Recently my mother passed away and left my sister and me her $300,000 IRA. We met with her advisor and she suggested that we should divide the IRA into two equal portions and roll them over to my sister and me. She explained that neither of us would owe any income taxes on the money now.
I got a little confused but she said we had to take out something called required distributions based on our ages, something like 2% per year over the rest of our lives. All of this seems like a real hassle. You know keeping track of the money and the distributions.
All of you, your wife, your sister and you are about ready to make the biggest mistake of your respective financially naïve lives. Do you realize how hard it is to accumulate $300,000? You may never have half that much money again in your life. In fact, based on your question and the fact that it sounds like your desire for immediate spending gratification is an excuse to be stupid about money, somewhat guarantees that I’m probably right.
First the math, you will inherit $150,000 and you have two choices. One is to roll it over to an inherited IRA, continue the tax deferral potential growth of the investment and hopefully manage this nest egg into some form of financial independence for you and your wife in 25 or 30 years from now. Or cash it in and pay taxes on it which will amount to nearly $45,000 or so (State and Federal Income Taxes) and hunker down to a life of trying to get ahead financially when you already have a potentially great start.
Who knows what the market and the economy will bring over the next year or two, but over the next 25 to 30 years you would be nuts not to keep the IRA compounding going.
By the way, most every 40 something couples who work seem to get by. They all seem to have nice houses, nice kids, nice jobs and plenty of stuff. What a lot of them don’t have is capital.
Currently you do have that. That makes you different. It provides the potential to be more financially secure then your contemporaries. Don’t blow it because you want it easy. Roll over your Mom’s IRA. She would be proud of you.
Just like everyone else work for the other stuff you want, your parents did.
Paul D. Reasoner CFP, CIMA
These are the opinions of Paul Reasoner and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Compass Wealth Advisors, LLC is an advisor owned independent Registered Investment Advisory Firm. Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, FINRA/SIPC. Cambridge and Compass Wealth Advisors, LLC are not affiliated.