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What are the taxes on a beneficiary IRA? 💰

Today, I wanted to bring you two things: a very important reminder, and also some information that will help you.

Right now, with our “Covid year” and beyond, we’re going through the biggest transition of wealth we’ve ever seen in the U.S. And unfortunately, it’s not a good transition where wealth trickles down to the masses and middle class, but the rich are getting richer.

But I truly believe that if you understand the rules of the game and how to play them correctly, you can see wealth go into our own pocket, to your family for generations, to the charities you support, etc.

Instead, for most of us who are unaware and unprotected, more and more of our money will end up going to Uncle Sam in taxes, you state and local government, to landlords and long-term care homes, and the like.

Many people panic when they see and hear what’s going on with their finances or stick their heads in the sand.

But with proper planning, you can not only survive but thrive. 

So, don’t panic but plan-ic! 

I truly believe it’s my mission to educate each and every one of you during this financial downtime – and remember that my education and advice is always free, so please hit subscribe on this video.

Today I want to answer the question for you, “What are the taxes on a beneficiary IRA?” as well as give you a valuable strategy.

First off, there are two things that can happen with an IRA:

  1. You can designate someone to be your beneficiary, or
  2. Don’t designate or name someone.

Tragically, #2 is one of the biggest mistakes you can make but it happens far too often. Not only do we fail or forget to designate someone, but often we’ve taken that step but that beneficiary, like a spouse or loved one, passes away and we don’t officially change our beneficiary on the IRA. That triggers a probate situation which can seriously siphon off a lot of your wealth, not to mention time, energy, and stress for your family.

So, PLEASE make sure you have both a Primary and Contingent beneficiary named for your IRA. And if something happens like a death, talk to your advisor, bank, etc. and make that change,

But let’s get down to it – the two ways to pay taxes on your beneficiary IRA:

Remember that when you pay taxes on your beneficiary IRA, you’ll have to pay ordinary income taxes at your tax bracket – so talk to your CPA or we can all have a conversation (and, for the record, I’m not a big fan of these IRAs!).

There are two ways to withdraw money and pay taxes:

  1. Pay a lump sum on the whole amount
  2. Make withdrawals and pay across a 5-year provision

So, if you received $500,000 in one lump sum, you’d be paying at the highest tax bracket federal, Medicare, state income taxes, and more. 

But, if you took out $100,000 per year for five years, you’d be at a lower bracket and could better strategize to absorb and deflect these taxes.

That’s just one tip but I have a whole lot more info and strategies for you, so please contact me for a free consultation.

And remember that we can avoid big problems with beneficiary IRAs by naming a Primary AND Contingent beneficiary!

-Jason Matthews