seeking one-on-one advice, whether a licensed professional is recommended, securities and fee only investment council is provided through Schwab Institutional Member S I P C. This is Professional Edge, a program designed to help you understand the importance of getting counsel and advice from a licensed professional and help you appreciate the significance of being able to integrate your investments, tax planning, and estate planning into one cohesive plan to prevent an unintended consequence. We will be talking with Scene G Todd of Estate Management Counselor’s, [00:01:00] llc.

Speaker 1:           Estate Management Counselor’s, LLC is an independent fee only investment management firm based in Atlanta with a satellite office in Columbus, Georgia that serves select clients throughout the country. Their goal is simple to make sure their clients feel confident and secure about their financial future. Seen is a truly qualified professional. He is a licensed tax attorney, a CPA and certified financial planner. He is also an adjunct income tax professor at the University of Georgia. One unique thing you might not know about scene, [00:01:30] he attends the National Rodeo Finals. Each year we will be talking with scene.

Speaker 2:           Good morning, Chris. How are you today?

Speaker 3:           Good morning, scene. Doing well. How about yourself?

Speaker 2:           Good. You have a good week?

Speaker 3:           Yeah, I certainly did. Good. Didn’t go anywhere at this time.

Speaker 2:           <laugh>. All right. That’s

Speaker 3:           Fair. I stayed home trying to save a few dollars.

Speaker 2:           That’s all right though.

Speaker 3:           So how was your week?

Speaker 2:           It was good. Good. Staying busy.

Speaker 3:           Excellent. I know we got a great show today, don’t we?

Speaker 2:           Yeah, we have, um, beyond IRA Fundamentals Beyond

Speaker 3:           [00:02:00] Way Beyond.

Speaker 2:           Right. And you’re good little technical issue. You know, if you’re driving, you may wanna pull over.

Speaker 3:           I’ll go ahead and tell you right now. You’re gonna lose me in this, so I’m just gonna probably just sit back and listen on this part, <laugh>

Speaker 2:           Okay. And take notes.

Speaker 3:           Take notes. Yes.

Speaker 2:           All right. So be sure you stay tuned also because we’re gonna have a free giveaway this week. Again, um, big Retirement Risk. It’s an an excellent read. Outlines a bunch of things for retirees and soon to be retirees. And it’s a great read hardbound book. [00:02:30] So stay tuned. Do not dial right now cuz we’re trying to get everything set up for that. And then when it’s time, if you want to jot down this number, 8 7 7 6 5 4 9 7 9 8, you can go ahead and do that. But again, don’t dial in right yet. And again, Chris soapbox, I gotta step on it for the estate planning side, for all the listeners here in Columbus. Get your estate plan in place because we know that bad things happen to good people. Mm-hmm. <affirmative> and we do not know or have a guarantee [00:03:00] for tomorrow. So if you do not have your estate plan in place, we have put together, um, a great information guide, how to unlock the ultimate estate plan.

Speaker 2:           And they can call the office or submit that via email and we would be glad to ship that out to you. Free complimentary. I’m an advocate to get the estate plan in place because if something happens to mom and dad and they have minor children, um, nothing’s addressed, then [00:03:30] the state court gets to decide who is gonna be the guardian of those minor children. They also dictate who is gonna manage their money in the interim until they reach the age of majority, which is 18, and they get the check free gratis, no restrictions at age 18. And the chances of them going to college at that point are about none. They will go work at a ski resort for a couple years, maybe go to the beach, sell t-shirts and uh, uh, ran out, lawn chairs, [00:04:00] things like that. So definitely get that in place.

Speaker 2:           Folks, again, how to unlock the ultimate estate plan. 8 7 7 6 5 4 9 7 9 8. And last week, Chris, we talked a little bit about investment strategies for uncertain times. And a lot of people are focusing on retirement income because they’re seeing their safe income go down. And that is CDs. Uh, they’re paying 1% on a one year CD [00:04:30] that’s not gonna do anything for them to sustain their retirement spending. And I spoke with a gentleman this week and he said, you know, I, I planned for retirement, you know, I kept putting money away, money away. And I was planning on only spending my retirement income, which is generated from the portfolio. And he said, unfortunately, in this environment I am not generating enough retirement income, so therefore I’m having to spend my principle mm-hmm. <affirmative> and slowly, [00:05:00] slowly eroding his principle because he’s not getting enough retirement income. Well, there’s different strategies that we talked about to generate more additional retirement income besides just having a 1% CD because it’s safe, it’s secure, it’s F D I C insured.

Speaker 2:           Right? And here was an interesting stat that we hand, and it is since August of 2009, the s and p index s and p 500 index is up 39.6%. So all the people [00:05:30] left the market and not stayed invested in the market since August of 2009. The s and p 500 is up 39.6%. Now we know there’s a lot of uncertainty in the market because we have the European debt crisis, we have the election coming up, we have sustained unemployment. The residential housing is still in what I call crisis mode, right? And so there’s a lot of uncertainty and that is supported by this next fact. [00:06:00] And over the same period from August of 2009, investors in US stock mutual funds have withdrawn $347 billion. Chris $347 billion have spent withdrawn from stock mutual funds. It’s a lot. That is a tremendous amount. Even though the market has actually been a positive return.

Speaker 2:           Pretty good return actually. Mm-hmm. <affirmative>. So what’s going on? People are scared. Yeah, they are. Mm-hmm. [00:06:30] <affirmative>. So as people are scared, what I call, they’re having stock market fatigue, there’s a lot of uncertainty and they just say, you know, I’m done, I, I want out of the market. They just don’t wanna venture out either. They, they don’t want to take that risk anymore because they’re seeing there’s too many uncertainties. So they don’t want to get whacked like 2007, 2008, they can’t afford to have a 50% drop in their portfolio again. Mm-hmm. <affirmative>. So they’re pulling some money off to the side. [00:07:00] But here, unfortunately they don’t know what to do with it once they pull it off. Yeah. It’s sitting in their checking account where they get a one year cd mm-hmm. <affirmative> because they don’t know what else to do. So we talked about what they could do and the first one was um, municipal bond fund, basically the one that we utilize in the office.

Speaker 2:           Um, currently yielding 4.54%, it’s tax free. Pretty good rate of return. Yeah. If you’re in the 25% federal tax bracket, that’s an equivalent [00:07:30] yield of 6%. Got a hundred thousand dollars 6% equivalent yield. Basically that’s a 600% increase over the cd. Not bad. No. So 4.5% tax free, that’s enough to write home about then year to date. And this supports that number of all this money coming out of the stock mutual funds year to date this fund is up 7.89% and that’s as of June 30th [00:08:00] this year. Mm-hmm. <affirmative>. And then if we get a more recent number as of August 31st, it’s up 10.37%. So why is that fund going up in value? The only way it goes up in value is because more people are trying to buy that fund. Mm-hmm. <affirmative>, therefore it supports the exodus from the stock mutual funds of 347 billion. Where are they going just to funds like this?

Speaker 2:           Mm-hmm. <affirmative>. And that’s spitting up that price. [00:08:30] If the price increases, then the rate of return on that underlying investment increases. So that was one alternative that we talked about last week. The other one being, okay, if we don’t like to put all our eggs in one basket, which you should not because you need a diversified portfolio in retirement, then we looked at a preferred stock fund. And preferred stocks are less risky than common stocks. They have a better liquidity position than common stocks. [00:09:00] But on preferred, the one that we utilize yields 5.8%. Mm-hmm. <affirmative>, again, that’s taxable. So we got 5.8% taxable and year to date the fund is up 15.5% as of October 5th. That’s pretty substantial rate of return. Mm-hmm. <affirmative>, and again, all listeners past performance is not indicative of future performance. But again, as people remove their money from this stock, mutual [00:09:30] funds 347 billion, they don’t want to get a 0% rate of return or 1% rate of return, but they would have a better rate of return.

Speaker 2:           And this is either the municipal bond fund or the preferred stock fund and yielding 5.8% and it’s up 15.5%. People are moving towards safety, Chris. And these are just two of the things that we look at in our firm. And if you are [00:10:00] not so certain about what you’re doing with your investment portfolio, that’s why we offer a complimentary consultation. Bring in your account statements, sit down, we take a snapshot at it, we’ll review it independently, produce the report and come back to you and say, if you or our client, here’s what we would recommend based on what you’re trying to accomplish as a fee based investment advisory firm, we have nothing to sell. The only thing we provide our clients is with objective professional counsel on advice. [00:10:30] And with that advice, we implement a tax strategy being a CPA when implement an investment strategy being a certified financial planner. Mm-hmm. <affirmative>. And then wrap that up one more time, Chris, and we implement a estate planning strategy. And you say, why is that so important? Well, if your IRA doesn’t go to the right person mm-hmm <affirmative>, then all your savings is for not. Right. So we’ll take a look at that as we go beyond the [00:11:00] IRA fundamentals as we continue to work with individuals and our listeners here at the professional edge. And be sure to stay tuned because we’re gonna have that free giveaway of the big retirement risk when we come back. All

Speaker 3:           Right, sounds good. If you wanna get in touch with scene, you can, uh, email a question in if you’d like to do that, info EMC advisors.net. You can also call 8 7 7 6 5 4 9 7 9 8 to get in touch with scene again, 8 7 7 6 5 4 9 7 9 8. Stay [00:11:30] with us. We’ll have more of the show right after this.

Speaker 1:           We’ve all thought about it, everyone listening will need one. Not having one can cause untold heartache, family conflict escalating to the point of a lawsuit. One simple thing that avoids all that. An effective estate plan. As a practicing tax attorney seeing Todd with estate management counselors has completed over 1000 estate plans during his 15 years [00:12:00] of professional practice. He can help you implement an effective state plan, coordinate your financial accounts, and make sure you have named the proper beneficiaries to maximize your tax savings. Call 8 7 7 6 5 4 97 98 today and let tax attorney sing Todd help you implement an effective estate plan. Call 8 7 7 6 5 4 97 98. Today with today’s financial markets, are you getting the personal and professional attention you and your money deserve? Clients of estate management [00:12:30] counselors benefit from having one set of professionals advise them on their tax estate planning and investment advice. We call that the professional edge scene. Todd is a tax attorney, CPA and certified financial planner. With over 15 years experience, he welcomes the opportunity to assist you in preparing for retirement, implement effective tax planning strategies, and to help you properly plan your estate. His radio show the Professional Edge is aired weekly on Sundays at 9:00 AM. If you are interested in meeting with scene, call his office [00:13:00] at (877) 654-9798. That’s 8 7 7 6 5 4 97 98.

Speaker 3:           Hey, welcome back to Professional Edge with seeing Todd. I’m Chris East, we appreciate you taking out the time [00:13:30] to join us on this Sunday. Lot’s of good information for you if you wanna get in touch with us. 8 7 7 6 5 4 9 7 9 8 8 7 7 6 5 4 97 98

Speaker 1:           Scene.

Speaker 3:           Let’s get back to it. All righty, that’s a good information.

Speaker 2:           We’re talking about a little bit about IRA fundamentals beyond that point Chris, but before we go beyond, we gotta review a couple of the straightforward IRA rules. Uh, regular IRAs versus Roth IRAs [00:14:00] in individuals know that if they make a contribution to a regular IRA that’s gonna be tax deductible, that’s gonna reduce their current tax liability that they owe the irs. But if they make a Roth IRA contribution, that will not reduce our current income taxes. And we gotta remember what the contribution limits are for 2012. And contribution limits are. If you are 50 years of age or younger, then you get $5,000. [00:14:30] But if you’re over 50 or 50 and above, as I say and you have earned income, that’s another key component of being able to make a contribution to a ira. You have to have earned income. So if you’re a trust fund recipient and the only thing you’re receiving is portfolio income, unfortunately you are not gonna be eligible to make an IRA contribution.

Speaker 2:           But anyway, if we’re 50 and above, then we get to make an additional contribution. So therefore your annual [00:15:00] contribution would be $6,000. Uh, unfortunately Chris, we are seeing individuals with husband working wife staying at home. They’re led to believe for some reason that they’re not able to make a contribution for their stay-at-home spouse. Mm-hmm <affirmative> actually they can, they can again make $5,000 each total of 10. Or if they’re both over the age of 50, then they can make a total of $12,000 contribution. Again, they gotta have an earned income. Um, [00:15:30] then we look and say if an individual wants to make a regular IRA contribution or Roth contribution, can they put $5,000 in each account? The answer’s no. Um, you can have a total of five in the two separate accounts. So we gotta make sure that we don’t violate that rule. Then we also have an upper income limit, which basically says if you make too much money, uh, you’re gonna be phased out from being able to make a deductible IRA contribution or even contribute to a Roth [00:16:00] ira.

Speaker 2:           So we gotta be worried about those threshold limits. When we go beyond the IRA fundamentals, then we look and we say, okay, what about the withdrawal strategies on regular IRAs versus Roth IRAs? On regular IRAs that’s gonna be treated as ordinary income and when it goes as ordinary income, that shows up on the front side of the 10 40 tax return. And that may have some impact on your other taxable [00:16:30] items. Meaning if you are over the age of 66, you’re in retirement and you’re receiving social security and you now take part of your IRA distributions, then that’s gonna be treated as taxable income. Therefore that might throw you up in a higher marginal bracket. It might also make part of your social security subject to income tax. That’s 50% or up to 85% of your social security would be included in taxable income. So [00:17:00] that would also adjust your adjusted gross income with the compound in effect being is your medical expenses going to exceed 7.5% of your adjusted gross income?

Speaker 2:           Therefore we gotta take those all into account on your regular IRA distributions. Now switching over back to the Roth ira, there is no taxable income when you make a distribution from a Roth ira. That’s what we call the magic bucket. Uh, ideally if you [00:17:30] had all your money in a Roth ira, that would be ideal. Um, but unfortunately we can’t get that much in there to begin with because they haven’t been around that long. So the way people are funding those Roth IRAs is a, they’re not contributing to a regular ira, therefore they’re foregoing the tax deduction that they’re gonna receive this year in 2012. But they know that if they make that $5,000 contribution, that five grows to 20,000 when they hit retirement and they make that distribution [00:18:00] coming out in retirement, that would be excluded from taxable income. Therefore they would not have to include that in the calculation on whether 50% or up to 85% of their social security is included in taxable income.

Speaker 2:           And you know, as we look through this and we go beyond the IRA fundamentals, a lot of our individuals that we meet with, they said, you know, I would love to have a Roth ira but I’ve been told I make too much to contribute to a Roth ira. [00:18:30] Well that’s where we put on our tax attorney hat, our CFP hat and our cert, you know, CPA hat. And we say we don’t really think that that’s true and that’s why we sit down and we work with individuals to show them exactly how, even though they think they’re making too much money to make a direct contribution to a Roth IRA, that they can actually fund a Roth IRA going forward. That’s where we have the client come in, schedule a meeting with Tina [00:19:00] and that number is 8 7 7 6 5 4 9 7 9 8. And we show them exactly how to make that happen.

Speaker 2:           And then the other key thing is on a Roth ira, we don’t have any required minimum distributions because underneath a regular ira we have to start taking required minimum distributions when we reach H 70 and a half. And if we don’t make those required minimum distributions and do that calculation correctly, the IRS is gonna [00:19:30] help all the IRA owners out by imposing a penalty. And that penalty is 50% of what they should have taken out. So if you do the calculation incorrectly, Chris, and you are supposed to take out $12,000, but lo and behold you only took out $8,000. So there’s a $4,000 difference, they’re gonna impose a 50% penalty on that $4,000 you did not take out. It’s a lot. Well it’s a lot mm-hmm. <affirmative>. So you’re going to lose 2000 of that [00:20:00] $4,000 off to the IRS just because you did not make the required minimum distribution.

Speaker 2:           So we also run through the analysis when we go beyond our IRA fundamentals and a lot of individuals ask us, should I make a conversion to a Roth ira? And I can’t say yes or no. It all depends on the client circumstances. It might make perfect sense that you convert a portion of it and [00:20:30] start an investment plan that says that you’re gonna convert X dollars per year going forward and then in retirement, now you have a substantial sum and a Roth ira. But we gotta remember every time we make a regular IRA conversion to a Roth, then we have additional income and that additional income is taxable income and we gotta remember that that additional taxable income has other impact. Mm-hmm. <affirmative> and being a registered [00:21:00] investment advisor, that’s where we shift our hat and say, yes, this is a great investment plan, but putting on our CPA hat, what does that have as an impact on your tax plan, your 10 40 tax return?

Speaker 2:           And that’s sort of that unique combination of being a tax attorney CPA and a certified financial planner that we can actually understand and advise our clients on the complete situation. So you’re not having to go out to get the cpa, [00:21:30] not going to get the stockbroker, not going to get the estate tax attorney. So we integrate that plan and that’s where the comprehensive tax planning, financial advice and estate planning works in a cohesive plan. So we don’t have an un unintended consequence. Um, as we look at this Roth conversion, we have to understand that that taxable income might throw [00:22:00] the client up into a higher marginal tax bracket. Mm-hmm. <affirmative>, that doesn’t mean that all the dollars are included in a higher tax bracket, it just means that next taxable dollar is included in a higher marginal bracket. Right? So we outline that to the client in writing and basically utilize their marginal brackets because a lot of individuals have more room in their taxable income that they can utilize a Roth conversion amount, therefore they’re going to get their money [00:22:30] in that Roth account again in retirement, that Roth distribution is gonna be a hundred percent income tax free.

Speaker 2:           And that is the growth in addition to the contribution in that Roth ira. So that’s where we sit down and say, you know, beyond the IRA fundamentals of making a contribution and going forward and putting money away, is there a better complete strategy to fund your retirement to make sure that everything gets in the right bucket, in [00:23:00] the right account, in the right amount. And again, if you’re a listener out there and you’ve been told that you are making too much money to make a Roth IRA contribution, uh, definitely give Tina a call at (877) 654-9798. Uh, we will definitely sit down behind closed doors and show you exactly how we can get that done. Um, may sign a little of disclosure that, that you’re not with the irs, not really Chris, but um, <laugh> it, it’s a, uh, what I call the Texas two step mm-hmm. <affirmative>

Speaker 2:           Because we gotta do it in two steps to make that happen. [00:23:30] And be sure to stay tuned because we’re gonna go one more level above and beyond IRA fundamentals and we’re gonna talk about a designated beneficiary trust. Mm-hmm. <affirmative>, because a lot of individuals out there, their second largest asset, their IRA account, their 401k or ira, and with that they’re planning this asset by having a one page beneficiary designation, which says who’s your primary beneficiary and then who is your contingent beneficiary. Right? [00:24:00] Well that’s a substantial asset and you’re gonna leave that to just two basic lines on an account form. Don’t think so. Stay tuned and learn what a designated beneficiary trust is. All

Speaker 3:           Right, sounds good. Scene. And of course if you wanna get in touch with scene, you can certainly call by picking up the phone dialing eight seven seven six five four nine seven nine eight eight seven seven six five four nine seven nine eight. And always check out the website too. Lots of good information right there anytime you need it@emcadvisors.com. [00:24:30] And stay tuned, we’ll have more of the show right after this.

Speaker 1:           Do you wanna feel more confident about making the right investment, tax and estate planning decisions today? These decisions are more complex than ever. Have you thought about working with a professional advisor and not sure who to turn to? Not sure what qualifies one to be an advisor scene. Todd is more than qualified as a tax attorney. CPA and certified financial planner seen is with [00:25:00] a state management counselors. Estate management counselors operates as an independent fee only investment advisory firm. They’re dedicated to gaining a personal understanding of their client’s objectives and implementing professional counsel and advice to achieve those objectives. So take a second to talk with seen Todd, to learn how you can benefit from their multi-disciplinary practice where they coordinate their clients’ legal tax and investment strategies into one comprehensive and integrated plan to enhance and protect their client’s financial security. [00:25:30] You can reach a estate management counselors and speak with scene Todd by calling 1 8 7 7 6 5 4 97 98.

Speaker 1:           That’s 1 8 7 7 6 5 4 97 98. We’ve all thought about it. Everyone listening will need one. Not having one can cause untold heartache, family conflict escalating to the point of a lawsuit. One simple thing that avoids all that an effective estate plan. As a practicing tax attorney seen, Todd with estate management counselors has completed over 1000 [00:26:00] estate plans during his 15 years of professional practice. He can help you implement an effective state plan, coordinate your financial accounts and make sure you have named the proper beneficiaries to maximize your tax savings. Call 8 7 7 6 5 4 97 98 today and let tax attorney sing Todd help you implement an effective estate plan. Call 8 7 7 6 5 4 97 98 today.

Speaker 3:           [00:26:30] Welcome back to Professional Edge with Scene Tide. I’m Chris East again. If you wanna get in touch with us, 8 7 7 6 5 4 9 7 9 8 8 7 7 6 5 4 97 98 and the website too. EMC advisors.com. This ring can find lots of information about what scene does for a living and find out more about the show as well.

Speaker 2:           Well we [00:27:00] gotta step back in to go on beyond IRA fundamentals, Chris, and let’s talk about what a designated beneficiary trust is. All righty. A lot of our listeners out there have IRAs, 401ks, and they are controlling the disposition of those assets upon their passing by a simple beneficiary designation which says who’s your primary beneficiary and who’s your contingent beneficiary. Mm-hmm <affirmative>. And we’re looking at those and we’re asking the clients to bring those in. And here’s what [00:27:30] we’re seeing. Most individuals designate their spouse as being the primary beneficiary, which is fine copacetic, it’s okay. And then they name their kids as a contingent beneficiary. But let’s walk through a couple things on that and see trips, traps and tribulations that they can get into. Um, bill and Mary in this case have two kids. Bill names Mary as being the primary beneficiary to keep his happy marriage going. <laugh>

Speaker 2:           And um, names [00:28:00] the two kids that can as contingent beneficiaries. Pretty straightforward. 90% of our listeners, probably 99% of our listeners do that same scenario. Mm-hmm <affirmative>. Now here’s what the listeners need to be very concerned about. If let’s say the balance of the IRA is $500,000 and it’s Mary’s IRA and Mary passes away, bill then remarries five years later. Cuz most people aren’t gonna stay single. But in this case Bill remarries and on [00:28:30] Bill’s ira, he names his new wife Samantha as being the primary beneficiary, bill then dies. Bill and Mary’s kids are gonna be disinherited. Think about that. Mm-hmm <affirmative>. So you got a half a million dollar asset which goes to the surviving spouse because it’s a primary beneficiary. Right. They then roll that over into their name. Guess what? That surviving spouse has that asset and [00:29:00] they can name whoever they choose. Mm-hmm <affirmative> to be the primary beneficiary on once they pass away. Hmm. So lo and behold, the new wife gets in here and has Bill named her as being the primary beneficiary. And when Bill dies, it goes to the new wife. Hmm.

Speaker 2:           The two kids of Bill and Mary are completely disinherited over this asset. So it happens time and time again on that. So [00:29:30] you know, if you have your spouse as the primary beneficiary and your kids as the contingent beneficiary, this can happen. So this is where we implement and we put on our tax attorney hat and being a certified financial planner, we track and a take care of these assets. So therefore the surviving spouse has access to the assets. But we can guarantee that the surviving spouse cannot disinherit [00:30:00] the kids. That is peace of mind. Mm-hmm <affirmative>. But if we just leave it to the current IRA account form, which says who the primary beneficiary is and who the contingent beneficiary is, there is zero guarantee that the surviving spouse will not disinherit the kids. They can always name the new spouse, they can name him, their brother, their sister, they can give it all to charity to the detriment of the kids.

Speaker 2:           So we look at that [00:30:30] and it being the second largest asset, we gotta make sure that it’s gonna go down to the kids so that new spouse is not gonna be part of that plan. So what we do is, as a tax attorney, cpa, cfp, certified financial planner, we’re gonna put all three hats on. So therefore as a tax attorney, we would establish a designated beneficiary trust that’s a legal document. We draft that for the client, they sign [00:31:00] it. Now we update the IRA account beneficiary and the designated beneficiary trust becomes the primary beneficiary of the ira. Now when the spouse passes away the one that owns the ira, we give the surviving spouse complete access to that ira. And I said access Chris, I didn’t say ownership. Mm-hmm <affirmative>, I said access. Big difference there. Big difference. A little legal terms. Yeah. A little nuance.

Speaker 2:           So we give them [00:31:30] access to that ira, we continue to comply with the required minimum distributions, but inside that designated beneficiary trust, the kids are gonna be the contingent beneficiaries once the surviving spouse passes away. So the surviving spouse has access to it, complies with required minimum distributions, but the surviving spouse does not have ownership to change the beneficiary on that account. So therefore [00:32:00] when they pass away, we know guaranteed today that the kids are gonna inherit any remaining balance of that IRA that the first spouse actually owned. Now that is a significant plan and you driving down the road and listening in, that is a huge planning point to have that asset. Mm-hmm <affirmative> guaranteed to go to your kids. Yep. So designated beneficiary trust and if you Google it, which most people might get home and say I’m going to Google [00:32:30] D B T or designated beneficiary trust, you’re not gonna come up with anything.

Speaker 2:           The only way you’re gonna come up with anything, Chris, is to give our office a call and sit down and you say, okay, this is what I want to accomplish. This is the true benefit of working with the state management counselors Chris, because we coordinate the IRA account with the client’s estate plan brokers, other one 800 number firms, they could care less what goes [00:33:00] on the beneficiary designated form because they don’t really care. They’re handling the account, they’re not there to provide tax and estate planning advice. Well we are and that’s the difference. So contact Tina at 8 7 7 6 5 4 9 7 9 8. That number again 8 7 7 6 5 4 9 7 9 8 to see how implementing a designated beneficiary trust as the beneficiary of your IRA would make financial [00:33:30] and estate planning sense. Mm-hmm <affirmative>, here’s the other thing. We then with the designated beneficiary trust guarantee that we’re going to maximize the tax deferral strategy on that IRA account.

Speaker 2:           Cuz we gotta remember, if we’re not paying the IRS any money based on distributions, then we have that money there to earn investment returns. So remember [00:34:00] that we always say in estate planning, your inheritance is gonna be squandered. Mm-hmm <affirmative> in approximately 93 days after you pass away. Yep. So the second largest asset you have, your surviving spouse has it, we put this in place, we can therefore corral this asset and eliminate the ability for your kids to liquidate this IRA within 93 days of your passing. So therefore we get this to go [00:34:30] out and we have them take a life distribution every year for the remainder of their life. Mm-hmm. <affirmative>. So they’re gonna get a check every year from your IRA account after you pass away. Do you think they’ll remember you longer? <laugh>? Possibly <laugh>? They might.

Speaker 3:           Yeah. At least they’ll cut down on the 93 days of Yeah. Completely just wiping it out. Yeah. Right.

Speaker 2:           So that’s where we put that plan in place because if you just name spouses being the primary kids [00:35:00] is being a contingent, then they have all legal right and entitlement to call the custodian of the IRA account and say, send me a check. Mm-hmm. <affirmative>, they’re gonna pay a hundred percent of the taxes on it, federal income taxes, it’s gonna probably drive them into a higher marginal bracket, but they get the liquid funds immediately and there’s nothing that the custodian of the IRA can say to restrict the distribution of that. Mm-hmm. <affirmative>. But if you put this in place today, [00:35:30] sign it. You know that your kids cannot squander the money in that 93 days. So that’s integrating the financial plan with the estate plan. And I can tell you people aren’t doing it because 99% of the listeners out here have their spouse’s primary, the kinsa contingent beneficiaries.

Speaker 2:           And here’s the other thing that I’m worried about, Chris, is when they designate the beneficiary, you gotta make sure that they’re not gonna disinherit their grandchildren. So you name [00:36:00] spouse first they pass away and nobody updates their beneficiary designation. So now we’re relying on the beneficiary form and it says split it equally between the kids. Mm-hmm. <affirmative>. Well if one of those kids passes away, can we guarantee that that deceased child chair goes to their kids? Right. So they gotta stay tuned because we’re gonna show you how that’s not the case. Mm-hmm <affirmative>, you gotta make sure and you gotta add some language to [00:36:30] the beneficiary form, which again, stockbrokers aren’t there to give you a estate planning advice. Yes. They’re not there to give you tax advice. Mm-hmm <affirmative>, the one 800 firms that are custodian, some of these IRA accounts that you see on TV are not giving you this advice. But I mean, wouldn’t that be a tragedy that you think that your son’s share is gonna go down to his kids? Mm-hmm. <affirmative> and they don’t get it. Exactly. They’re disinherited. Mm-hmm <affirmative>. So stay tuned. We’re gonna learn a little bit more here on going beyond [00:37:00] IRAs.

Speaker 3:           All right, sounds good. Stay with us. And as always, if you wanna get in touch with scene, here’s something that uh, he’s talking about that you wanna get some more information. 8 7 7 6 5 4 9 7 9 8 8 7 7 6 5 4 9 7 9 8. Also be sure to check out the website too, EMC advisors.com and if you have a question that you would like to send in via email, you can do that. Info EMC advisors.net. Stay with us. We’ll have more of the show right after this.

Speaker 1:           [00:37:30] Do you wanna feel more confident about making the right investment, tax and estate planning decisions today? These decisions are more complex than ever. Have you thought about working with a professional advisor and not sure who to turn to? Not sure what qualifies one to be an advisor scene. Todd is more than qualified as a tax attorney. CPA and certified financial planner seen is with a state management counselors estate management counselors operates as an independent fee only investment [00:38:00] advisory firm. They’re dedicated to gaining a personal understanding of their client’s objectives and implementing professional counsel and advice to achieve those objectives. So take a second to talk with scene Todd, to learn how you can benefit from their multi-disciplinary practice where they coordinate their clients’ legal, tax and investment strategies into one comprehensive and integrated plan to enhance and protect their client’s financial security. You can reach a estate management counselors and speak with scene Todd by calling 1 8 7 7 6 5 4 97 98. [00:38:30] That’s 1 8 7 7 6 5 4 97 98. As a tax attorney CPA for over 15 years scene, Todd has implemented over 1000 individual estate plans. He has recently authored an especially helpful guide How to unlock the Ultimate Estate Plan. This guide has helped many individuals to understand the benefits of an estate plan and how to avoid unintended disasters. Scene has made every attempt to write this in plain English to receive this valuable [00:39:00] guide how to unlock the Ultimate Estate Plan, call 1 8 7 7 6 5 4 97 98 and request your complimentary copy today or by emailing your request to info emc advisors.net.

Speaker 3:           And welcome back to Professional Edge with scene. Todd, I’m Chris East. Thank you so much for joining us today. We appreciate that very much. (877) 654-9798. [00:39:30] That is the phone number that you can call if you need to get some information. And also how about, uh,

Speaker 2:           A little fast fingers? Yeah. Free giveaway

Speaker 3:           <laugh>. So they have a clever name but you beat me too. It very good. Yeah. <laugh> first 15 callers. I’m gonna set you up with a free book, the Big Retirement Risk. It is a very good read. I would highly recommend it. And if you’re the uh, first 15 callers, you’re gonna get a copy of it absolutely free. So pick up your phone and start dialing [00:40:00] right now. 8 7 7 6 5 4 9 7 9 8 8 7 7 6 5 4 97 98. Dial carefully and good luck. All right. Scene, let’s get back to you the show before we have to wrap it up today.

Speaker 2:           All right. We’re continuing on with beyond the IRA fundamentals and we talked last segment about the designated beneficiary trust and with IRAs being the second largest asset in a lot of people’s portfolios beyond their personal residence, then we need to take [00:40:30] care of that asset to make sure it goes to the right person and it’s not gonna be squandered within 93 days date of death. With that, we gotta designate a beneficiary on that IRA or the 401k and with that we say who the primary beneficiary is and you would be surprised Chris, how many people name a primary beneficiary but they do not name a contingent beneficiary. Mm-hmm <affirmative>. So if husband and wife are in the car together and they both pass away on impact, then we’re gonna default [00:41:00] to the contingent beneficiary. We pull the account form and lo and behold, there’s nothing. Yeah.

Speaker 2:           So therefore if there’s nothing then it says the estate of the IRA account holder is the designated beneficiary. Mm-hmm <affirmative>. So within that parameter, now rules apply that are set down by the state, which says that with an IRA being payable to the estate, it has to come out five years date of death. Hmm. So there is no tax [00:41:30] deferral opportunity. Mm-hmm <affirmative>. So if husband and wife pass away and you got a 30 year old, that 30 year old has to take it out within five years date of death. So we can’t stretch that IRA out over the life expectancy of the 30 year old substantial tax tragedy. Mm-hmm <affirmative>. So definitely confirm that you have a contingent beneficiary. Next thing is if an individual has a primary beneficiary [00:42:00] as a trust, then we gotta make sure that it coordinates with the other estate plan. Now just naming your trust as a designated beneficiary does not necessarily work because the IRS sets out rules, which a trust document has to meet certain criteria in order to be eligible to be named as a designated beneficiary.

Speaker 2:           Mm-hmm <affirmative>, if it doesn’t meet the criteria, then it fails. If it fails, then [00:42:30] it reverts back to having new designated beneficiary. And if you don’t have a designated beneficiary and these are terms of art, then it defaults and says the estate is now the beneficiary, therefore the five year rule applies on the distribution. Mm-hmm <affirmative>. So here’s another thing that we look at in who you name as a beneficiary will dramatically impact your income tax consequences. So [00:43:00] let’s say for example, Chris, the client was, or a listener was able to name their kids as contingent beneficiaries because the spouse passes away. We haven’t updated the form. And when the client now with the IRA passes away, they have three kids, one’s 50, one’s 48, and one’s 35. Mm-hmm <affirmative>, they name them as equal beneficiaries. Okay. So with that in mind, we’re gonna let the listeners know what the oldest heartbeat [00:43:30] rule means. <laugh>.

Speaker 2:           And it basically says when an IRA owner passes away mm-hmm. <affirmative> and it’s to be divided equally among the kids and they have age of 50, 48 and 35. Okay. Can the age 50 year old take that over their life expectancy, take the required minimum distributions? The answer is yes. Okay. Now with a 48 year old, you have a longer life expectancy. Can they take it out over [00:44:00] their life expectancy? As a 48 year old, the answer is no. Mm-hmm. <affirmative>, even though you said divide this IRA equally, right now think about the 35 year old, they have a life expectancy of 50 years. Mm-hmm. <affirmative>. So therefore they would only have to take out about one 50th of their IRA required to take it out. Now would they be able to take it out over their life expectancy? The answer is no. Okay. The IRS says we have to take the [00:44:30] oldest heartbeat, which is the age of 50 mm-hmm <affirmative>.

Speaker 2:           So therefore all three children must distribute this IRA out over the life expectancy of a 50 year old. Gotcha. Is that detrimental to the 35 year old? Hmm, absolutely. Mm-hmm. <affirmative>, because we can’t extend it out over their life expectancy, which is dramatically longer than a 50 year old. Right? Mm. Planning foot fault, right? Mm-hmm <affirmative>. So how many brokers actually go through this plan? [00:45:00] Probably none. <laugh>. None I can tell you. So as a listener you have got to understand what the oldest heartbeat rule mm-hmm <affirmative> deals with. It is a lot. Yeah. So, um, the 35 year old in this example is stuck taking the distributions out over the life expectancy of the 50 year old. So how can we implement a more correct plan? Basically we do a designated beneficiary trust. Mm-hmm <affirmative> that trust says we’re gonna separate these into three [00:45:30] separate shares that then says that the 50 year old would use a 50 year old’s life expectancy to take out the required minimum distributions.

Speaker 2:           Mm-hmm. <affirmative>, the 48 year old would get the life expectancy of a 48 year old to take out the required minimum distributions, which would be less than the 50 year old. Right. Lo and behold, the best benefit goes to the 35 year old, which takes it out over the life expectancy of a 35 year old to stretch out that ira. Mm-hmm <affirmative> [00:46:00] significant tax difference. Yeah. On that plan. If you don’t do it right and you name all three kids equally and low and behold you pass away, we’re stuck with a 50 year old life expectancy on that 35 year old. There is no choice, there is no opportunity to extend that. So now all our listeners here in the Columbus Phoenix City area know what the oldest heartbeat rule applies to and if you pass that along to your CPA or even your stock broker and [00:46:30] you ask a more, you call your one 800 number on the financial firm you’re working with and say, could you explain the oldest heartbeat rule to me and how that applies to my ira? They’ll say Please hold <laugh> <laugh>

Speaker 3:           And they’ll hear the heartbeat

Speaker 2:           Themselves. Right. <laugh>. Because no one’s gonna come back and they’ll say, well we don’t render tax advice. Right. But I mean think about that Chris. You got the second largest asset and you’re not doing proper tax strategy planning. Mm-hmm <affirmative> and that tax strategy planning also has to integrate estate [00:47:00] planning with it. That’s the key thing that we at estate management counselors provide to our clients going forward. So will you disinherit your grandchild? That’s our second question that we have to pose to our listeners out there. Will you disinherit the grandchild? Let’s say you continue to name your children as equal primary beneficiaries cuz your spouse passed away and you get the beneficiary designation form and you update it and you say, I want to name my kids equally on this [00:47:30] Johnny Mary and Sue. Mm-hmm <affirmative>. Okay. You probably want that kid share to go down to their kids if you pass. If they pass away. Right. Okay. So the IRA account holder and one of the children are in the car together and they both pass away an impact. Will that IRA portion, the one third go down to the deceased child’s kids? Meaning the grandkids of the IRA account holder? Mm-hmm <affirmative>, well [00:48:00] here we go. You need to specify how that child’s share is to be divided on the beneficiary form.

Speaker 3:           Okay.

Speaker 2:           State law generally presumes that a bequest to a blood relative automatically passes to the descendants in most circumstances. Hmm. So again, state law presumes that it’s gonna go down there. Mm-hmm <affirmative>, but here we go. That [00:48:30] presumption may not apply to the IRA beneficiary designation form. Oh. So we have state law so that presumption may not apply. In fact here we go. Chris. Many IRA custodians agreements require that in the case of multiple beneficiaries, that you have to properly designate the contingent beneficiary. Hmm. Huge. [00:49:00] Yeah. State law presumes. But if your IRA custodian says we need it properly documented on our beneficiary designation form and if it’s not properly designated, then it will not go to the grandchildren. Mm-hmm <affirmative> it will go to the two surviving children. Hmm. Therefore disinheriting. Mm-hmm <affirmative> your deceased child’s kids and not

Speaker 3:           Even really realizing

Speaker 2:           It. You don’t realize [00:49:30] it. Wow. So wouldn’t you like to know today while you’re alive that your IRA would go down to your kids if they’re alive and then go down to your grandchildren if they should not survive you. Mm-hmm <affirmative> be in the car with you, leave it home from the picnic. Mm-hmm. <affirmative>. So that’s why as a cpa, certified financial planner and a tax attorney, we work with clients to put this plan in place to make sure that the financial assets go to the right person at the right time. And this has been a great [00:50:00] beyond IRA fundamentals.

Speaker 3:           Lot of good information and if you wanna get some more information about that, you can always call scene eight seven seven six five four nine seven nine eight eight seven seven six five four nine seven nine eight. Well see, it’s been a good show today.

Speaker 2:           Absolutely. Chris, you enjoy it. Have a great week.

Speaker 3:           I will. And we will be back with you next weekend with today’s financial

Speaker 1:           Markets. Are you getting the personal and professional attention [00:50:30] you and your money deserve? Clients of estate management counselors benefit from having one set of professionals advise them on their tax estate planning and investment advice. We call that the professional Edge seen. Todd is a tax attorney, CPA and certified financial planner. With over 15 years experience, he welcomes the opportunity to assist you in preparing for retirement, implement effective tax planning strategies, and to help you properly plan your estate. His radio show the Professional Edge is aired weekly on Sundays at 9:00 AM. If [00:51:00] you are interested in meeting with scene, call his office at (877) 654-9798. That’s 8 7 7 6 5 4 97 98.

Speaker 1:           We’ve all thought about it. Everyone listening will need one. Not having one can cause untold heartache, family conflict escalating to the point of a lawsuit. One simple thing that avoids all that an effective estate plan. As a practicing tax attorney seen Todd with a state management counselors has completed over 1000 [00:51:30] estate plans during his 15 years of professional practice. He can help you implement an effective state plan, coordinate your financial accounts, and make sure you have named the proper beneficiaries to maximize your tax savings. Call 8 7 7 6 5 4 97 98 today and let tax attorney sing Todd help you implement an effective estate plan. Call 8 7 7 6 5 4 97 98 today.