Is Your IRA Too Big?
by
Gregory Grant
There are many things to think about during the nine-to-five grind, such as making appointments on time, talking to clients, and getting the product made and shipped. So it's easy to see why some things get moved further and further down on the "to-do list," especially things like 401(k) investments and planning for retirement. So, how do you know if you have enough saved for when the working years are over?
"To insure that a person is saving enough for retirement, whether it is an IRA or outside an IRA, what a person needs to do is look at what their current cash flow needs are," says James Cotto of Merrill Lynch. "They need to add 3.1% to that annually until the point of retirement. At that point they will know what the dollar figure they need is after taxes. Then they can see if they have enough money saved for their retirement."
On the other side of the coin, what if you have too much saved for retirement. If you do, there may be tax consequences, although tax experts say there are two things that can be done. One is to take occasional distributions that would be taxed at the workers' ordinary income tax rate. The other option is to do nothing.
"If they choose to do nothing, then what they can do is let their IRA roll into their estate. The down side is their heirs will receive their inheritance after estate taxes and ordinary income taxes are paid. That could be as much as 75%," says Cotto.
Figuring out how much you'll need for retirement now, along with keeping an eye on how much money your IRA is making, may allow you to take distributions & enjoy the money now, as well as save you and your heirs a significant tax liability down the line.
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