Leaving A Tax Efficient Inheritance

The Principle:

Are you being tax efficient when it comes to what you leave behind? What ways can an advisor help you find the right solution to meet your needs? 

Honest Takes:

When you create a financial plan, it has to also include a tax strategy. Consider not only the taxes for right now, but in the future. What kind of taxes could your heirs face, depending on what accounts you use for your money? 

If you’re planning to leave an IRA as an inheritance for family, keep in mind that your loved ones could face all sorts of problems if they don’t take the distributions correctly. How can a financial advisor help?  

How does an inherited IRA work? The old rules allowed for a stretch IRA which gave opportunity for the IRA to grow. Now, the inheritor has to take out distributions within 10 years. Don’t take it out all at once though, because that could get ugly. Remember the tax implications with this money. 

The rules don’t only apply to a traditional IRA but to a Roth IRA, too. Make sure to look at the math over time and how it applies to your situation. While heirs would still have to take out the money within the 10-year timeframe, they won’t have to worry about the taxes on it. 

One way or another, we’re facing more taxes in the future, most likely. So, what can we do about? Start with a plan. Where do you have your money saved? What’s the short-term vs. long-term savings? Brian shares a client story of a couple who has done well but needed a plan at 65 to handle the taxes. 

For those planning to give their money away to charity after they pass, how can the taxes be reduced? Brian talks about the charitable remainder trust that provided a good solution for his clients. They needed retirement income but were able to absorb the tax and diversify their portfolio. Do you have a tax strategy as a part of your financial plan? 

Listen to the entire episode or use the timestamps below to skip to a particular section. 

[0:12] – How does an inherited IRA work? 

[2:21] The 10-year rule is for Roth IRAs, too. 

[3:32] – What can we do about increased taxes in the future?  

[6:59] – What is a charitable remainder trust? 

Today’s Truth:

“It’s starting with a plan. Where do you have your money saved at? That’s the biggest issue I think folks are not understanding–the tax implications of what they’re doing.”

Brian Bowen


The Host:

Brian Bowen – Contact