FINANCIALLY

Content prepared by © 2015 The Penn Mutual Life Insurance Company , Philadelphia , PA 19172

Jeffrey M . Orth is a Chartered Financial Consultant , a Certified Advisor in Senior Living , and an Investment Advisor Representative , with over 15 years of experience as a business and personal planning , insurance , and wealth management specialist . Jeff is available for group lectures and private consultations . Visit ifitfinancial . com or call 408.842.2716 .

1380257RM-Dec17 fter a lifetime of planning and saving for retirement , the big moment has finally arrived – the day you can start doing all of the things you ’ ve always wanted to do like spending time with family , traveling strictly for pleasure , or maybe even building that patio out back . And because you had the foresight to tuck money away in IRAs , annuities , 401 ( k ) and other retirement savings plans , you ’ re feeling pretty good about your overall financial situation . That ’ s great . But you ’ re not done yet . Now that you ’ ve reached retirement , you want to ensure that the funds you ’ ve set aside will not only last for the rest of your life , but that at your death , whatever amounts remain unspent will be passed on to your heirs quickly , privately , and as tax efficiently as possible . In other words , now that you ’ ve been successful in saving for retirement , you ’ ll want to be equally as successful in developing , and implementing , a retirement distribution strategy .

A carefully thought out retirement distribution strategy will not only help ensure that you don ’ t outlive your assets , but it will also help you avoid paying unnecessary taxes and / or penalties in the event you don ’ t get around to spending them . There are a number of regulations governing when you can ( or must !) begin taking distributions from your qualified retirement accounts , and failure to abide by these regulations can result in hefty tax penalties .

As you put together a retirement distribution strategy , there are many things to consider . What will your ongoing expenses be ? How will inflation affect your spending power ? Will you be able to afford ever-increasing property taxes and home maintenance costs ? What about potential healthrelated or long-term care expenses ? And finally , what about leaving something behind for your heirs or providing for a favorite charity ?

Of course there ’ s no way of knowing what will happen with the economy , with your personal health , or how long you will live , but it is nevertheless very important that all of these factors be incorporated into your strategy .

A good place to start is to calculate your anticipated income from sources other than your savings ( e . g . social security , a company pension , etc .), then determine your anticipated expenses . If you ’ re like many successful people , you may be pleasantly surprised to find that you ’ ll require very little , or even zero , access to your qualified retirement accounts . Unfortunately , that doesn ’ t mean you can just leave them as they are to continue enjoying tax-deferred growth . Under current tax law , once you reach age 70½ , you must begin taking distributions from your qualified retirement accounts * even if you don ’ t need ( or want !) them . Such distributions are generally referred to as “ required minimum distributions ” ( RMDs ).

An RMD is the minimum amount of money that you must withdraw from your qualified retirement accounts each year . Your first RMD must be taken by April 1 of the year after you reach age 70½ , and subsequent RMDs must be taken every year thereafter by December 31 . Failure to take an RMD in any given year will result in a 50 percent excise tax on the amount not taken – a fairly severe penalty .

One solution to this problem is a special product known as a “ Stretch IRA .” Stretch IRAs are designed for successful individuals who do not anticipate needing their qualified retirement assets , and who would rather pass them on to their children or grandchildren . With a Stretch IRA , you can not only spread the distribution of your qualified assets out over many years , but you can also control who receives your assets , and you can continue enjoying tax-deferred growth for as long as possible .

Here ’ s how the concept works : First , you consolidate your qualified assets into an IRA . Second , you name a young person – a grandchild for example - as your primary beneficiary . When you reach age 70½ , your initial RMD would be based on your life expectancy as determined by the Internal Revenue Service ’ s “ Uniform RMD Table .” At your death , however , the RMD would be recalculated based on your beneficiary ’ s life expectancy . Depending upon his or her age at the time , it is very possible that the tax-deferred growth generated by your IRA assets could outpace his or her RMD for quite a number of years . The end result : your IRA assets continue to grow even as your beneficiary draws a lifetime income .

Another option would be to name your spouse as your primary beneficiary and your grandchild as contingent beneficiary . At your death , if he / she needed the income , your spouse could opt to inherit your IRA and begin taking RMDs based on his / her life expectancy . If he / she didn ’ t need the income , however , he / she could disclaim the inheritance , in which case the IRA would pass to your contingent beneficiary . Your spouse would have until September 30 of the year following your death to make that decision .

There is a catch though : while a Stretch IRA can extend both the growth and distribution of your assets over many years , those same assets , if they ’ re left at death to an individual other than your spouse , may be subject to both income and estate taxation . But there ’ s a potential solution to this problem , too : life insurance .

If you ’ re taking RMDs because you have to – because you ’ ve reached age 70½ and the

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GILROY • MORGAN HILL • SAN MARTIN MARCH / APRIL 2016 gmhtoday . com

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