Individual Retirement Accounts (IRA) Issues pt 1

In this episode, Lisa Shoalmire and John Ross discuss several IRA issues and required minimum distribution rules among other things.

Episode Transcript
John
Hi, welcome to Aging Insight everybody. We’re about to go live here on our show. Lisa and I have been out at the Texarkana Wine Festival all morning getting everything set up and had to run back here so we could do our show. We’re going to be talking about IRAs today. Hope you enjoy the... we will not be live... we’re live but we will not be taking phone calls today. A little bit different of course you all on the Facebook can’t hear the phone calls anyway because the way it’s all set up so no loss to you all. Of course if you have questions or comments just let them know.
Lisa
Welcome, everyone to Aging Insight. This is Lisa Shoalmire and I’m here in the studio with John Ross. John today we are here in the studio and we’re live, but we found out from our producer, I guess we can call him that. Our producer.
John
Yeah, I think producer is right.
Lisa
That this week we’ve had a lot of storms and all in our area and the station was hit by lightning.
John
Yes, it was apparently.
Lisa
We’re running on a little bit of a shoe string today, but that we’re able to be on the air so we’re really appreciative of that. It does mean that our phone line was fried.
John
Yes, so we’re live here in the studio. It’s May the 6th. It’s Seis de Mayo.
Lisa
I guess you could call it that.
John
I did call it that.
Lisa
Yeah, okay.
John
Yeah. It’s the 6th of May it is live today, but we will not be taking phone calls. Just don’t have that capability.
Lisa
Yeah, so this week they’re supposed to be getting some technical folks in to get all this wired back up and recover from that lightning storm glitch.
John
If you’re dead-set on getting us a question or you’ve got a comment or something.
Lisa
Yes, this morning we have been out at the Texarkana Wine Festival at Spring Lake Park in Texarkana. This is the third annual Texarkana Wine Festival. The Twice as Fine Wine Festival. The wine festival is a fundraiser and all the proceeds raised from the festival go to support the Tri-State Alzheimer’s Alliance. This is a group... John how many counties does tri-state alliance cover?
John
Oh, it’s about 20 I think at this point.
Lisa
Yeah, so our listeners in South West Arkansas and North East Texas are served by the tri-state Alzheimer’s Alliance. The alliance is there to support caregivers, is there to provide respite through their day-respite centers so that caregivers can drop off their afflicted loved one with some carrying volunteers and supervision. Where the caregivers can go out and get a haircut and go to a doctor’s appointment and do all those things they still need to do. It’s vitally important. Also there’s a lot of support groups, a lot of education.
John
There’s one person with the disease but everybody surrounding them, their immediate family, their spouse, their kids, their caregivers. Not just them but it ripples through the community. Because as the kids have to take off work it impacts their employers. It impacts the people that they do business with, like their financial advisers. It just impacts everybody around you. It’s really more powerful in it’s impact than just about any other disease out there.
Lisa
The wine festival is a spring time fundraiser here. It’s a family affair where there are food vendors, there are arts and crafts vendors. Of course there’s the wine garden.
John
Yeah, and so the festival itself is actually free to attend. Everybody can go out there, it’s out there at Spring Lake Park they are in here in Texarkana. You can go out there it’s free to walk around, there’s going to be live music all day. Like you said there’s some really good food. Lisa and I had... before we came over here we both had some crawfish grits.
Lisa
That’s right, some cheesy crawfish grits.
John
Yeah, and some smoked boudin. If Cajun themed food is not your thing there’s plenty of others, there’s barbecue and there’s all kinds of stuff over there.
Lisa
I saw one of the booths had rhubarb Frito pie.
John
Yeah, rhubarb frito pie.
Lisa
That’s taken the frito pie up a notch. I think.
John
Yeah, some really good food vendors. Then, if you want to you can go into the wine garden. It’s $10 entrance into the wine garden and that gets you a souvenir back, a wine glass.
Lisa
Yeah, 24 wineries.
John
You can go to each one of those wineries and for a dollar they’ll give you a sample. A little one ounce pour to test it out. If it’s something you like for $5 you can get a full glass. Then, you’re welcome to buy bottles of wine from those vendors.
Lisa
The wineries have brought inventory with them so if you just find the wine that you love you can by some bottles and take those home with you. Now they did want me to let you know I was talking with Terry Arnold who is the...
John
The executive director.
Lisa
The executive director of Alzheimer’s Alliance and a miracle woman and putting all of this in her committee, putting this on. One thing to remember if you go out to Spring Lake Park for the wine festival and why shouldn’t you the weather is beautiful?
John
Oh it is, it’s really nice out.
Lisa
We ordered that up on special. Special order. The weather is beautiful, but if you want to go into the wine garden make sure you bring some... your money to get in but also bring your ID.
John
Yeah, you do have to be 21.
Lisa
Yeah, this is not one of those things to where you’re clearly over 21. You’re quite a seasoned adult, but the laws and everything being what they are you will have to present your ID when you get your stamp and your bracelet and everything to go into the wine garden. Don’t leave it in the car and have to walk back to your car and get it, you just go ahead and bring it with you.
John
That’s right. Yeah. Anyway I hope we will be back out there as soon as we get done off the radio show. We’ll be out there most of the afternoon. In fact I will probably be working the... one of the beverage tents in the wine garden most of the afternoon. At least until I have to go run off and do more family stuff.
John
That’s exactly right. This is our big one, so yeah you all get out there and show your support. We’re trying to break... we’re hoping to have over 10,000 folks out there at that wine festival and you need to be a part of that.
Lisa
Did I say that they’re having little golf cart shuttles and whatever from the parking?
John
Yeah, they are having some shuttling round so yeah.
Lisa
Don’t be worried just come on out park wherever and they’ll just flag down one of the shuttles and hope on and it’ll take you right up to the admission tables.
John
That’s right. Lots of good stuff out there. Geez I could probably talk about Alzheimer’s all day long. That’s not really our topic for today.
Lisa
Well, and I guess, John we need to make sure and say hello to our sponsors. They’re the ones that make sure we’re on the air even through a lightning storm. We do want to say thank you to Edgewood Manor. The Barnet Agency. Dierkse Memorial Hospice. Riverview Behavioral Health. Cowhorn Creek Estates. Curt Green & Company. St. Michael’s Hospital. Red River Federal Credit Union. Twin City Rehab and Inspirations in New Boston. Anyway, thanks to the sponsors. Today, John once again we’re always talking about what are we going to talk about on the radio on Saturday? Always often usually something in the week peaks our interest and we bring it to you on Saturday. John this week I will tell you I was working with a family and everything is good this is not one of those train wreck situations.
John
No, this is a happy family. This is a long marriage, happy family, great kids. Everybody is healthy. Everybody is stable.
Lisa
Great. Anyway, so we’re just doing some preparing. Some preplanning, there’s no crisis mode here just some preplanning.
John
You have your 401Ks and the foremost of your educators you see them in what’s called 403Bs. There’s lots of others there for the self-employed. You have the SEPs and the SIMPLEs. Yeah, there’s lots of different types of...
Lisa
Savings vehicles.
John
Savings vehicles for employees.
Lisa
For retirement, yeah. Anyway, so this family they were telling me about they had... when one of them had retired they had taken their savings... their retirement savings that they had been saving tax preferred with their employer. They had rolled it over to a financial advisor.
John
Sure and this is very common, most folks when you retire from your company you take that 401K or that 403B or whatever. At the point where you retire you have to go do something else with that.
Lisa
You just can’t leave it there they give you your options. One of your options you can take it all out which would be...
John
A terrible idea.
Lisa
A terrible idea, you’d pay lots and lots of taxes. Most people choose to roll it over into another tax preferred type account. Like an IRA or something like that. Where a lot of folks get assistance from a financial advisor to do that. Because we’re not all experts on how and best.
John
That’s actually very common. People not knowing what it is that they’re paying for with that financial advisor.
Lisa
Well and you know, John, it comes down to one of those things that nothing is free. Nothing is free. Financial advisors they all work on different type of compensation I guess. We have some folks that work on... there are a compensated financial... there are a fee for service where you pay them to manage your funds. You know exactly what you’re paying them because you’re paying them yourself. Then there’s a lot of advisors that you don’t pay them but they may receive... they receive commissions and things like that based on the funds and the investments and all that they represent that they invest you in.
John
Those are the obvious fees out there. Even with those, those are not necessarily obvious especially when you start talking about the commission side of it, because you as the consumer don’t see it. Even in your other things, in your fee-based plans there are some other cost ratios that are a little further down into the depths.
Lisa
Yeah, the details. Anyway to make a long story short there I guess I got a copy of these folk’s financial statement from their financial advisor. We did some digging into the cost structure of the funds and John these ones rolled over about... I don’t know about $650,000 that was their entire life savings from all the savings they’ve been doing for retirement.
John
Yeah, that’s pretty steep.
Lisa
John think about that, $45,000 that’s getting a haircut off your retirement savings. Nickel and dimed at a time but over... apparently there was an initial pretty large initial commission that went to the financial advisor when the funds came in to the hands of that advisor. Then, depending on the fund cost as those... as the money was allocated into these different fund families those funds they’re like mutual funds they own a number of stocks and things. That way you’re diversified. They have all kinds of costs built into those funds as well. The account holder never really sees that because that is often deducted before the increase is added to their account. They don’t even realize that they’ve actually... they may have grossed more in their investment but they don’t see that.
John
You put in a $1,000 for example and at the end of the year you’ve got 1,100 and you think, “Well, hey look. I made money. I made 100 bucks here. Hey that’s awesome.” You never actually realize that it could have been 150.
John
You never see that. Whereas with others if you actually... if it was explained to you, if it was all upfront you would have gotten a bill that would have said, “Well you made 1,000 and...”
Lisa
Eleven hundred and fifty bucks.
John
Eleven hundred and fifty, but we’re charging you 50 bucks and so you’re...
Lisa
Yeah. You’re only 1,100.
John
You’re only getting 1,100.
Lisa
Do you think consumers would be like, “Hey why does this fund cost so much?”
John
You would think. In facts that’s the problem and it’s been a problem now long enough that they have tried to create some rules but even when they create the rules these folks are sharp. Anyway we’re going to talk about lots of IRA issues today. Not just the cost but we’re going to talk about several other things, just trying to get you a little bit of knowledge on some of this stuff. Stick around we’ll be right back. Maybe.
Lisa
Maybe. There we go.
Lisa
All right. Today we’re working on a little handicap today. The board, our radio equipment was hit by lightning. We’re a little off today. Interesting.
John
A little. We can’t make that thing be quiet apparently. Yeah, I got nothing. I’ll tell you what though this cost issue business with the financial accounts. If you don’t know how much you’re paying you need to figure that out. The numbers can be huge. In Lisa’s example we were talking about $45,000. That was only over five years.
Lisa
Yeah, that’s right.
John
Watch the show first then go.
Lisa
I haven’t had a chance to... we’ve done that analysis about the fee cost and I bet I haven’t got a chance to visit my clients about it yet.
John
See what they say.
Lisa
Yeah, but they’re going to be surprised. We’ve got about 30 more seconds and we’ll be going back live on the radio and back on topic.
John
Oof course if you have any questions for us or comments or anything, you can feel free to leave them right there. Even if you’re watching this a month later. A year later, feel free and we will see those comments and we will come back and try to answer them for you.
Lisa
As you’re driving over to Spring Lake Park.
John
That’s exactly right. On your way or as you’re getting ready there at the house, no need to eat lunch before you go there’s food out there. No need to pack something to drink there’s drinks out there.
Lisa
There’s drinks. There’s water. There’s entertainment and there are some tables set up in the shade.
John
It’s a great day so get yourself out over to Spring Lake Park. Buy a souvenir or t-shirt if you want to... I’ve...
Lisa
Like, John is modeling on Facebok Live.
John
If you’re on Facebook you can see I’ve got one of these actually... one of the volunteer t-shirts. Then, we’ve got some souvenir t-shirts, they’re blue. They’ve got a bottle of wine on the front of it and it’s got some designs and everything. In fact I thin the design was done by one of the artists that’s out there selling some art as one of the vendors out there. Anyway get yourself out there. Now we’re talking about IRA is today.
Lisa
Right. You know, John one thing IRA is of course Individual Retirement Accounts. Lots of people understand that many, many companies and lots of other retirement type employers have moved away from what I call defined benefit pension. Where you work for 20, 30, 40 years and you just get a pension check when you retire every month.
John
Yeah. Other than the government I don’t know that anybody really does that anymore.
Lisa
No, I don’t think so. Most folks are under either a 401k IRA type savings plan where they have to save a portion for their own retirement. Many of those plans employers may contribute a percent. You also save that money and you get a tax deduction for the money that you save, up to a point.
John
Yeah, I think that’s right.
Lisa
One of the big things that we’re seeing a lot with our clients right now is that folks are really reaching an age where they are required to take some of this money out of savings. John what age is that?
John
Yeah. That’s going to be at age 70 and one half.
Lisa
Yeah, and I don’t know how in the world they came up with 70 and one half, but...
John
Yeah. The whole deal is the money in the IRA... and again all an IRA is, is a bucket, it’s just a box. Inside this box, some folks will have their IRA money invested in CDS, some of them will have it invested in different things but it’s just a box. That box the money in that box is growing. It’s earning interest or dividends or getting more valuable because of the...
Lisa
Equity.
John
It’s not getting taxed.
Lisa
You know what the taxman likes done?
John
The taxman likes people to pay taxes.
Lisa
Yes.
John
The IRS says well you know what nobody has been paying taxes on this and you’re getting old. You need to start paying some taxes. They’ve decided that at 70 and a half it’s time to start paying some taxes on this money.
Lisa
The IRS forces you to take out some of the savings and go ahead and pay some taxes.
Lisa
Beautiful.
John
All right, yeah. We’re still going live. We’ve got a news break here. Usually about five minutes.
Lisa
Everybody gets frustrated when they realize they have to take money out of that... of those accounts.
John
Well, some people are using it actively to... I mean some people even long before they turn 70 and a half that’s their living money and so they’re pulling money off of it every month to cover their basic living expenses. They’re often pulling more out than their RMD, their Required Minimum Distribution already. For some folks who are perfectly comfortable in the amount of income that they have being forced to take additional income can sting a little bit.
John
Or of course if you’re watching this on Facebook you can always reach out to us by sending us a direct message through Facebook or going on our personal website which is www.rossandshoalmire.com. Of course if you’re on Facebook you can figure out how to spell Shoalmire. We get inquiries all the time through both the Aging Insight website, which is just aginginsight.com and through the Ross and Shoalmire website where people are looking for additional information.
Lisa
I’m looking forward to going back out to the Wine festival and maybe sampling some wine.
Lisa
Right. You do need a little bit of cash if you come out to the Wine Festival.
Lisa
Well, welcome back everyone to Aging Insight. This is, Lisa Shoalmire I am here in the studio with John Ross and normally it is a live call in program. While John and I are here live we feel all alone, John.
John
We do feel all alone. Our favorite callers are not able to call in not today because Mother Nature has attached in the last week and shut out systems down so we cannot take phone calls today. That little intro that said to give us a call. it was a lie.
Lisa
Yeah, not today.
John
It was a lie today. You can get on the Facebook page Ross and Shoalmire Facebook page. Which is just facebook.com/rossandshoalmire. You can get on there and check us out live if you want to watch us and you can see me in my Twice as Fine wine festival t-shirt that I’ll be wearing all day as a volunteer for the Alzheimer’s Alliance out there at the Twice as Fine Wine Festival. Where you will all be in about 25 minutes.
Lisa
Yes, we hope so.
John
As soon as you get done listening to this radio program.
Lisa
John there were a couple of interesting things out there that I hadn’t seen... that we haven’t had in the years past. One of those things was their... one of the vendors was doing.... They were doing snow-cones and I know you’re thinking well what’s the big deal about snow-cones. Well, they had kid snow-cones where they had flavors like strawberry and green apple and everything. They also had adult snow-cones.
John
Yes. Some wine snow-cones. I think I might have to try that.
Lisa
I think I might have to try that.
John
Sure, why not.
Lisa
It’s a warm day. It could be refreshing, but they had some wine snow-cones it sounds like something different.
John
Lots of stuff out there. I think I am going to load up on some of that pimento cheese from …
Lisa
Oh yeah, they also had the homemade spicy pimento cheese.
John
Yeah, that looked pretty good. Anyway we’ll see you all out there. All right so we’re talking about IRAs today. In large part just because we’ve had several people in the last week or so asking us questions about it. During the break we were talking to our Facebook Live viewers. A lot of times people when they get to 70 and a half and are told that they have to take some money out of that IRA they’re a little frustrated about that.
Lisa
Because they’ve been so diligent with saving and they’ve been so diligent about not touching their IRA. If they’re the kind that has not yet touched their IRA that they’re not living off of it but yet they get that letter from their IRA custodian that says, “Hey, you’re 70 and a half now we’ve calculated that next year you’re going to have to take a minute on distribution and here’s what it is.”
John
That’s right especially for the folks that maybe even are still working or that if they have enough other income coming in. Maybe they got a bunch of rental real estate that’s generating their living income. Or maybe they did actually have a pension from a job or federal retirees that have a pretty good pension or something like that. They just have the... that money has been saved but they just don’t need it.
Lisa
What a problem to have. You just don’t need some money. What you don’t need is paying more taxes, that’s what most people certainly don’t need.
John
I don’t need that.
Lisa
That requirement of distribution, John. There’s a lot of confusion about how it’s actually calculated. The law requires that the custodian of your IRA funds and if you have multiple IRAs with multiple custodians. Like maybe you have at Fidelity and maybe you have one through a local bank. Maybe you had one with the former employer.
John
Just because they’re required to do it, it doesn’t mean they’re required to do it right. I guess they are required to do it right but that doesn’t mean they accomplish that goal. It is a good idea generally speaking for you as an IRA beneficiary to double-check. When you get that letter that says, “Here’s how much you’re going to have to take out this year. The first thing to do is to double-check those numbers.”
Lisa
The IRS has helpfully provided a bulleting or a publication to help you check those numbers. The IRA publication 590-B.
John
Dash bravo.
Lisa
They don’t make it easy. Publication 590-B as in bravo and then you have to go to appendix B as in bravo.
John
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