How To Best Help Your Clients
Start by asking clients with excess IRA assets about where they want their money to go—or what they want it to fund—after they die. Trust me: they think about this. But many fail to plan—and regret it later.
If clients want the account assets to go to the beneficiaries they selected, analyze the situation carefully, using a tax calculator designed to include estimates of taxable income, filing status and residency.
You’ll need to match the estimated year of inheritance with each adult child’s age and earnings trajectory. You can then compare the beneficiaries’ average tax rates and recommended IRA withdrawals that empty the traditional IRAs in the most tax-efficient manner.
Another strategy for helping clients who don’t expect to exhaust their IRAs in their lifetimes is to systematically and thoughtfully withdraw money early in retirement and fund Roth conversions. Inherited Roth IRAs need to be drawn down in 10 years, but the money isn’t taxable to beneficiaries.
Decumulation planning—which covers part of what I’ve described—is complex but, thanks to technology, entirely within your capabilities. Use it to create the optimal income sourcing plan for each client based on all their assets—taxable and tax-advantaged accounts, Social Security benefits, brokerage accounts, real estate and other property, pensions, life insurance and annuities.
Clients may indeed worry more about outliving their assets than about their assets outlasting them. But the government has a valid interest in not letting assets with favorable tax treatment languish in accounts. Your clients do, too.
Paul R. Samuelson is the chief investment officer and co-founder of LifeYield.