Years ago I used to provide clients with a year-end gift during the holidays. Like most financial advisors I would order dozens packages of cookies or nuts and ship them out to clients as a holiday treat to let them know how much I appreciated them and their business.
These gifts were expensive, took a lot of time to box up and half my budget went to the Post Office to pay shipping costs. What’s more, I don’t think anyone really cared.
And I don’t blame them. How many packages of cookies, tins of popcorn or baskets of stale snacks do you need at the end year anyway?
I thought I was making an investment in my business and doing something nice for my clients, but the more I thought about it the more I realized my investment and efforts probably weren’t really making a difference to me, to my clients or to anyone.
As with any unproductive investment, I decided to switch gears and try something else.
May 1 is College Decision Day, the deadline for high school seniors to select the college of their choice. For most families this is a day of celebration, a day to announce to the world (or at least your Facebook friends) where your student intends to spend the next four years of her life.
For some families, however, it’s time to face the stressful reality of paying for college.
In my last post I wrote about inherited IRAs for non-spouse beneficiaries; for example, if you inherit an IRA from a parent or sibling. Most often, IRAs will pass from an IRA owner to their surviving spouse before they pass to a non-spouse beneficiary like their children.
The rules regarding spousal IRAs are different. When you inherit an IRA from your husband or wife there is one key decision you must make that could affect your ability to access funds in that IRA for years to come.
If you inherit an IRA, what you do next determines how much tax you will owe on your inheritance. Make a mistake and the entire IRA balance becomes taxable. In addition to owing Federal income taxes on the inherited IRA, you may also owe state income tax and possibly even estate taxes when you inherit an IRA from someone other than a spouse.
Tally it all up and half or more of the IRA could end up going to the IRS.
The average IRA balance varies by age, but for people over age 65 the average balance exceeds $212,000. In many cases IRAs can exceed $1 million or more during the IRA owner’s lifetime. A wrong move by the beneficiary could result in a gut-wrenching six-figure tax bill.
When you inherit an IRA, follow these three steps to avoid a tax disaster.