5 IRA Items President Obama and Governor Romney Can Agree On

By Jeffery Levine, IRA Technical Expert  

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Did you see that debate last night? No matter what side of the aisle you happen to sit on – or even if you sit in the aisle itself – you have to admit that was a far more spirited and contentious debate than the last one. It seemed like President Obama and Governor Romney argued about everything. Not to mention there were a couple of times that I actually thought they were going to come to fisticuffs. With so much not to agree on, I began to wonder, is there anything they can agree on? So here’s my take on 5 IRA items even President Obama and Governor Romney would have to agree on.

This article is just a sample of the information we will cover in our Election Week, running from October 22-26, so check back next week as we cover several important IRA, tax and retirement planning election issues.

1) The Earlier You Start, the Better Off You’ll Be
Retirement savings isn’t a sprint to the finish line, it’s a marathon. Those who start younger and have the patience and stamina to continue with a solid plan over many years will typically fair the best. That’s largely due to the power of compounding, the seemingly magical way money tends to increase on its own over time. Jim Croce once famously sang “If I could save time in a bottle.” Well, if he could have actually found a way to do so, he might have been that generation’s Bill Gates or Warren Buffet, because for many, time is the most valuable commodity there is.

2) Proper Beneficiary Forms are a Must
When a person dies with an IRA or other type of retirement account, their assets will typically pass to the beneficiaries of their choice by way of beneficiary form. That is, unless there is no beneficiary form or the beneficiary form, for some inexplicable (yet very common) reason, names their “estate” or “will” as a beneficiary. When a person is named as the beneficiary of an IRA on a beneficiary form, they inherit the account directly, without having to deal with the expense and time delay of probate (the legal process of administering an estate). Individuals are also generally able to stretch death distributions out over their life expectancy. In contrast, without a beneficiary form, the IRA will most likely have to go through probate and the stretch can be blown.

3) Having to Take RMDs When You Don’t Need Them Stinks
“So let me get this straight…I am going to save and sacrifice over the years to put away money so my family and I can enjoy my golden years, I’m going to make sure I’m doing everything right and then, when I reach the absurdly ridiculous age marker of not 70, but 70 ½, you’re going to force me to take my own money out of my own account and pay tax on it at whatever rate(s) you happen to have in place at that time?”

That doesn’t seem very fair, but hey, that’s the way it is. To make matters worse, there’s really not much you can do about a required minimum distribution (RMD) once you have one. You can’t roll your RMD over to another IRA or retirement account. You can’t even put it in a Roth IRA, even though you have to pay the tax on it. Of course, if you want to get out of future RMDs, you could always convert the remainder of your IRAs to a Roth IRA, which would have no RMDs, but the conversion will be taxable

4) The IRA Rules are Complicated
Yeah, no surprise here. The Tax Code is riddled with complex and complicated rules, but when it comes to IRAs, sometimes it seems as though they are in a class of their own. What makes matters worse is that many people fail to recognize their immense complexity. At least when you know something is difficult, you seek help. I mean, have you ever heard of anyone trying to brush up on their open heart surgery skills so they can perform surgery (other than an actual heart-surgeon of course)? There’s a reason we can teach 2-day long “introductory” classes with manuals of 400+ pages each and still run out of time and space. There’s a lot to this area. In the end, most people would do better with a little extra input from someone who specializes in their area.

5) The Rules of the Game Change
As if it’s not enough that the rules are complicated (item #4), the rules often change while you’re still playing the game. Tax rates may increase or decrease, Congress may pass a new law, the IRS may issue new regulations, rulings and notices, and the economy and financial markets are about as predictable as what the weather will be like on this day in 5 years. You might even change the rules of the game yourself by getting married, having a child or some other sort of life event. Each time there is a major development in any one of these areas; you have to reevaluate your plan to see if, given the new rules, you’re still on track for success.

Article Highlights

  • Time is on your side in retirement planning
  • Proper beneficiary forms are a MUST
  • The rules of the “game” always change via a birth, death, marriage, divorce, so make sure you reevaluate your plan after a major development


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