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What Happens to Your IRA After You're Gone · How to Retire on Time

• 0:00
  Mike: Hey. Thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look. Let's see.
• 0:06
  Carlos, would you read Carlos's question?
• 0:07
  David: Yeah. So Carlos, he and his wife, they they have a really good hybrid LTC plan. So
• 0:12
  Mike: Don't say who.
• 0:13
  David: Oh, yes.
• 0:14
  Mike: Yeah. We don't wanna advertise for any company, but a long term care plan. Got it. Okay.
• 0:18
  David: Yes. We won't mention the product. So they've got this hybrid LTC plan. Should they still get a Medicaid asset protection trust or irrevocable trust?
• 0:28
  Mike: That's a fancy way of saying the safe harbor trust. So here's the idea. If one spouse is bankrupt and the other spouse, can you divorce them? Or can you just basically adjust the asset so it's now an arm's length away, it's irrevocable, you can't touch it anymore, and now Medicaid is paying for your services. And there's typically a five year clawback on that.
• 0:49
  Medicaid is smart. Mhmm. Let me let me give you questions to ask. Okay? Because every state is gonna be set up a little bit differently.
• 1:00
  Medicaid is an insurance system, which means every state operates differently. Medicaid is no exception. Medicare, still no exception. Like the even though it's subsidized heavily by the federal government, it is a state system. Yeah.
• 1:14
  So what you gotta understand is what are the rules of clawback for Medicaid in your state? What counts and what doesn't count in your state? Do you have to divorce your spouse in your state if it comes to that or not? There these are questions you have to start to ask to understand the rules. Now, a licensed attorney, what what do they call them?
• 1:41
  A licensed attorney that deals in elder law.
• 1:43
  David: Okay.
• 1:43
  Mike: Yeah. Would know the rules of your state.
• 1:47
  David: Yeah. Yeah.
• 1:47
  Mike: Yeah. If you're concerned about spending too much money or that health care costs are gonna destroy your portfolio or your retirement, it might be worth getting a consultation with someone that does elder law in your state. Mhmm. Because there's too much variability that I can't just sit here on a national audience and just give the golden answer. Doesn't I will say though, generally speaking, trying to cheat the tax code typically doesn't work very well.
• 2:20
  Medicaid is, from a legislative standpoint, updating the rules to make it so they can get more and more and more from you. It's getting more and more difficult to actually make these things work. So there is a risk that you could have it set up, the rules change, and now you have to redo the whole system. I'm not an attorney. This is not legal advice.
• 2:40
  But be very careful with that. Typically, in my opinion, you don't wanna plan to literally zero at the end of retirement. You want to have some money as a buffer, so that you can afford most of these healthcare costs.
• 2:56
  David: Yeah. And so what you mentioned to claw back, who's clawing what back?
• 3:01
  Mike: The government.
• 3:02
  David: This is clawing.
• 3:03
  Mike: Yeah. No. Put it back here, and you're gonna pay for your healthcare costs until it's done. Oh. Yeah.
• 3:09
  They can do crap like that. Alright. Your home can become an asset that when you pass, like, it's basically the government's property. At that point, it's gonna do it's going to I mean, it's it's pretty intense. Wow.
• 3:21
  So be very careful that you're asking better questions. Alright. I just, I'm not an attorney, so I can't dive too deep into it. If you had a, if you were in a state, a specific state, and we were going through the planning process, we could have a more open conversation about it. Not for legal advice, but how to plan around it.
• 3:38
  But there's lot of variability with it. So be be aware. I mean, example, Kansas is very different than Texas, which is very different than Washington State, and so on. So just understand your state matters.
• 3:49
  David: Right.
• 3:49
  Mike: So hopefully, Carlos, that helps. Brian asks. You want to do, Brian?
• 3:54
  David: Yeah. This is what Brian thanks for this question, Brian. Any insight into how to qualify certain non spouse beneficiaries as eligible designated beneficiaries, thus able to stretch their inherited IRAs, RMDs over their lifetime rather than the ten year limit?
• 4:15
  Mike: A lot going on there. So hold on. We're A lot. Eligible designated beneficiaries. Okay.
• 4:22
  So who can qualify for beneficiary? And then stretch their inherited IRA RMDs. I I wanna first ask, like, the inherited IRA, that's the stretch IRA is gone. You might have inherited it, and you're gonna able to continue to stretch it. But just assume that's kind of done.
• 4:44
  You're kind of stuck in the ten year limit. Unless you got money out of the IRA and into some sort of generational, you know, dynasty trust or I mean, gosh. There's a there's a couple of different legal steps you could do to pay in perpetuity, but that's not in an IRA. An IRA is an individual retirement account and they really short up a lot of those those restrictions. Yeah.
• 5:07
  So I don't know if this is something that would be easy to do.
• 5:12
  David: And so if you're listening and you don't know, anytime you have an inherited IRA, you have this certain period where the government wants you to spend it all or get rid Yeah.
• 5:19
  Mike: Got ten years.
• 5:20
  David: Yeah. Gotta get it out of there in ten years.
• 5:24
  Mike: So it'd be legal structures, but even then, if you have an so an IRA cannot really go into a trust. If it goes into a trust, that's a taxable event. If the trust controls the IRA, that's still a rat's nest. Usually what happens is the trust will say, hey, you you died. Okay, it's going to these people, and it never really touches it.
• 5:46
  It just controls the direction. That's the intention at least. Not legal advice. This is just the intention. However, if the IRA goes into the trust, trust is a non qualified asset.
• 5:57
  It's a not retirement account. Yeah. So that could mean your entire IRA, let's say million dollars, all taxed.
• 6:04
  David: Mhmm.
• 6:04
  Mike: And then, depending on how you handle the trust, that can create tax issues as well if it's not managed correctly by the executor. So I wanna I wanna give Brian something here. It's a great question, but I would want to examine all of your assets first. How old are you? And then what's the goal?
• 6:29
  And then let's line up then what you have and where it can go. Maybe Brian has some assets in a brokerage account, and we could do more that way, and focus on the spending down of the IRA assets. Maybe we could do I mean, this is a divide and conquer situation, so I would I want more context. It's a very compelling question. Mhmm.
• 6:47
  But you can't just arbitrarily get a stretch IRA. Now I don't know if he's asking that or not, but it's but legacy is tough, and it can complicate things if the legacy is going to a non spouse. Right. It's like your spouse, you pass, okay, your spouse gets it, it's not a stretch IRA. Becomes their IRA.
• 7:09
  Yeah. If you're not married, you got a lot of restrictions. Yeah. That's the that's the summary I'm gonna give. Alright.
• 7:17
  That's all the time we've got for today's show. Thank you all for being here. Again, join one of our seven classes in September. Go to retireontime.com/class to join those classes. They're all free.
• 7:28
  We're talking taxes, we're talking social security, we're talking 10 different ways to take income in retirement, and so much more. You can go there today. Also, get my book. Look, I'm giving away for free. Retireontime.com.
• 7:41
  You can download the book for free, digital copy, or the audiobook. If you wanna go, if you want a paperback copy, just go to Amazon. It's there available as well. Chapter four is the most important part of the book. Appreciate you all being here.
• 7:52
  We'll be here same time, same place next week. And as always, ask your questions. Retireontime.com/ask. Submit your questions throughout the week and we'll continue to feature them on the show. Have a great rest of your day.
• 8:03
  Thanks everyone.