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Tuesday, October 12, 2010

Need to Know

The foremost expert in the country on IRAs and qualified plans is Ed Slott. Ed has written several books on retirement planning and IRAs and is this month's guest in the "10 Questions With Noteworthy People" column in the Journal of Financial Planning. You may also have seen Ed on PBS, during their fund-raising season, presenting "Stay Rich For Life."

In the column, he is asked about what mistakes advisors make in their own financial planning and answers with a revealing story about an advisor who inherited a $300,000 IRA and took it to the bank. He gave the lady the new titling, but she didn't know that it had to be retitled or how to retitle the account. So . . . two people who supposedly know what they are doing! Instead she gave him a check and said " can make it out the way you want . . . ." The big mistake was taking the check. As he took the check, it was taxable income. A non-spouse beneficiary cannot do a rollover. Instead, they need to keep the name on the account and retitle it. Then they can invest it the way they want and have important options, including withdrawing the funds over a long period (thereby paying much less in taxes).

This is a super critical lesson. People get an inheritance and ask their next door neighbor or the "expert" at work how to proceed. These people will tell them to take the proceeds, and they have a while before they need to roll it over into a new IRA. They, of course, are thinking of the time they changed jobs and rolled over their 401k. But this is completely different! This is a costly mistake.

Whenever there is big money involved, get the advice of a professional. Don't assume.


  1. It's way too easy for the uninformed and DIYer to make these kinds of costly mistakes with all the red tape and regulations they don't fully understand.

  2. I agree. People need to talk to their beneficiaries or have their beneficiaries call their advisors. Most advisors would give this kind of information for free. I believe.