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IRA and 529 Plan Investments

  • IRA (Individual Retirement Account): An IRA is an account that holds investments, typically mutual funds. The IRA can be traditional (pre-tax contribution) or Roth (post-tax contribution). Which is right for you? A careful review of you situation and goals can answer the question as well as help you pick the most appropriate investments for your time horizon and risk tolerance.
  • 529 Plan: A state-sponsored college savings program where your investments grow tax-free. If the withdrawn money is used to pay for qualified educational expenses, the withdrawal is also tax-free.

    Don’t make a costly mistake with one of your biggest retirement assets.

    IRAs can be great retirement planning tools. All too often, however, people make mistakes in handling their IRAs-mistakes that can be costly. Here are five common IRA errors to avoid:

    Assume you turned 70½ in January 2014. Technically, you may wait until April 1,2015 to take the Required Minimum Distribution (RMD) for 2015 from your traditional IRA. But your withdrawal for the year 2015 must take place before Dec. 31, 2015. If you wait until April 1. 2015 to take your 2014 RMD withdrawal. you will have a “double distribution” in 2014. Two withdrawals in one year might push you into a higher income tax bracket. Work with a financial professional to determine the best timing for your first RMD.

    Your IRA may have been created some time ago. Have you updated your beneficiary designations as circumstances changed? For many people the answer is no. Be sure to review your beneficiary designations at least annually.

    When you name your estate as the beneficiary of your IRA. it may create several potential problems. Your IRA may have to go through the probate process. Also. the entire account balance will have to be distributed to the estate by the end of the fifth year after the year of your death or over a period not longer than the IRA owner’s life expectancy. This form of payout may reduce the amount of money passed down to your heirs due to the loss of future tax-deferred growth for your loved ones. The bottom line? If possible, consider naming individuals rather than your estate as your IRA beneficiaries.

    Some IRA custodians require a five-year payout of an IRA account balance after the death of the IRA owner. If your custodian has such a policy. You may want to transfer your IRA to a more flexible custodian during your lifetime.

    Some people planning IRA rollovers are unaware of the tax problem they create when they ask for qualified plan distributions to be sent to them. rather than directly to a new IRA custodian. Tax laws mandate that 20 percent of an “eligible rollover distribution” be withheld for income tax purposes if the check is made out to the individual. An “eligible rollover distribution” is a distribution of any or all of an employee·s balance in a qualified plan. such as a 40l(k) plan. with a few exceptions. You can avoid this mistake by rolling funds directly to your new IRA custodian. Your IRA may be one of your most significant retirement assets. To ensure that it is handled wisely. review your financial situation with a qualified professional on a regular basis

    Liquidate – Deplete illiquid assets-Depending on market conditions, this could mean a forced sale of real estate, stocks, bonds and other assets at a steep loss if the timing is unfavorable. For every dollar of settlement expense, a dollar plus the potential additional cost resulting from liquidating assets below market value.

    Borrowing – Deplete whether through a bank, lending institution or an extension with the IRS, it can be expensive, assuming you can qualify. For every dollar of settlement expense, a dollar plus finance charge is spent.

    Life Insurance – Provides the funds precisely when they are needed. For a few cents on the dollar when death occurs in the early years of the contract, and a substantial discount even when death does not come for many years, a full dollar is available by way of the death benefit.


    • If you are the owner of your life insurance policy, the proceeds will be included in your gross estate. If life insurance intended to address estate taxes is included in the estate, the insurance itself becomes a taxable item, reducing its value. • Establishing an Irrevocable Life Insurance Trust (ILIT) as the owner of your life insurance policy can be an effective way to remove the life insurance from your estate.
    • A transfer of an existing policy (e g into an ILIT) by the policy owner within three years prior to the death will cause the proceeds to be included in the gross estate. • Life insurance may not be available to all individuals, particularly those who may not be insurable due to pre-existing health conditions.