This article article was published in the "New Rochelle Review" in the June 2006 issue.

“Life And Money”  TM –  IRA Check-Up - Part 2

By Frank Sisco, CPA, PFS

Word count - 549 including 70 for About the Author

You should do a 4-step check-up of your Individual Retirement Accounts (IRAs) at least once per year.  The steps involve (1) how much you are putting into IRAs and whether a Roth IRA makes more sense (2) how the money is invested (3) who are set up as beneficiaries and (4) whether there are alternative strategies in your changing circumstances.  Get the guidance of an experienced financial advisor like a CPA or financial planning specialist if appropriate.  This month's column discusses the third and fourth steps of the check-up, as last month's column covered the first and second.

Beneficiaries - IRAs can be an effective tool in passing wealth to your children, grandchildren or others because you name the people specifically on the IRA account applications and can change them by amendment at any time. There are many ways to stretch the withdrawals and prolong the tax-deferment for Traditional IRAs.  Roth IRAs are especially effective because the money is not taxed to beneficiaries at your death and can continue growing in the inherited IRA accounts without tax.   Assets like IRAs are not subject to probate and pass outside the will and thus can be disbursed faster and more easily when a person dies. In some cases, the money within IRAs can be protected from creditors. Furthermore, if you are wealthy, money left directly to your grandchildren may save a large amount of estate taxes in your children’s estates when your children die.

Changing circumstances - Your actual life may have turned out much different than what you projected as you were contributing to IRAs.  If you are a senior who has sufficient income but does not have a long-term care policy, consider using some of your IRA funds to pay the premium and related income taxes upon withdrawal.  Or, if you are considering starting a new business, your IRA funds could be a good resource.  Get professional help developing projections of various scenarios.  Also, you may have decided to continue working in your retirement years and let more of your IRA money grow.  Or just the opposite.  Investment performance, as discussed last month, may have turned out to be much different than you expected, causing major changes in what you do now. 

The world has changed too, and it may be more appropriate to invest more safely than when you first started out.   When you do a review of the schedule of IRAs and their values, I believe many of you will find very disappointing results.  Instead of just transferring the account from one bank or investment house to another and falling prey to their suggestions and possible mistakes, I think you should develop a simplified strategy of investing such as in laddered CDs and then combine your accounts into one inexpensive or free brokerage account and stick to the strategy.  The fewer accounts and people involved the better.

About the author

Frank Sisco is a CPA and Personal Financial Specialist, and author of many articles about personal finance and issues of life and money.   His firm, Financial Management Corporation, is located in Harrison, NY.  Frank resides with his wife and daughter in New Rochelle, NY.  He can be reached at 914.381.3737 or by email at ideasmoney@aol.com.  Visit his website at www.LifeAndMoney.com, which contains this and prior articles.