IRAs are Exciting Too

With the recent excitement of the NBA finals, World Cup and LeBron James’ free agency,  I thought now would be a great time to talk about something even more exciting on this edition of Short Squeeze - your IRA!!!!

Earlier this month, the Supreme Court ruled that inherited IRAs (aka beneficiary IRAs) are NOT protected from bankruptcy creditors. To see how this might affect you let’s look at the following hypothetical example. Brent Nixon (names have been changed to protect the innocent!) has a sizable IRA and files for bankruptcy.  Assuming his account is less than $1.2MM, it is likely beyond the reach of creditors due to the Bankruptcy Act of 2005 which stated that retirement funds are protected from creditors.  The exception to that are rollover IRA’s  from employer retirement accounts; they are exempt beyond the $1.2 MM limit.  Now suppose Mr. Nixon passes away naming his son, Conner Nixon, as his IRA beneficiary.  If Conner runs into trouble and needs to file for bankruptcy, the Supreme Court just this month ruled that those inherited IRA funds can now be subject to the claims of Conner’s creditors.

We always believe it makes sense to evaluate the beneficiaries of your retirement accounts on a yearly basis. This recent ruling from the Supreme Court reinforces our philosophy to do so.  As a current IRA owner if you think future financial problems could surface with any of your named beneficiaries’ one approach could be to designate an irrevocable trust as your IRA beneficiary. The persons for whom the money is intended can be named a beneficiary of that trust. The reality is that these trusts cost time and money to create and need to be drafted by a skilled estate planning attorney to qualify for tax-friendly distribution rules; so it is important to weigh the costs vs. benefits of such a strategy.

Also, earlier this month the House Ways and Means Committee passed a proposal to make the Qualified Charitable Distributions from your IRA permanently tax deductible. Contributions of up to $100,000 made from IRAs would not be taxed as income. If passed into law Americans age 70 ½ or older would be eligible. Although not passed into law YET, we are encouraged that both the House and the Senate are working to make this tax extender permanent.

As soon as we hear definitive word about the extension of the Qualified Charitable Distribution we will let you know.

Until next time.

—Brett C. Hixon, CFP®

This information is not a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Brett C. Hixon and not necessarily those of RJFS or Raymond James. RJFS does not provide tax advice. You should discuss any tax or legal matters with the appropriate professional.span>