Multi-Generational Wealth

Many investors struggle with the thought of planning for their money to last well into their 90's (see "The Age of The 30 Year Retirement), let alone the ability of their money to transcend to the next generation or to a non-profit entity.  With a well-executed financial plan, the ability for our money to continue to grow long after our time on earth becomes increasingly possible.

Thus, the concept of the 'Stretch IRA' has increased in popularity in recent years.  It is a term that has developed with two powerful tools called the IRA and the Roth IRA that enables the transfer of wealth to future generations.  Other stretching tools for larger estates include insurance products and trusts that help to minimize estate taxes.  

Owners of a larger IRA's may desire to delay paying the taxes on the distribution of their assets.  This allows their assets to grow 'tax deferred'.  IRA's are also considered 'trusts'.  This allows the assignment of beneficiaries and avoids the probate process.

However, many are so tax averse that they miss an extremely beneficial longer term tax avoidance.  This is usually the result of not being shown information on the best methods to maximize the potential growth of their investments.  The power of compounding interest in a professionally managed portfolio is the greatest tool for an investor.  (It is also the most powerful debilitating force when it is working against you in the form of interest on debt.)

Therefore, a great tool for those who qualify and can understand the long-term benefits of compounding interest is to transfer traditional IRA's to a Roth IRA.  The transfer is taxed as income in the year the transfer is made and can be stretched out over a number of years.  But once the funds are in the Roth, no taxes are collected again thus allowing those funds to grow tax deferred.  Strict guidelines regarding your adjusted gross income (AGI) apply to the ability to transfer IRA funds to a Roth.  Contact any one of FIC's professional investment advisors to see if you qualify.

The ability to pay the taxes during one of the lowest historical tax rates (through 2009) is becoming increasingly popular among astute investors.  The greatest tax decrease of 2001 becomes the greatest tax increase by default in 2010 as the tax rates become retroactive to the rates of 2002.

The Roth IRA transfer still makes since after 2010, but it is obviously best transacted when your income taxes are generally lower.

 

Securities Offered Through Dominion Investor Services, Inc. Member FINRA and SIPC.