What to do with ‘the biggest check of your life’
As regular readers know, when I write about retirement planning issues I frequently consult or cite IRA expert Ed Slott and his learned associates at Ed Slott and Co.
I recently attended a two-day seminar in Orlando, Florida, sponsored by the firm. It was Slott’s first seminar before a live audience in two years, and not surprisingly it was very informative. Slott himself presented many of the topics, as did his associates Sarah Brenner, JD, and Andy Ives, CFP, AIF.
At the seminar, I was able to obtain Slott’s latest book, “The New Retirement Savings Time Bomb” (Penguin Books), which includes the latest regulations applicable to the SECURE Act. I’d like to recap some of the key highlights in the book that were covered at the seminar.
In the first part of the book, Slott answers the question of what to do with “the biggest check in your life.” He is referring to the lump-sum distribution you get when you retire or leave your employer with a sizable retirement account. When this happens, you’ll have to decide pretty quickly what to do with it. It’s better to inform yourself well in advance so you make the right call.
Slott reviews the pros and cons of four options: a rollover to an IRA; remaining in the company plan or rolling the funds into a new employer’s plan; taking a lump sum distribution and paying the tax; and converting to a Roth IRA or Roth 401(k).
Some questions to ask yourself before making that decision include: When will you need the money? What is your tax bracket likely to be in retirement ? How is your health?
Slott points out the mistakes you might make when choosing between options.
For example, in considering the rollover to an IRA, he discusses the “onceper-year” IRA rollover rule, and why you should always use trustee-to-trustee transfers to prevent potential problems. He discusses the option of using an annuity in an IRA. He points out that the distributions are tax free, and the annuity is a hedge against an unstable stock market — which seems to be the case today.
In the second part of the book, Slott discusses how to protect your retirement savings from taxation. In every part of the book, Slott emphasizes the actions you can take to minimize your taxes. He discusses required minimum distributions (RMDs) in depth and discusses how you can minimize taxes by using qualified charitable distributions (QCDs) when you are required to make RMDs.
He discusses Roth IRAs in detail, indicating who should use them and when.
He discusses the “power of life insurance.” He points out that life insurance is especially advantageous after the SECURE Act, because most beneficiaries no longer have the “stretch” option. He points out that three key estate planning objectives are larger inheritances, more post-death control and less tax.
He emphasizes that the single biggest benefit in the tax code is the income tax exemption for life insurance. In the seminar, he stated that he uses insurance that contains a long-term health care option, which is needed by most retirees.
He discusses the use of trusts in detail. He points out that the SECURE Act took away many of the advantages of using trusts with respect to IRAs. He warned that it is difficult to use trusts effectively, and you should use them only with extreme care.
In the third and final part of the book, Slott discusses “what to do when stuff happens.”
For example, what should you do if you forgot to take your RMD, over-contributed to your IRA or need to make a hardship withdrawal? In these tough situations, you need good advice, and Slott’s book provides it.
Bottom line: “The New Retirement Savings Time Bomb” is comprehensive, understandable and necessary. Get it and read it.