#RichLifeLawyer Show 022: Why IRA’s are Bad for Estate Planning

#RichLifeLawyer Show 022: Why IRA’s are Bad for Estate Planning

Imagine this scenario: you are 80 years old. You’ve lived a great life. You’ve saved all of your hard earned money and invested it into an IRA (individual retirement account). For the last 10 years or so you’ve been living off of that account.

But it’s ballooned up to $4 million dollars, and you know you aren’t going to get to spend it all.

No matter, though. You rest easy knowing that money is going to help your kids and their kids once you pass.

Or is it?

That’s the topic of this week’s Rich Life Lawyer Show. Why IRA’s are bad for estate planning.

To find out why they can be so wasteful and actually work against you, watch the video below.


Christopher Small

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Christopher Small is a Seattle estate planning attorney who helps people get rich and live forever. He is also the owner of CMS Law Firm LLC.

Why IRA’s are Bad for Estate Planning

Hey everybody this is Christopher Small and this is episode twenty two of the Rich Life Lawyer Show. Super pumped, excited to be here with you today. I want to tell you about my weekend because I’m excited about it. I don’t care for the dates to this video or not. I played in the Bear Creek Country Club member guest golf tournament with my brother in law this weekend. Shot a seventy eight, super pumped about that. I love golf. I think it’s a kind of a metaphor for life that is a lot of other sports. And when you play good, it feels good. And I want to show you some fun, one of the funnest days of or the weekend funnest weekend’s of my year. Get to hang out with my brother in law and catch up with him. And do a lot of fun stuff. Get to compete and get to have a lot of fun. So super cool. But, that’s not why we’re here. We’re going to talk about the worst sort of investment vehicle for your estate.

And I think it’s going to blow your socks off. We’re gonna talk about it briefly and then maybe we’ll get more in the weeds with the blog post where I can talk about it. Show some graphs and stuff like that but take a guess on what it is. Guess. Life insurance, no. Stocks bonds, mutual funds, no. Cash, no of course not. It’s your IRA. IRA is the worst investment vehicle. Honestly it’s not great for retirement planning either. Shhhh, don’t tell anyone. Maybe we’ll talk about that some other time too. But it is, it’s not good for estate planning either. And here’s why. Once you pass away, your IRA is going to have to be distributed in one or two ways. It’s either gonna have to be distributed as a lump sum or is gonna have to be distributed in mandatory required distributions over time. And those two things are bad for a couple different reasons. The lump sum is bad because you have to pay an income tax penalty. You, as the deceased, you have to pay an early withdraw penalty of ten percent.

And you’re going to have to pay potentially an estate tax. So if you’re over two million dollars in Washington State. You could think of paying the estate tax on top of that. I have a client right now who is looking at having to fork over sixty percent of his father’s IRA because of these things and that’s terrible, right. So a million bucks. All of a sudden goes down to four hundred thousand dollars. You risk giving six hundred thousand dollars away to the government, which nobody wants to do. Number two or the second option is to take distributions over time. That’s a problem because it’s going to count as income tax to you potentially. As the distributions come in, you’re going to get taxed on those regular income that can pop potentially throw you up into a new income tax bracket and there’s all kinds of bad things that happen there. The other thing is too that you are required to take the money if you don’t take it, you have to pay a penalty on not taking distribution.

So the potential pitfall there are pretty big and quite frankly this is a conversation I have with my clients but this is really a conversation you should be having with your financial planner as well because they should be able to tell you what good investment deal was on once you get to a certain point with your IRA or your 41K, your retirement fund, so that you can avoid these things in the future. You can also fund and do some of the things that will reduce your tax liability when you want to take the money out which is what we all really want to do. Alright, so that’s it. I know this was quick. I know I talked fast, rewind it once to the end if you want but before we go, one thing I want to know what you want to know. All right, I’m going to sort of ask you for questions every day. You can leave me a comment below in the video, you can e-mail me chris@cmslawfirm.com and just ask me questions. You want the answer, I’ll answer it here on show. Alright, looking forward to it. Really appreciate you listening. Really and looking for your comments and your questions and talk to you soon.