When you don’t need your IRA

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Q. I have an IRA worth nearly $700,000 and I don’t think I will ever need to use the money. How should I invest it so my three kids, all in their 50s, get the most out of the account? And do I need to worry about the new talk of Stretch IRAs vanishing?
— Dad

A. Before you give away these savings, or invest too aggressively, step back.

While you may not think you will need to use your IRA, you could face unexpected costs and you may need to access the money, said Roy Williams, president and founder of Prestige Wealth Management in Flemington and Millburn.

Additionally, you will need to take Required Minimum Distributions (RMDs) each year until your passing, so you will be forced to take withdrawals from the account each year.

“Typically, someone who is 20 to 30 years younger than you are can take more risk by investing more into equities because they have a longer time horizon,” Williams said. “Therefore, a balanced portfolio would be appropriate to give growth for the long term for your children but low volatility positions to source for your RMDs and potential other emergency expenses.”

He said a balanced portfolio is usually 50 to 60 percent in equity and 40 to 50 percent in fixed income/bonds.

Also, Williams said, it is difficult to predict changes in the tax laws.

To your question about Stretch IRAs, the Tax Cuts and Jobs Act signed into law on Dec. 22, 2017 did not repeal the rules affecting Stretch IRAs.

“A beneficiary of an inherited IRA can choose to take distributions over their own life expectancy, thereby `stretching’ out the distributions over a relatively long period of time if the beneficiary is in his or her 50s,” Williamsn said.

For example, he said, a 55-year-old has a life expectancy of about 30 years. This means that they can stretch out the payments over 30 years. In the first year, they would take 1/30 or 3.33 percent. The amount increases each year as the beneficiary’s life expectancy decreases, but the ability to defer the distributions can lead to very large tax savings, Williams said.

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.