Latest / Money In Motion with Klaas Financial / Inherited Assets: Navigating Next Steps and Tax Implications

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Inherited Assets: Navigating Next Steps and Tax Implications · Money In Motion with Klaas Financial

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The fold lines are open for you right now if you'd like to join our
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retirement planning professionals from Class Financial. Love to hear from you this morning.
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All I gotta do is pick up phone gifts. Call with your question telephone
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number six oh eight three two one thirteen ten. That's six soh eight three
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two one thirteen ten. We'll get you right on the air with CJ.
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Closs and Malia Quavis. As mentioned, they are our retirement planning professionals from
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Class Financial. Their website cossfinancial dot com. That's klaasfinancial dot com. Really
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nice website to learn more about Coss Financial. You can learn more about their
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separate divisions how they can help you or if your employer, as well as
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sign up at classfinancial dot com for the weekly Market Pulse newsletter. It's a
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nice weekly email. Let's give you a little snapshot of what's been going on
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available to you at classfinancial dot com. Telephone open for the office right here
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in Madison six oh eight four four two five six three seven. No charge
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for the financial gets know You appointment tech Class Financial. It will be complimentary
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to you again their number six oh eight four four two, five, six
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three seven and joining us this morning our CJ Claus and Malia Quavis. CJ,
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how you doing this week? I'm doing great, John, although I
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hear we're supposed to get some more of that white powdery stuff like tonight or
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tomorrow morning, So if you could, you know, work on that something.
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How about we move the show. We'll just move the show, we'll
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start We'll maybe do the show the Bahamas. Maybe, Yeah, that's exactly
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Malia, how are you doing this morning? Very good. We're happy to
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be here. It's great to have you along and we have got a great
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conversation ahead. You know, you're unlikely to win power Ball or Mega millions,
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but there's a chance you may come across inheritance and there's a lot to
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go through and soar through, both financial and also emotional with that, with
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that opportunity and with that, with that thing that comes along with things like
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Texas and other things. So we're gonna get into get into that with CJ
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and Malia and talk through some of the things to consider with that area.
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If you've got a question about retire, whether it's about inheritance or otherwise,
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it's a prime opportunity right now to get on the air six SOH eight three
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two one thirteen ten. That's six SOH eight three two one thirteen ten.
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Classes website class financial dot com and they're telephone number six oh eight four four
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two five six three seven. Another great feature of the program the COLSS Quiz
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Question the Week, chance to win a fantastic prize from our friends at COSS
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Financial. This week, no exception, got a chance for you to win
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a twenty five dollars gift card to Dick's Sporting Goods. Well, they're the
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Class Quiz Question a week a little bit later on in the program. A
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little pro tip though most of the time, I think it's about every time
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both the question and answer come up during the program, which gives you a
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leg up on everybody else when it comes time to win that twenty five dollars
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gift card to dick Sporting Goods. So listen close to the program, not
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only great information, but a chance to win a great prize. Speaking of
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the CLOSS Quiz Question the Week, let's take a look back at last week's
2:51
program and get the question and the answer there as well. Maliah, Yeah,
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so last week Our question was true or false. Per the i R
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you must be taking begin taking your RMD or required minimum distribution from your retirement
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accounts by April first of the year following the year you turn seventy three.
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So true or false. Well, this was a great question for last week.
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We had several collins, but ironically our winner was one of our current
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clients who was sitting in her car listening to our show and walked into the
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office and said, I know, I know the answer, and she was
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correct. And she was actually the first one so you could walk in and
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actually have the right answer. And this was Katie of Madison, So congratulations
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to her. Thanks for listening in her car and coming up with a correct
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answer. This is really really cool to hear. Listen closely, you too
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could be like Katie, a chance to win a great prize this week.
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As much we're gonna be talking about things that happen, kind of what goes
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on when it comes to inheriting money and of course dealing with the taxes and
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CJ. I gotta guess there is I know there's great detail in each week's
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program, but I guess this is one of those who we're probably going to
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just kind of scratch the surface. There's a lot to understand here, isn't
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there? There is a lot to understand. And yet it's important because I
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think the first question that we often hear when something is happening or has happened
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to a loved one or there is a potential inheritance, it's the first thing
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that people think is taxes, right, like, well, if I'm getting
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a bunch of money, it must all get blown up with taxes, and
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so there's just therefore it creates this kind of paralysis or uncertainty around what will
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happen as you receive those dollars. So we're going to get into all of
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that today as it relates to as it relates to an inheritance. But you
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know, it can be really stressful and emotional, and for many people there's
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also the reality that they may have this inherited money and how are they supposed
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to handle that? And what about their spouse and their children and all kinds
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of stuff. So to kind of set the stage, the Federal Reserve Board
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Survey of Consumer Finances reported that an average of roughly one point seven million households
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received an inheritance or receives an inheritance every single year. Of course, the
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amount of the inheritance varies quite widely. Now. Interestingly enough, the average
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inheritance in the United States is forty six two hundred dollars, and as we've
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talked about many times on this show, people are living longer, and so
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often beneficiaries will sometimes be surprised by the fact that the inheritance is lower because
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maybe mom and Dad needed to go into a long term care facility and it
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really spent down the estate before the inheritance came. So be cautious. So
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one thing we tell our clients is you can tell us about your parents or
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grandparents that are declining in age and health, and you can tell us how
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much you think you might inherit. But we're never gonna I shouldn't say never.
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Never say never, right, We rarely are going to plan on that
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as it relates to your personal finance plans, because there's just a lot of
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things that can blow up your expectations, including the fact that you could get
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disinherited, which is a whole separate topic. So today we want to offer
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some ideas of what to expect if this should happen to you. If you
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get the surprise that you are a beneficiary. So step number one, take
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time to grieve. Losing a parent or grandparent or any other family member is
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never easy. First things, First, catch your breath and then look to
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understand kind of what are the steps you need to take. Step number two,
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gain an understanding of the specifics of what you have inherited and the financial
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nuances associated with that inheritance. So here would be an example. Did I
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inherit a car? Did I inherit money in a checking account? Did I
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inherit part of an IRA, part of an annuity, part of a home
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that needs to be sold. Each one of those actually has potent, actually
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slightly different nuances associated with how you would receive that inheritance. Step number three,
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get an original. Well, get an original or a copy of the
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death certificate. You probably will need at least a couple of originals, but
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many times investment institutions, even sometimes life insurance institutions that only need a copy.
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But you're gonna probably end up needing some originals. So get some originals
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and then make some copies of those originals so that when it goes to actually
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claiming these different assets, you will have the appropriate documentation, and then step
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number four, contact a financial professional. Now notice we just said broadly financial
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professional. So that team of financial professionals could include a financial advisor, an
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accountant or CPA, and perhaps an estate planning attorney. Now, often the
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estate, so this would be the executor of the estate will have a lawyer
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that's helping to kind of settle the estate along with the executor. So that
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may just be the main lawyer you need to talk to or ask questions too,
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But outside of that, you're probably going to want to have an accountantor
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CPA and or financial advisor to help answer your questions like, Hey, my
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brother, who's the executive of the estake out the statement and said, I'm
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a benefit of you know, half a beneficiary of this annuity or of this
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IRA or this roth IRA. What do I do? Well, that's where
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you need a professional to be able to pause and say, here's how this
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will work. Really good guidance and information. As we set the stage this
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morning with CJ. Closs and Malia Quavis, our retirement planning professionals from Class
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Financial. Their website Class financial dot com that's k l aas financial dot com,
8:41
a great website and great, great resource to learn more about Class Financial.
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Also, if you miss any part of the program or you want to
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listen back or even share the podcast, you can do that right at class
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financial dot com. While you're there, sign up for the weekly Market Pulse
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newsletter. Scroll down you'll see a little envelope on that's where you can stay
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connected with Class Financial. Again, that's available to you at cossfinancial dot com.
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That's k L a A S Financial dot com. There telephone number six
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o eight four four two five six three seven. No charge for that initial
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get to know your appointment at Coss Financial. It will be complimentary to you
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again their telephone number six oh eight four four two five six three seven.
9:18
And to join CJ. Malia and myself love to hear from you this morning.
9:20
I get to just pick up phone gives call six oh eight three two
9:22
one thirteen ten. That's six oh eight three two one thirteen ten. You
9:28
want to be cautious and you want to be careful when receiving money, We'll
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get the details from Malia and take your call next as money in motion,
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we have Coss Financial continues right here on thirteen ten WI B A and the
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phone lines are open for you right now at six oh eight three two one
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thirteen ten. That's six soh eight three two one thirteen ten. We'll get
9:48
you right on the air with our retirement planning professionals from Class Financial, CJ.
9:52
Claus and Malia Quavis. Don't forget about the website for Class Financial Class
9:56
Financial dot com. That's k L A A S Financial dot com. And
10:00
they're telephone number six so eight four four two five six three seven. No
10:03
charge for that initial gets to know you appointment Tech Loss Financial. It will
10:07
be complimentary to you. Again, they're number six oh eight four four two
10:11
five six three seven. So when we look at discuss you know, we
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learned that we're going to maybe receiving money. I've got to guess you've got
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to be be careful with this stuff, things like taxes and other areas when
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it comes to inheritance. You want to be you want to be careful.
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And there's some areas to in particular to be aware of, aren't there,
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Malaia, be aware of these things before this this potential gift might you know,
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show up at your doorstep. I think it really is good just to
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plant those seeds and so our first thing just to remind yourself of is resist.
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If you do receive an inheritance, resist the urge to spend it all
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at once. And we're saying this because of the experience that we have seen
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with people that receive money that they did not earn, and literally oftentimes that
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money just falls through their hands like water. They didn't earn it, they
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didn't feel the pain of saving it, and many, many times people do
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make poor decisions with once they receive it. So according to a study funded
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by the Bureau of Labor Statistics, actually one third of people who receive an
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inheritance spend all of it, and then they even dip into other savings in
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the first two years because they kind of get used to spending some money.
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So what we would say is halt do the opposite. Treat the inheritance as
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if it were your own money to start with. Now, some people are
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very good with this, So I just said a third spend through it quickly.
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There's probably another third that they're afraid to spend it because oh my gosh,
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mom and dad are watching me spend this money. So there's that,
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you know, that situation. But we look at it is remember that receiving
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an inheritance really is a blessing to you, so properly managing it to help
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maybe help you shore up your own debt or your own savings and then potentially
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helping your future retirement. We just want to make sure your situation and your
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inheritance is going to help you in the right way. So many times we'll
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work with beneficiaries of our current clients, for example, and they have siblings,
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and so what's right for you may be completely different than for your sibling.
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If we were to meet with a sibling who we've never met with,
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perhaps they have a whole lot of debt that needs to be taken care of.
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So that's why when CJ says, meet with a financial professional, we
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want to make sure that you're getting clear advice that pertains to your situation,
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because what's right for your sibling might not be right for you. So then
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the question, as we've been discussing, is oh, my goodness, are
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their taxes and on the inheritance I've just received, And that's usually the first
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question we hear kind of a panic and generally no, And we're going to
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go through those details in a minute. But you should understand that inheriting money
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from a friend or family member may not cost you a single dollar in federal
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income tax. So well, we're going to talk about estate taxes that are
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levied on the value of the deceased's assets after the debts have been paid.
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So if there's any debts that the person who passed away has at the time
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of death, their estate is going to be the amount of money they have
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in their minus whatever has to be paid out for final debts. So we
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want to review federal estate tax and this is a moving target as well.
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And what the US tax system does is they impose a tax on the deceedon's
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estate if the value exceeds a certain amount. So many listeners, this might
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not pertain to you. It's great if it does, I suppose, But
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the value of the estate in twenty twenty four would actually have to exceed thirteen
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point six one million dollars for that person, and only if an above if
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their estate was more than that. Potentially for a married couple, obviously there'd
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be twenty seven million. Those current limits, just a little side note,
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are perhaps going to expire the end of twenty twenty five. But just keep
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this in mind. Only if that estate is more than that amount, would
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you be facing potential taxation and so in other words, if the estate was
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fifteen million, for example, that extra two million that would be subject to
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federal estate taxes. It is pretty hefty. It's progressive scale, and the
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progressive scale actually goes up to as much as forty percent. So that's where
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we are engaging estate planning attorneys if you would have an estate in that size
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that you're dealing with. Another item to keep in context here is the annual
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gift exclusion. So this applies against that federal tax exemption and that is eighteen
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thousand in twenty twenty four. So this is where we've talked on previous shows,
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where you can gift money up to eighteen thousand to your children or to
15:13
anybody, and that those dollar amounts are actually being reducing that federal estate number.
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I just spoke of the thirteen point six talking go Ahead talking this morning
15:24
with CJ. Closs and Malia Quavis, our retirement planning professionals from Class Financial
15:28
online Cossfinancial dot com. That's Class Klaas Financial dot Com. Malia mentioned there.
15:33
We've just recently talked not a couple of shows ago, about the annual
15:37
gift exclusion and you can get details and listen back to that podcast at Colossfinancial
15:43
dot com and they're number six so eight four four two, five, six
15:46
three seven. So, Malia, you mentioned federal estate tax. What about
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state? What do they say? Yeah, yeah, so you probably are
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not going to have to worry, hopefully about the federal estate tax affecting your
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inheritance. State taxes. Actually good news for our Wisconsin listeners. There is
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not in a state tax as of today. Things can always change, but
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Illinois does. Yay. Illinois state taxes graduated. It goes up to as
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much as sixteen percent, but it is only applied in the state's worth more
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than four million dollars. So not that you can choose exactly what day or
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what state you're living in at the time when you pass. But it's kind
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of interesting. And what we do see is that with each state setting their
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own inheritance tax rules, you know, many people say, well I live
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here, and when we see beneficiaries pass away, many times they also have
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properties in different states. So you might go, well, you know he
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lived here, but oh yeah, I forgot he had a second property in
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another state or two. So those things can come into place, so a
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lot to understand, but don't get too nervous when you hear, oh,
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I'm inheriting s massive it's such a fascinating topic in an amazing conversation as well.
17:00
Don't forget if you miss any part of today's show, you can always
17:03
listen back at classfinancial dot com. That's k l aas Financial dot com.
17:07
Of course, you can learn more about Class Financial as well at the website.
17:10
They're telephone number six oh eight four four two five six three seven.
17:14
No charge for that initial gets no you appoyment tech Class Financially. It will
17:17
be complimentary to you again at number six oh eight four four two five six
17:22
three seven. So maly CJ excuse me? So which items we think about
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tax liabilities? Are other certain items that we could inherit that we're going to
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want to be particularly keen on possible tax liabilities? So you know, Millie
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did a good job there of outlining these federal estate taxes and state of state
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taxes. And think of this as the value of everything that you have,
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including by the way, I don't know Elia got into this, but including
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like life insurance proceeds actually increase the value of your estate if they are owned
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by you and then paid to a beneficiary. So you may think, oh,
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no, I you know, I'm not worried about those those exemption amounts
18:04
that Malia was talking about. They go, oh, what about the life
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insurance because sometimes there can be two three, four, five million dollars worth
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of life insurance that can bump you up over those over those levels, so
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be cautious. The states are the combination of your net worth plus your life
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insurance that is owned by you, and so that is that that is the
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extra tax that gets assessed to large estates depending upon how this this each of
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the states that you live and define it, or how the federal government defines
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it, which those numbers are quite high, as Mallia mentioned, but watch
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out, you can still get impact impacted by it. What I'm about to
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talk about is what is the individual tax treatment of different types of accounts within
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that a state. Right, So think you know, life insurance, cash,
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investments, properties, things like that. So the good news is that
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generally speaking, life and insurance pays income tax free to beneficiaries. So again
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back to the if I have a two million dollar life insurance policy and I
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am paying premiums on it, and then God forbid I die, that life
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insurance proceeds goes to my family or my beneficiaries income tax free. Now,
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if that life insurance bumps me up over those exemption amounts for the state of
19:21
Illinois or for the federal government, then it could have a separate estate tax,
19:26
but for income tax purposes. Cash, life insurance, after tax investments,
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stocks, properties generally speaking do not have tax consequences. So that's nice,
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right, you think about it, you go, whoa wait a minute.
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If I think of say my parents estate or my estate, there could
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be a fair amount of my estate that is comprised of those types of assets
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cash after tax investments, life insurance properties, so on and so forth,
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cars, all those things. Now, what some of you are thinking right
20:00
now is wait, wait, wait, wait, wait, that can't be
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right, because my accountant told me that if I sell my rental property right
20:07
now, I would pay a bunch of tax on it because of the depreciation
20:11
that's happened in the background. So how is it that my beneficiaries when I
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die can get it with no tax? And the answer is that's called the
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step up, the step up provision. So non retirement assets, non retirement
20:23
capital assets get a step up and basis upon death. That's the way it
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works right now. I will tell you this has been on the chopping block
20:30
for Congress in the IRS for quite a while, and it could change at
20:33
some point, but there's nothing that we're seeing right now in the docket that
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that's hotly debating this topic. So for now, those assets that if you
20:42
sold while you were alive, would have a capital gains tax in the case
20:47
of your death get a step up on basis now. Subsequent earnings on those
20:52
inherited assets, of course, are not tax free. So if I take
20:56
life insurance proceeds and put them in the stock market and they grow, well
21:00
have to pay tax on that. Or if I take that property and don't
21:03
sell it and then it grows from there and then I sell it later on,
21:07
I'll have to pay taxes on that. But in the moment you receive
21:11
it, there is generally not a tax on those assets. Talking this morning
21:15
with CJ. Closs and Malli Equavis, our retirement planning professionals from Class Financial
21:18
to website class Financial dot com that's k l aa S Financial dot Com and
21:22
their telephone number six so eight four four two five six three seven, no
21:26
charge for that initial gets to know the appoinment deck Claus Financial it is complementary
21:30
to you. Again they're number six O eight four four two five six three
21:34
seven. What about things like inherited accounts or annuities and those type of things
21:38
CJ. What do we need to know in that world? Yeah, So
21:41
again, as I mentioned at the beginning of this, we're separating between the
21:45
state a state tax, so a state E s T A T E.
21:51
It's state and estate, so between the state estate taxes and the federal estate
21:56
taxes which are levied on larger estates based upon the com bind value of your
22:00
net worth and life insurance that is owned by you. That is separate from
22:04
the tax associated with each of the underlying individual assets that you are inheriting.
22:10
What I just mentioned is that life insurance cash after tax investments. Properties generally
22:15
do not have a income tax assessed with them when you receive them, which
22:19
is pretty nice. However, inherited retirement accounts completely different bolloacs. So again,
22:26
if you think of your estate as yeah, I've got some cash,
22:30
life insurance, I've got some stocks, I've got a home, maybe one
22:33
rental property, but I also have a million dollars in a retirement account,
22:36
and good news. C J. And Malia said, as long as it's
22:38
not over, you know, thirteen million dollars, there's no tax. That's
22:42
not true. There is an income tax to your beneficiaries on pre tax retirement
22:48
accounts because when you put the money into that account, you got a tax
22:52
deduction. It has then been growing tax deferred, and maybe you're old enough
22:56
now that you have minimum distributions coming out of that. But if there's money
23:00
left over and you pass away, those beneficiaries don't get to get a step
23:03
up in those retirement assets. So unlike a rental property or an after tax
23:08
stock that gets a step up, retirement accounts do not get a step up.
23:12
Therefore, your beneficiaries will have to pay income taxes. Now, the
23:18
purpose of the show is not to get deep into the weeds on some of
23:21
those provisions. I will just generally say if that happens, now, if
23:26
your spouse inherits it, they can usually just take it over there as their
23:30
own. But if adult children, or if you know, friends or family
23:36
members whatever it might be, inherit, that generally they have to get the
23:38
money out of those retirement accounts, whether it be a wroth account or a
23:41
pretax account, within ten years. Now they might have an RMD along the
23:47
way, they might not. That depends on what's called the required beginning date.
23:49
But the idea being, if I leave a retirement account that I have
23:53
not yet paid the tax on to my beneficiaries, under most circumstances, they
23:57
will have to get that money out within ten years and it will be income
24:02
taxable to them. And finally, the last kind of anomaly here has inherited
24:08
annuities, because people say, well, hey, the money I put into
24:11
that annuity maybe was non qualified or after tax money, and I put one
24:17
hundred grand into the annuity, and now it's worth two hundred grand and so
24:19
CJ. From what I heard you say, that means they get a step
24:22
up on the annuity when when I die. Nope, wrong again. So
24:27
annuities are a weird beast where if you put after tax money into an annuity
24:32
and it's been deferred over all of these years, and you got one hundred
24:34
thousand dollars worth of growth inside of that thing that you've never paid tax on,
24:38
that growth will be treated a lot like a retirement account. Now it
24:45
doesn't have to come out within ten years like a retirement account, but it
24:48
does have to get paid. This is what are called stretch annuity provisions and
24:52
boil boy, does it get really complicated. So not going to go into
24:56
detail on that, as much as you need to know. Unqualified inherited annuities
25:02
with untaxed gain will have to be taxed or will have to be The tax
25:06
will have to be paid by the beneficiary over some period of time in the
25:10
future. So you can see everybody who's listening right now should be going ooh
25:15
man, it sounded so simple when you began, and now it's getting complicated.
25:19
Yes, unfortunately it is complicated. That's why we said you will need
25:23
to talk to an advisor or an accountant or CPA to help you through this.
25:26
It's like when you look at a car you think that thing is so
25:30
simple, and then you pop the hood and you're like, oh my goodness,
25:32
it is super complicated. That's right. You go, I want to
25:34
get a nice car, and then you pop the head. You go,
25:37
I don't even know where the battery is on this thing. Exactly exactly.
25:41
CJ Class and Willia Klaym's of course our retirement planty professionals from Class Financier.
25:45
We'll continue our conversation with Malia and CJ. We're going to talk about let's
25:48
say you inherited retire i'm an account and how does that process work. Also,
25:53
maybe you got a house, maybe it's got a mortgage that you inherited.
25:56
We'll find out the details from CG and Malia next as Money in Motion
26:00
with COSS Financial continues right here on thirteen ten WI b A and the website
26:08
colss financial dot com. That's k l aa S Financial dot com. They're
26:12
telephone number six O eight four four two five six three seven. No charge
26:17
for the initial get toin know your appointment tech lost Financial. It will be
26:19
complimentary to you again the number six O eight four four two five six three
26:23
seven. Talking this morning about inheritance and what you need to know when it
26:29
comes to uh, when it comes to this stuff and it is we were
26:33
kind of talking that last segment about some of the different different taxation on different
26:38
assets and other things. What about as you're inheriting some retirement accounts, what
26:42
is that process? And let's say you inherit like a four oh one K
26:45
or an IRA. What's kind of that first that first step CJ. Yeah,
26:51
So generally speaking, and again I'm gonna warn you, we are touching
26:55
the tip of the iceberg, as you mentioned at the beginning of the show,
26:57
Sean, So there's these bigture items that we want to make sure people
27:00
understand. As it relates to Hey, unless your estate is really really big,
27:06
you're probably going to avoid some of those those federal estate taxes if you
27:10
die in the year twenty twenty four. But then you start getting down into
27:12
the nuances of what is it that I'm actually inheriting, and then the tax
27:18
treatment starts getting more complicated. But one of the big categories that could be
27:22
in the estate of somebody of somebody that you're inheriting or a beneficiary of,
27:29
would be retirement accounts. So think pre tax four one ks or pre tax
27:33
iras or even for that matter, wroth iras or wroth for a one case.
27:37
So if you are a beneficiary of those, under most circumstances, what
27:41
you're going to need to do is open up a beneficiary or inherited IRA so
27:45
that the money can be transferred into the new account to preserve its tax deferred
27:52
status. So what we mean by this is if it's any sizeable dollar amount,
27:56
you're generally not going to want to say to to the company that holds
28:00
that, yeah, just send me a check, because if you do that
28:03
and it's a pre tax account and you inherit, say one hundred thousand dollars
28:07
or even fifty thousand dollars, that is going to stack right on top of
28:11
your income for the year and could increase your marginal income tax rates. It
28:17
could cause other taxes and penalties that you're unaware of. And so most of
28:21
the time, even if you decide to liquidate it a year later, most
28:26
of the time you're going to want to open up a beneficiary slash inherited DIRA
28:30
to preserve its tax deferred status. Because once it goes into that, don't
28:34
worry, it's not locked up. These inherited accounts do not have age fifty
28:40
nine and a half as they're controlling age. If you're forty years old and
28:44
you decide, I don't know what's going on, I'm going to put one
28:45
hundred grand of inheritance into an inherited DIRA. A year later, you could
28:51
pull it all out and there's no penalty. You avoid the penalty because of
28:53
its inherited diray status, even though you're not fifty nine and a half.
28:57
So again, can I not encourage you enough? Most of the time,
29:02
the first step that you should take is to set up that inherited account and
29:06
then deal with your account or advisor around how much you'll take out each year
29:10
over the next ten years. Again, remember, if you're a spouse,
29:12
that whole ten year requirement does not apply to you. But if you're a
29:17
non spouse who is I'll just say generally an adult under most circumstances, you
29:22
will have to get it out within ten years, and you may have a
29:25
minimum distribution along the way as well. Did the Scure Act change anything here?
29:30
CJ? Yeah, so it did? I mean really the Secure Act
29:33
it consists of twenty nine provisions that deal with several aspects of retirements and savings
29:38
plans, including required minimum distributions that we talked about I think last week,
29:41
Sean, and so there's a lot of things that have changed this. But
29:47
for those who are listening, many of you may know you may say,
29:49
what is this whole ten year thing? I have an inherited retirement account that
29:52
I've had for thirty years, So it used to be prior to the Secure
29:56
Act that actually, if you inherit it as say a child, that you
30:00
could stretch out the deferral over your life expectancy. Now it was a different
30:06
table that had a more accelerated distribution, but it didn't matter. It was
30:10
a really long distribution pattern, so you would have a minimum distribution that came
30:14
out, but you could keep it twenty thirty, forty years, which is
30:17
really cool. Well, if you know, a lot of the enhancements in
30:19
the Secure Act were benefits to taxpayers, meaning they get huge financial benefits out
30:26
of it. And if you know what's happening with our federal government, they
30:29
got a fair amount of debt and so they had to figure out, how
30:30
are we going to pay for all of these enhancements, And the answer was,
30:34
I We'll just force out the money faster from retirement accounts. And by
30:37
doing so, if you think about it, it means the irs is getting
30:41
their tax money faster. So this is one of the negative impacts of the
30:45
Secure Act I will call it, is that it forces you to get money
30:49
out faster, which forces you to pay tax, which many times forces you
30:53
to pay tax when you're younger and earning income, which means the tax is
30:57
higher. So I encourage you enough. Unfortunately, what seems like a simple
31:03
concept, which is they just shortened up the distribution schedule on inherited iras,
31:07
has a boatload of complexity and planning that goes along with it if you're going
31:14
to do it the right way. So just remember the Secure Act kind of
31:18
eliminated the ability to stretch out the deferral over your lifetime. And so said
31:22
another way, if you've inherited an IRA on or after January first of twenty
31:27
twenty, you must withdraw all the assets from the inherited account within ten years.
31:33
And there are three possible strategies to consider based on your situation. You
31:38
know, one is withdraw all the assets evenly over ten years. Another option
31:42
would be to wait until the end of the ten year period and then withdraw
31:47
everything. But that's, by the way, that is only an option to
31:51
you if the owner of that retirement account didn't reach their required beginning date.
31:56
More on the Heaton Collie you have a question of questions about that. Option
32:00
Number three would be to make irregular withdrawals over the ten year period. If
32:05
the owner didn't reach their RBD, which could just be one year you take
32:08
out half, five years later you take out the other half. You get
32:10
the idea just has to all be out by the end of the tenth year.
32:15
Fantastic stuff this morning from CJ. Closs and Malia Quavis. And before
32:17
we get to the Gloss Quiz question the week, Malia, I know some
32:21
folks are probably wondering about this. You inher at a house it's got a
32:23
mortgage. How does that inheritance affect your own estate? Inherit the How if
32:30
the house comes with a mortgage, you also inherit the mortgage repayment, so
32:36
the bank actually has the right to request the payment of the loan in full
32:38
from the beneficiary. Ideally you'll have enough assets from outside of the house to
32:44
pay off then home, so you can inherit it in full, but be
32:46
aware of that and you will want to contact the mortgage servicer. And you
32:52
know, quite honestly, many times we just see people sell the home to
32:54
pay off the mortgage and distribute the leftover fund. So you've got some choices
32:59
there, but you can't just say by. Some people actually ask us,
33:01
oh, so they passed away, So is that debt forgiven? It's like,
33:06
hmmm, no, let's not forgive forgiven. And finally, we just
33:09
want to tell our listeners receiving inheritance for yourself should be a good reminder to
33:15
review or actually create your own estate plan. Keep that in mind. If
33:20
you don't have plans in order, a good idea would be to sit down
33:23
with your financial advisor, your state planning attorney to figure out do I have
33:29
a will, do I need a trust, and do I have power of
33:31
attorney documents in place? All of these are really important and as you're working
33:36
through it inheriting money, keep in mind someday someone might be inheriting your fun
33:40
so you want to make sure that your strategy is laid out as well.
33:44
I feel like every week at the start of the show, we should remind
33:45
people to that, Yeah, it's something you really encourage and those are really
33:52
important documents. As we talked this morning with CJ. Class and Malia Quavis,
33:54
our retirement planning professionals from Claus Financial. The website class financial dot com
34:00
that's k l aasfinancial dot com. Great website to learn more about Class Financial.
34:04
Also opportunity there to sign up for the weekly Market Pulse newsletter again,
34:07
the website Costs Financial dot Com. The telephone number six oh eight four four
34:12
two five six three seven. No charge for the initial kids. No you
34:15
Appoyment Tech and Losts Financial. It will be complimentary to you again their number
34:19
six oh eight four four two five six three seven. Hold on to that
34:22
number as well, because it's time now for the Closs Quiz Question the Week.
34:24
It works like this. In just a moment, I'll ask you the
34:27
class Quiz question the week. You will then have thirty minutes from the and
34:29
today's program to call the COSS Financial Office right here in Madison at six oh
34:32
eight four four two five six three seven. If you are the first correct
34:36
answer, win this week's prize, which is a twenty five dollars gift card
34:39
to Dix Sporting Goods. This week's class Quiz question Week, is this true
34:45
or false? If you are a non spouse beneficiary and you inherited an IRA
34:51
after January first, twenty twenty, you must draw out the entire account within
34:57
ten years. Is that true? Or is that FAU telephone number six oh
35:00
eight four four two five six three seven. First cost correct answer won the
35:04
twenty five dollars gift card to Dix and don't forget as well. That's Closs's
35:07
office right here in Madison six oh eight four four two five six three seven
35:12
c jmlay you guys have a fantastic day. Thanks. This is Money in
35:16
Motion with COSS Financial Asset Advisors, LLC, a registered investment advisor registered with
35:22
the SEC. The contents of this show are for informational purposes only and should
35:27
not be considered individual investment advice. Class Financial does not offer tax or legal
35:31
advice. Any opinion offered during the course of this show is the opinion of
35:37
that particular investment advisor representative, and not necessarily the opinion of COSS Financial.
35:43
News comes your way next right here on thirteen ten, WIBA