The theme this week on the Retirement Quick Tips Podcast is: Inherited IRAs

Yesterday, I explained Inherited IRAs and how they work, so if you missed that episode, go back and have a listen because it’s the foundation for understanding what I’m covering today and the rest of the week. 

Today, I’m doing a deeper dive into the new Inherited IRA rules that went into effect in 2020, and what you need to know about how these rules might apply to IRA assets that you plan to inherit and/or pass along to your own children or heirs someday. 

Before the SECURE Act was passed that changed the rules, when you inherited an IRA from Mom or Dad, you could take RMDs, which are the required annual withdrawals from a IRA, and stretch those over your remaining life, which significantly reduces the annual amount that you would need to withdraw from the account each year, and most importantly, also reduced the taxes owed by the beneficiaries on those annual required RMDs.

IRA withdrawals are taxed as income, so every dollar withdrawn from an IRA counts towards your income for the year, and so the taxes can be significant, and IRA withdrawals from inherited IRAs can bump beneficiaries into new tax brackets and significantly reduce the net amount of the inheritance that you actually receive once the taxes are paid on those required withdrawals.

What all changed in 2020 after the passage of the SECURE Act is that those withdrawals were no longer allowed to be stretched over your remaining life, but are now limited to 10 years. So if you inherit an IRA worth $500,000, you have 10 years after the original account owner’s death to cash it out and pay the taxes. So for example, let’s say you just let the account sit in cash (which hopefully you wouldn’t!), and the account doesn’t grow at all, you would take out $50,000 per year if you spread out the withdrawals over those 10 years equally.

That $50,000 gets included with your other income, and if you’re already in a higher tax bracket, you could be paying anywhere from 24% to 35% marginal tax rates on those withdrawals, which hurts. There is also a ripple effect from this unexpected higher income in that depending on your income tax situation, it could reduce other tax benefits like deductions and tax credits - especially at lower income levels - that you were used to, and counted on when your income was lower. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: Inherited IRAs

Today, I’m covering the basics of Inherited IRAs, since understanding these accounts lays the groundwork for what I’ll be covering later in the week. 

According to Investopedia, “An inherited IRA is an account that is opened when someone inherits an IRA or employer-sponsored retirement plan [like a 401k] after the original owner dies. The individual inheriting the IRA (the beneficiary) could be anyone—a spouse, a child, another relative, or unrelated party or entity, like an estate or trust. 

Rules on how to handle an inherited IRA differ for spouses and non-spouses. And that’s the rub of these new rule changes. If you’re married and your spouse dies, inheriting an IRA is pretty straightforward, because you would just transfer the deceased spouse’s IRA into your own name, and things would continue as they were before. The account becomes yours and you would start taking required minimum distributions (aka RMDs) if you’re older than 72. 

If you’re a non-spouse beneficiary of the IRA, it’s a whole different story. Let’s say you’re a 50% beneficiary on a $1,000,000 IRA that you inherit from your mom after she passes. You open an inherited IRA, and deposit your ½ - $500,000. Prior to the rule changes in 2019, you could take those RMDs over your remaining life and spread those withdrawals over decades. Now, you need to withdraw all of the funds and importantly, pay all of the income taxes on those withdrawals within 10 years. 

This is bad news bears for your taxes, and I’ll talk more about that tomorrow. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

Welcome to a new week here on the Retirement Quick Tips podcast. I’m your host Ashley Micciche, co-owner of True North Retirement Advisors, an independent financial advisory practice managing $340 million in client assets. I’m a Chartered Retirement Planning Counselor, and I started this podcast because I love helping people just like you gain clarity and make a plan for the retirement you envision. 

The theme this week on the podcast is: Inherited IRA

The SECURE Act, which was passed at the end of 2019, significantly changed the rules on inherited IRAs, making IRAs a lot less attractive for beneficiaries. These changes largely flew under the radar because just after the new rules went into effect, Covid hit, and well, new inherited IRA rules didn’t seem to matter all that much, at least at the time. 

But if you have a significant portion of your assets in 401k or Traditional IRA accounts, then you’ll want to pay close attention this week. Or maybe you expect to receive an inheritance from your parents in the form or IRA assets…in either case, these relatively new changes for how IRAs get passed to non-spouse beneficiaries are big big changes, and not in a good way, because it significantly alters the taxes and the timing of paying those taxes on inherited IRA assets. 

So this week I’ll share with you the specifics on how these new rules might apply to you, how you can reduce the tax bite, and why the case for Roth IRAs just got a lot sweeter with these new rule changes. 

I hope what I have to share with you this week will help you make smart and thoughtful decisions with your retirement. And while I am careful to not lead you astray, personal finance is not an exact science. There is no one-size-fits-all solution for everyone, so I encourage you to disregard anything I say that may not be helpful for you, and to consult your own financial, tax, and legal advisors regarding your own individual situation.

That’s it for today. Thanks for listening! My name is Ashley Micciche...and this is the Retirement Quick Tips podcast.

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>>> Visit the podcast page: https://truenorthra.com/podcast/ 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

It’s Sunday, which means...it’s recap time here on the Retirement Quick Tips Podcast

This week the theme was: Investments I Hate

In case you missed any episodes, here’s what I covered this week:

• Structured notes
• Too good to be true high yield investments
• Annuities
• Cryptocurrency
• Private loans

The most important takeaway from this week is: if it sounds too good to be true it probably is. Many of these bad investments sound great to would-be investors because of the prospect of some type of downside protection, high yield, or eye-popping returns. But lurking just beneath the surface are often high fees, not well understood real risks, and disappointing results. 

You don’t have to hit home runs with your investment portfolio, you just have to get a lot of base hits to be a great investor. And for that reason, a plain vanilla, high quality, time-tested diversified portfolio will do the trick. 

Tomorrow, come on back because we’re starting a brand new theme: Inherited IRAs: Explained. The rules for inherited IRAs changed a couple years ago, and these rule changes are significant, especially if you plan to pass along your IRA or 401k assets to your children, or if you expect to receive an IRA from a parent as part of your own future inheritance. I’ll talk about why this new change is not a positive one for IRA account holders, and what you can do to avoid costly mistakes when it comes to inherited IRAs. 

Thank you so much for listening this week! If this podcast is valuable for you, please share the show with a friend, a neighbor, your brother, or co-worker who is getting close to retirement. Just go to your favorite podcasting app, hit the share icon, then text or email the show link to someone you know who is eyeing retirement. 

Thanks for sharing the love and spreading the word. I hope you have a blessed Sunday. My name is Ashley Micciche, this is the Retirement Quick Tips Podcast.

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: Investments I Hate. 

Today, I’m talking about private loans. 

I most often see private loans made from my clients to family and friends, or to renters in a residential property they own. The person they make the loan to in the real estate scenario is often a long-time renter who wants to buy my client’s house. It seems like a good idea, since they want to sell it, and they want to give their renter a chance to own the property over time. 

The owner of the property can’t sell it outright to the renter, because in the case of the private loan situation, the buyer has poor credit and can’t qualify for a traditional mortgage. 

I have a client who sold her rental property using a private loan arrangement, and it only took about 2 months before she stopped receiving payments. 

The appeal of private loans is usually 2-fold - In the case of family and friends, you’re usually loaning money to someone you know and care about who is in need. If you’re loaning money to your children for a down payment on a house, there’s nothing wrong with helping them get ahead and giving them a better interest rate on the money they need than they could get from a bank. I get that. 

But these private loans can go sideways, so if you’re willing to make a private loan, then you should also be willing to pay an attorney to write a watertight contract, and be prepared to be out additional money if things go wrong. 

In the case of my client and her renter who stopped making payments, she’s in the middle of a legal battle right now. She’s received no income from this property in many months now, and it’s going to be probably another several months before the issue is resolved and she gets her house back. 

The appeal in her case was that she wanted to help this longtime renter of hers buy a house, she was looking to sell anyways, yet he took advantage of her and now it’s going to cost her a lot of money to get her house back. When a bank doesn’t want to take a risk on a higher-risk borrower, there’s often a good reason, and it’s probably best to steer clear of private loans. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: Investments I Hate. 

Today, I’m talking about cryptocurrency. 

With the meteoric rise in value in Bitcoin and other cryptocurrencies in the last several years, and investors like Elon Musk touting their benefits, investing in Cryptocurrencies is something I get asked about a lot more these days. 

But crypto makes it onto my hated list of investments for many reasons: 

It’s difficult to understand. Cryptocurrency is defined as: “a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.” Even the definition is confusing! Then more research leads you down the rabbit hole of terms like blockchain, digital wallets, mining coins, and…time to move on. 

Warren Buffet’s famous investing advice is to only invest in what you can understand. This is very good advice, yet, I think only about 1% of crypto investors truly understand what they’re investing in. The rest are just joining the crowd. 

But me, I’m going to continue to sit this one out. 

But that’s not the only reason I’m going to wait and see what happens with crypto before I consider it as a legitimate investment option.

Despite Bitcoin being touted as a replacement for gold or even fiat money like the dollar, it simply has a dismal track record as a reliable store of value - it hasn’t been around long enough and in the short few years it has been around, it’s certainly not something that would be considered a stable currency replacement. In fact, NYU Professor of Economics Nouriel Roubini cautioned investors at a recent industry conference not to view cryptocurrency as an effective hedge against inflation (and questioned whether bitcoin and other cryptocurrencies were currencies at all).

He said: “In the case of bitcoin or any other essentially cryptocoin asset, the basis for the fundamental value is not there, it’s vaporware; it’s not backed by anything…They’re not currencies, they’re not even assets, they’re highly volatile, they’re speculative and they’re subject to manipulation of one sort or another.”

And speaking of manipulation, the crypto market is swimming with bad actors. There are a lot of nefarious people who deal in crypto, use it for illicit purposes, and the emerging data on how terrible crypto is for the environment are just a few more reasons why I’m just going to keep saying no for now. 

According to the Web site Digiconomist, a single bitcoin transaction uses the same amount of power that the average American household consumes in a month, and is responsible for roughly a million times more carbon emissions than a single Visa transaction. The same people who are forcing me to drink out of a paper straw that disintegrates before I’m halfway through my drink, and the same people often bragging about how much money they’ve made in bitcoin. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: Investments I Hate. 

Today, I’m talking about annuities. Of all the investments I’m talking about this week, I actually hate annuities the least, but they’re so oversold by advisors and insurance salespeople, and so many of you listening no doubt own an annuity, so I think it’s worth discussing why I hate annuities. 

An annuity is an insurance contract with the intention of paying out some type of income stream in the future. There are many different types of annuities, but at their core, most have some type of future guaranteed income stream associated with them.

The most common types of annuities I see are variable annuities, so I’m going to use variable annuities as today’s example of why I hate annuities. Variable annuities are usually invested in with a lump sum - usually a rollover from a 401k. 

Then the funds in the annuity are invested in a diversified portfolio, and several years later, once you’re retired, you can draw income from the portfolio. 

Annuity illustrations used by salespeople are usually pretty rosy, highlighting the high income stream that you’ll be guaranteed for the rest of your life. That’s because annuities are often sold with these extra bells and whistles, known as riders, which provide some type of guaranteed income stream.

The problem with annuities is that they are usually terrible investments. The fees are quite high - usually around 3% annually, which really eat into the principal value of the annuity. So if you decide later on that you want to cash in your annuity and invest in something else, you’re likely to be pretty disappointed with your overall returns.

Part of the reason for those high fees is that the salesperson selling the annuity receives a fat commission when you buy the annuity. Usually around 4-6%. So if you have a $500,000 rollover, the person selling you that annuity is looking at a commission somewhere in the range of $25,000. I don’t sell annuities with commissions, and it would take me about 5-6 years to earn the fees that the annuity salesperson would earn with selling one contract. So if the incentive structure for selling annuities gives you pause, you have good intuition. 

Most annuities are too complex for the average investor to properly evaluate, and like many of my other hated investments, there isn’t a lot of standardization, so it’s hard to do a proper comparison between different types of annuities. 

An annuity does make sense for a very conservative investor who wants to create a pension-like income stream for themselves. An annuity can accomplish that, and like many pensions, the income stream loses it’s luster over time as inflation eats away at the buying power of your guaranteed income stream. 

Another thing I don’t like about annuities is that they’re hard to get out of until you own them for about 7 years. Most variable annuities have a 7-year surrender charge so if you sell within that time, there’s a penalty you’ll have to pay. That’s a long time to be stuck in an investment, and most of the time, I’m just waiting it out with my clients who were sold a craptastic annuity, so we can move on to something better once the 7-years has come and gone. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: Investments I Hate. 

Today, I’m talking about one of the most frequent offenders that I come across in the investments I hate category, and that is investments with a yield that is too good to be true. 

Last week, I attended a panel discussion with several real estate investors. It ran the gamut from residential to commercial investors to developers. While I appreciated their professional insight and learning more about real estate as an asset class, what disappointed me was the way some of them spoke about the returns and yields as if it was all baked in, guaranteed, and you couldn’t lose. 

Please show me where I can get a return of 10% on my money year-in-and-year-out and not get burned, and I will gladly write a check for any amount to invest with you. Seriously. But in reality, that’s not the case. I noticed their enthusiasm sounded much like real estate investors in 2005, claiming that real estate would only go up from here. That was clearly wrong. And many of them in the room had been investing in real estate in the last 10-15 years, and weren’t in the game during the real estate collapse in 2008-2009, which I found interesting. 

And it’s not just enthusiastic real estate investors, enthusiastically talking about their 13% rates of return, I talked to a client just today who saw an ad on TV for an investment yielding 10%. The only thing I know of that is yielding anywhere close to that, that isn’t junk is I-bonds. But the allowable investment in I-bonds is only $10,000, so if you have a larger portfolio, the $10,000 limit makes them a lot less appealing. 

But in a low interest rate environment, there are so many investors desperate for higher income and yield, that promises of high yield investments - whether that be in real estate, bonds, or something else, are usually too good to be true. So if the interest rate on pretty much everything else is only 2-3% and you’ve found something yielding 3 times that amount, it’s probably because it’s risky, illiquid, or both.

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

The theme this week on the Retirement Quick Tips Podcast is: Investments I Hate. 

Today, I am talking about an investment that I thought was forever dead after the financial crisis, but has miraculously risen from the dead in recent years. History doesn’t repeat itself, but given enough time, many bad ideas eventually come to the forefront again.

 

Structured notes are one such investment. I saw them occasionally on investor statements leading up to the financial crisis, and usually only in accounts held at the largest financial institutions and investment banks. 

You can think of a structured note as a packaged up basket of stocks, bonds, or some index. There are a lot of different types of notes, and how much money you make is dependent on how the underlying basket of whatever is in the structured note performs? So what’s different about these compared to a mutual fund, because it sounds a lot like a mutual fund or an index fund. Well, the attractiveness is that there is usually some type of buffer on the downside, where your losses can be limited. 

As I see it, that’s the only potentially good thing about these investments, and most downside buffers on these notes aren’t that great anyways, and you can still lose money on investing in a structured note, even if you hold it to maturity. 

So let’s move on to the potential problems with structured notes, of which there are many:

1. They’re usually expensive and they earn a nice commission for the advisor selling them. This is probably my biggest issue with these notes, as the cost of owning one of these notes can often be many times higher than just owning that basket of investments on it’s own. 
2. They’re complex, and each structured note has different features. This lack of standardization makes them difficult to understand unless you have a lot of experience with investing in structured notes. 
3. There’s a very limited secondary market, which means if you want to sell the note before it’s maturity date, good luck. 
4. The issuer - the big investment bank, can also call the note early and cash you out, which often happens when the notes increase in value by a certain amount…so your returns are capped on the upside, along with the protection you have on the downside.
5. And my biggest gripe with structured notes is that when you purchase them, you are assuming credit risk of the issuing bank, and I find most investors who buy structured notes have no idea they are assuming this risk. 

Structured notes crashed and burned bigtime in the aftermath of the 2008 financial crisis, because you might remember a company named Lehman Brothers that went belly up. Well, Lehman brothers issued a ton of these structured notes, which were unsecured subordinated debt of Lehman brothers. So all of those investors who brought supposedly guaranteed, conservative, 100% return of principal structured notes from Lehman thought they were getting a conservative decent-yielding investment, when in fact, as Chris Farley said in Tommy boy: all they sold you was a guaranteed piece of shit. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

Welcome to a new week here on the Retirement Quick Tips podcast. I’m your host Ashley Micciche, co-owner of True North Retirement Advisors, an independent financial advisory practice managing $340 million in client assets. I’m a Chartered Retirement Planning Counselor, and I started this podcast because I love helping people just like you gain clarity and make a plan for the retirement you envision. 

The theme this week on the podcast is: Investments I Hate!

I’ve reviewed a lot of investment portfolios over the years. Whenever a potential client and I start down the path of working together, I always evaluate their current holdings. So I’ve seen hundreds of portfolios over the years and many thousands of different investments - some good, some bad, and a handful of sell-that-right-now-and run kind of bad. 

So this week, I’m sharing with you my 5 most hated investments. If there’s a common thread that links these investments together it’s that most are expensive, complex and difficult to understand, and the risk-return tradeoff doesn’t justify the investment, or worse, the investment product is so new that there is no historical track record, and hence, any return potential is speculative at best. 

Frankly, that’s always a good rule to follow: if you’re considering an investment and it checks any of these boxes, it’s probably not worth investing your hard-earned money. 

Of course, you could make a case that for many of my hated investments are in fact, prudent choices for the right investor, but in my experience, these investments are held by too many investors who would have been better off saying no. 

The good news is that even if you said yes, and you’re cringing or maybe getting a little defensive this week as I discuss these hated investments, if you decide that you agree and you want to get out, most often there’s still always an out - it’s not a timeshare we’re talking about here. 

Although now that I think about it, maybe I should have added timeshares to the list. Or maybe not…I don’t consider timeshares an investment, it’s a vacation that you pay for in advance, but I digress.

I hope what I have to share with you this week will help you make smart and thoughtful decisions with your retirement. And while I am careful to not lead you astray, personal finance is not an exact science. There is no one-size-fits-all solution for everyone, so I encourage you to disregard anything I say that may not be helpful for you, and to consult your own financial, tax, and legal advisors regarding your own individual situation.

That’s it for today. Thanks for listening! My name is Ashley Micciche...and this is the Retirement Quick Tips podcast.

----------

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----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance