For 30 years I have focused on IRAs, specifically the tax planning for IRA distributions. Why? Because that’s where the money is! Thirty years ago I made a bold prediction:
In 30 years, anyone who will still be alive will be 30 years older. That’s it.
Seriously though, I knew at some point these IRA funds would have to be distributed and the tax rules affecting those distributions were beyond complicated. When I first saw them, I thought they were written in Sanskrit. Each sentence in the pages and pages of tax law and regulations had to be translated and the true meaning was still up for debate. In fact, it took the IRS around 15 years to issue final regulations, meaning it took the IRS that long to figure out what they believed Congress intended. Much of this morass was ambiguous. The only thing that seemed crystal clear to me was that these rules would one day apply to over 70 million baby boomers, like me and many of your current clients. I also realized that almost no one would understand the rules, yet they would all be required to comply with the rules or face draconian tax consequences that could cost them chunks of their retirement savings. This was the opportunity I saw.
Fast forward to today—nothing has really changed. The IRA distribution tax rules, while not as arcane as they originally were, are still challenging for financial advisors, CPAs, attorneys and in turn, their clients.
While it’s essential that financial advisors help clients accumulate and grow their retirement savings, it is equally important to know how to get that money out efficiently. When it comes to taxes, it’s what you keep that counts—after taxes. That’s where the IRA and plan distribution rules come in. The more your clients keep, the more successful you will be as a true financial planner. Yet most advisors are still making critical and costly errors due to lack of knowledge about the tax rules.
That’s why I’m happy to join the team at Financial Advisor magazine to help you add value to your practices by being better prepared financial advisors. The goal here is the same as at our IRA training programs, which is to give you the tools and tactics to help your clients navigate these tax rules and create tax-efficient retirement distribution plans, while avoiding costly tax mistakes. In fact in our big 2-day IRA training programs, within the first few hours of the first day, the most common thing we hear is “I didn’t know how much I didn’t know.” That’s what I’ll help you with here at Financial Advisor through my blogs, columns and the general session I'll be delivering at Financial Advisor's Inside Retirement conference in Las Vegas on September 27.
IRAs Are Different
The reason the IRA tax rules are so confusing, even for CPAs, is that they are different than the tax rules for almost all other types of property. Here are some examples:
• Estate planning is different for IRAs because IRAs are distributed differently than all other assets both during life and after death.
• IRAs pass by contract (generally not by will).