23 June 2018

IRAs: New Rules, Old Strategies

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With April looming, the season for individual retirement accounts is at its height. Follow these IRA strategies that have stood the test of time, while taking note of this year's new changes. Over the past couple of months, you probably saw plenty of ads by major financial services firms to open an IRA with them. Regardless of the logic behind the campaigns, saving with an IRA is a good idea.

If you haven't already, open an account and get started. Like anything else, this tool doesn't work unless you have one. The contribution limits remain at $5,500 in 2015 with an additional $1,000 allowed for those 50 and over. You can still make a 2014 contribution up until April 15.

Here is where one of the new IRA rules affects you. In the past, you could take money out of your account and do whatever you wished with it with no income tax consequences, as long as the money went back into the original IRA or another IRA within 60 days. Now you can only do this once every 365 days.

Note this does not apply to a trustee-to-trustee transfer. This means, if you have an IRA at your local bank and wish to transfer this account to a custodian like Fidelity, you can do so without the 365-day limitation.

• Do something with your old 401(k) accounts. It is not uncommon for people to change jobs during their career. All too often I see several old 401(k) accounts from former employers just sitting there, neglected. One solution is to roll them into an IRA for the reasons mentioned above. It might also make sense to leave the account where it is, or roll these balances into a new employer's plan.

• Invest your IRA as part of an overall strategy. Don't invest your IRA account in a vacuum. This and all investment accounts should be a part of an overall investment strategy ideally based upon your financial plan.

• Don't forget your required minimum distributions. You have to start taking withdrawals from your IRA when you reach 70½. Failing to do so can result in a hefty penalty. If you have multiple IRAs, pay attention to all of them. Inherited IRAs might have different rules.

• Make sure your beneficiary designations are up to date. As part of your estate planning, your IRAs pass to your heirs via a beneficiary designation, which overrides anything that you might have in a will. Imagine your current family finding out that you leave your $1 million account to your ex-spouse.

Another update on IRA concerns inherited accounts. Retirement plans typically are exempt from creditors. But the Supreme Court last year decided that IRAs left to non-spousal beneficiaries do not have creditor protection as they are not retirement accounts.

IRAs offer many advantages to retirement savers. Make sure you manage existing accounts to their fullest potential. If you don't have one, there is no time like the present to start.

Click here to access the full article on USA Today.

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