Fall 2016

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PATRONS | Fall 2016 18 FUTURE FOCUS Nine Strategies to Preserve Your Retirement Wealth BY CHRISTIAN CORDOBA, RFC ® , CFA W hile reasonably basic to an IRA spe- cialist, these nine ideas may help in- dividuals and families preserve their retirement wealth. e ideas have been separated into three different life stages, so at least one of them could apply to you regardless of whether you are contemplating retirement, already retired, and/or interested in how a surviving spouse can maximize benefits after retirement. STRATEGIES BEFORE RETIREMENT 1. e Non-Deductible IRA Contribution Almost anyone still working and under age 70½ with earned income can make an IRA contribution, regardless of how much money they make. Even with no deduction, the more money you have invested in a tax-deferred IRA, the more you can convert to a tax-free Roth IRA later. 2. e 401(k) Mega Roth IRA Contribution If you cannot contribute to a Roth IRA, but your employer has a 401(k), you may still be able to make after-tax contributions to your 401(k) and later, due to the new rules, directly roll over those after-tax contributions into a Roth IRA. 3. Avoid RMDs after age 70½ using a Reverse Rollover to a 401(k) If you are still working and have a 401(k) with your employer, you may be able to move one or more of your IRA accounts to your 401(k) ac- count temporarily. is could be a strategic move, because you aren't forced to take Required Min- imum Distributions (RMDs) from your 401(k) account (even if you're over age 70½) until after you have separated from that employer. BONUS IDEA: Contribute to a charitable cause you believe in for the tax deduction it provides. STRATEGIES DURING RETIREMENT 4. e Roth IRA Conversion Once you retire, especially if prior to age 70½ and you do not need the income from your IRAs, consider converting a portion of your tax-deferred IRA to a tax-free Roth IRA. Even if you just convert 5% or 10% of your account(s) per year, in just five years you can potentially have 25% to 50% respectively of your retirement assets in a tax-free Roth IRA for the rest of your life—and possibly for the lives of your beneficiaries too. You'll pay some tax now, but reap the rewards for the future. 5. Plan ahead for your income strategy and age 70½ RMDs Take the time before you reach age 70½ to learn how you can determine which accounts you should take money from first, how much to take from each, how often, how it integrates with other income sources (pension or Social Securi- ty) and why that strategy may be more efficient toward saving money from taxes and/or helping your money last longer. 6. Using the QLAC to reduce taxable income at age 70½ New IRS rules allow contributions to a Qual- ified Longevity Annuity Contract (QLAC) to potentially enable a portion (25% of your retire- ment account balance or $125,000, whichever is less) of your RMDs to be postponed beyond age 70½ while still locking in a guaranteed income amount in the future. is could allow you to pay less in taxes at age 70½. BONUS IDEA: Use the Qualified Charitable Distribution (QCD) from your IRA to contrib- ute to a charitable cause you believe in. STRATEGIES AFTER RETIREMENT (FOR SURVIVING SPOUSE) 7. IRA Choice #1: Spousal Rollover Beneficiary Option A spousal rollover option is the name given to the planning strategy where a surviving spouse moves a deceased spouse's retirement account into their own retirement account. 8. IRA Choice #2: Treat IRA as Its Own Option A second option available to the sole surviving spouse beneficiary is to treat the deceased spouse's IRA account as their own, essentially pretending as though they owned it all along. is can be useful if the surviving spouse wants to maintain an existing IRA investment, but would not be able to do so if the deceased spouse's IRA account was closed. 9. IRA Choice #3: Remain as Beneficiary of IRA Option e third and final option a sole spouse ben- eficiary has upon inheriting a deceased spouse's IRA account is the ability to remain a beneficiary of the account. Using this option may either help the surviving spouse avoid a 10% penalty or defer the age 70½ RMD and may be strategic depending on the age of the deceased and the surviving spouse. BONUS IDEA: Use the IRA beneficiary designation to contribute to a charitable cause you believe in. Like it or not, most retirement assets are es- tablished as pre-tax. To be fair, many people may not have actually saved nearly the amount they have today had they not been incentivized to do so due to the seemingly tax-deferred benefit. e key, therefore, is not to look back and question what you did right or wrong, but rather, think proactively of how to make the best choices going forward. Making smart choices, of course, assumes you have been made aware of your best options. Ask yourself if you and/or your advi- sor(s) have considered these nine options—and which may be worth learning more about. A better understanding of how to plan for the distribution of your wealth before, during and after your retirement, combined with a proactive plan to maximize tax efficiency, can help you and your family reduce the embedded tax debt of your IRA accounts and preserve your wealth. Chris an Cordoba (310) 643-7472 www.californiare Chris an Cordoba, RFC®, CFS is a personal wealth manager and the founding partner at California Re rement Advisors, a financial consul ng and services firm in El Segundo, California. Chris an is a member of the Torrance Memorial Professional Advisory Council.

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