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The Purpose of your IRA

Finishing Well / Hans Scheil
The Truth Network Radio
July 11, 2020 8:30 am

The Purpose of your IRA

Finishing Well / Hans Scheil

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July 11, 2020 8:30 am

The purpose of your IRA should be to create retirement income. For many, they view it as a vehicle to leave an inheritance to their children. Hans goes over why this might not be a good idea and examples of what you could do instead! 


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Welcome to finishing well brought to you by Cardinal guy, certified financial planner belonged to child best-selling author and financial planner helping families finish well over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes.

Now let's get started. Finishing well. Oh, what a show we have for you today well find financial planner child today show's title is the purpose of your IRA and if you expect me to give the answer that I think will hopefully give us his help you work through how you can determine what your purposes because there is no one easy answer for that is that Hans I ask a lot of people that question, but I usually get is. That's why I came to you and I don't know but let me go ahead and answer that for some people immediately. For a lot of people they don't need their IRA money, at least not now. If we take somebody who's in their 60s.

That's either anticipating retirement or there in retirement and or an early retirement that there can answer that the purpose of my IRA is to not pay taxes or something.

I mean it just they don't really have a purpose now for other people.

The purpose of that IRA is that's the bulk of the money gets to supplement their board to be there retirement income and the things we gotta take what are limited resources in my job and we got up from that, we gotta create an income for them that they can't live longer than that, you know than the money last sentence was so for some people it's very simple that the answer to the question is, my IRA is to provide retirement income for me and we need to get a lot more specific about that. There's a lot of problems that come out of that. We talked about that on previous shows and opportunities all problems or opportunities will really talk about today is when somebody says the purpose of my IRA is to leave my kids that's can be my kids in here. That's why don't withdrawing money from client and I would suggest distal end of this discussion that now pay what was God's purpose for your IRA, why, why did Vicki. He blessed you with. You know the income with all those things you know, how would he like to share in the in the decision-making process which obviously has a lot to do with prayer. But it's a fascinating thing to me that one of the most popular things I ever had have done in Christian was I Rothe a prayer for God. How would you like me to use my car as actually really really helpful apparently because the a lot of people out actually more than almost any other post that I have go there for that very thing. I got a how do you want me to use my IRA or I mean God how you want me to use my car that's that's from a Christian course testing appointment as I'm thinking you know that it's a wonderful opportunity to engage what I would call your superpowers because you know that the Jews have long taught that you have this intellect and you have speech and above speeches desire and above that desire is pleasure and and so is you really desire something if you really desire God then your intellect begins to work on how you can get closer to her, which is collegiate to the Bible and then that's what the Jews of have taught for years and if you get a lot of pleasure out of that then you're gonna go there so what were asking to do today is the kind of let's use our all of us use our superpowers and say hey you know we really like to see what this might look like and and you know for me personally.

I know that one of my biggest pleasures is to watch my kids engage the kingdom of God. I do have one daughter.

She likes to go on mission trips and I have another daughter who is a nurse and and and so how cool would it be for me is that you know if I had IRA which no I don't but mean is, I'm beginning to think about what I want to leave is an inheritance, you know, as I begin to think of this, you know, my desire will drive my intellect to begin to get me which is probably why you're listening to the show today is is your desire is wow I really wanted finish well. I really want to do this the way that God wants to do it and and so that will lead you to prayer. And interestingly, it always seems to lead you to the resources you need in order to you know meet that which is in line with what God desired for that as well. So when it comes to IRAs and IRA money first. Well, for a lot of our listeners if they have another which most of them do or a 401(k) or something in a tax qualified account that may be a substantial portion probably is a substantial portion of the financial assets that they so in other words, if they didn't have this IRA.

They probably wouldn't have a lot of money to their name. They have some money that they had in savings. But this is been many cases done for them and with them by payroll deduction for many, many, many years and then they become amateur investors were people are investing the money that's inside it are your you get the investment decisions are they hired a professional to help them with or they're just doing it on their own. But the point of all this.

What I've been going over is a lot of what comes with that is just a lot of responsibility and a lot of fear and a lot of guilt. Young people are focused on the bad things so what were going to focus on today and what I do as a financial planner is his word a sitdown with this money and were to take stock of the go say what's it for, and you get to answer that question. I'm not. I'm not can answer that question I meant to tell you how to pay little lots medium amount of taxes, and assure you the way to create a cash flow from it. So if you need that to live a ministry again how to minimize taxes on that, to show you how to get a beneficiary filled out properly so that if you die you leave it to the right people and mom and advise them on the taxes so I can do all kinds of things. Practically speaking, I can even help you put together the plan, but I can't determine what the purpose of for you and what we wanted to talk about on the show today is people that I run into with a specific purpose for and that specific purposes. They haven't touched it all along. I've never taken a nickel out of their IRA, or maybe they just one time took a little bit. For one thing, and it was so painful to pay the taxes that they but these are people that are just left the money in there and you can do that until you're now 72 years old used to be 70 1/2.

You can now wait to your 72 to take a timeout and a lot of folks haven't done that because they don't want to pay taxes and so they just pretty much so this can be my kids and their that's, you know, since it's a warning to talk about today is and when you give some examples of some people that say I got that money at their word could be that I'm gonna take some of that out.

But what's left is going to go to my kids or working to just leave it there and when the these folks come up on minimum distributions.

Civil disruption in their plan because now they find out that the government mandates when you're 72 now thanks to the secure act they change that from 70 1/2 when you're 72. You gotta take a minimum amount each year, and is not a simple formula, but peeped up is simple to people like me, but it's not simple to some.

It's a town reached Mistakes are costly in the thing I'm noted is that what people who really plan to leave the money in there and then leave it to their kids when they die they get the get somewhat testy about about like the you know they're having to draw out and they're having to pay taxes and in the know what to do with now and had a client that actually that was their situation like no you know wow once I do this and you needed a great job explaining it to me at that with Andrew Jackson involved. I think that's really helpful if you would share that would listen well and that's what were going to do and were working to get into the for the rest of the show that were pretty much talk about these people and so the Mr. is got $500,000 in his IRA and the Mrs. has $500,000 in her IRA and I wasn't exactly those amounts.

Together, they added up to a million bucks or thereabouts. And by the way, before the stock market crash that was about 1.2 million.

Okay, so they lost in their IRAs about $200,000 in these people blessed very much the get the money to lose and they've never taken a dime out of their IRAs and the Mr. 72 Mrs. 70 and last year was his first year minimum distributions and so we had to take it out and then he ran into me there already clients on some other products and we started talking about a way that we could give the million bucks he could give the million bucks to his kids tax-free as opposed to handing them over the IRA when the second one of them dies where the kids are. It's like inheriting money with a lien on you knowing it is simple parallel that all draws when you pull money out of an IRA. If you're in a reasonably high income tax bracket. The others 520s in $100 bill and so if you got $100 in the IRA that you taken out and you taken out as 520s you get to keep three the 20s into the 20s go to the federal and state governments in income taxes so you really have $0.60 on the dollar in there and that's under the best of circumstances is when these two people pass away, and went on our tax rates are going to be. Let's just assume there somewhat similar to what they are now. It'll be at the kids tax-free.

In both of his kids. Adult kids do very well and you know when there's kids are 5060 years old and there inheriting this money and they each get $500,000 coming out of that IRA.

That's assuming it's still the same amount per million box there and have to pay 200,000 that taxes just to get at the 300,000 that they could spend. Once I explained all this to him. He one very happy about, we know we like to see and relieved when Nick walked off on it so actually I think every shot and how cool the plan will be.

Let there be more entries for everybody when we come back, but again, you know, getting back to.

Let's look at what God's purposes and then and and figure out how we can maximize the leverage for the kingdom of God. So all the stuff is we always tell you it is all Derek Cardinal guy, don't forget the Cardinal and you put a guy in the seven words Today were talking about. Obviously, IRAs and we get on the plane, living in a common law, there is a man moron. Hans and I would love to take our show on the road to your church and Sunday school Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging harms expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care.

Just go to Cardinal and contact Tom to schedule a live recording of finishing well at your church Christian or civic group. Contact Tom to Cardinal that's Cardinal welcome back to finishing well, a certified financial planner Hans Violet has always brought you by Cardinal guide Cardinal for those of you wondering how to access more information along these lines today show.

We talk about the purpose of IRAs and very specifically to help you.

You kinda determine for you in your own mind you know what is the purpose of the what what you feel like God's purpose for this IRA money is and what would be the best use of it, not to leverage the kingdom which and a lot of it is for the joy of us right God gave us children and it is certainly my prayer that my children and I would be bringing the gospel, you know, in their generation and and for them to have the financial resources to two focus on that and I'll never forget the story of you not in the movie. I can only imagine kind of think of the name you know Mercy me star singer.

I can't write his name but his father left him his life insurance policy so he could pursue his singing career as as as a musical artist will think about that that father's life insurance policy was in. As I recall some around hundred thousand dollars. It literally how many people's lives were changed as a result of that one life insurance policy and how cool would it be know that God would give you such a purpose for your IRA money or or something else is is your planning for the next generation.

Well, it was pretty much universal with these people.

The purpose is not to pay taxes as little as taxes as possible. And that's the thing when they really sit down with me and we start looking at go pay the piper in this you can either.

Now you can pay it little bits your kids are given. When the beneficiary or spouse immediate summaries when they pull money out of that IRA and pay taxes on the one used so back to the guy we're talking about so I don't I don't want anybody to get scared off by the numbers here so we get 500,000 in the Mr.'s IRA in 500,000 in the Mrs. IRA we get a million box and they've never taken any withdrawals in these people are blessed they saved well. They have pension, Social Security, and they don't live lavishly coming they have they have a lot of nice things in the travel and spend time with their grandkids and their homes paid for and they got a bunch of savings that they have invested that they pretty much live off of that and they've never meeting withdrawals and so he's just now is kind of in his own mind. Not sure if he's told his two daughters this but that million box is just there for them and is critical. He has long-term care insurance as well. So there isn't the way that also not allowing you to surprise your need resources like that.

So he's got his his bases covered.

These guys base covered if you didn't have long-term care we would've written add into this scenario and it would've been pretty easy to do with the numbers that were talking about. I just want to make it clear that if if if we got somebody out there were there's 100,000 in the Mr.'s IRA and 100,000 in the Mrs. IRA and we don't need to make withdrawals from the money other than the minimum distributions you could just take all these numbers I'm going over today if and multiply by 20% and so you know I just happen to have all these in my head because I just worked on this case and because her nice round numbers, it makes little easier to understand things so what we did is his minimum distribution to see 72 is right at 20 that's what it was last year and her minimum distribution in two years or maybe a year and 1/2 sure where she is in the year is going to be $20,000 between the two of them there to have about $40,000 minimum distribution in that amount or percentage grows a little bit each year but it didn't grow real fast. It stays around less than 4% against the 4% a little over 4%. Also in your 80. So let's just use 4% is just Canada simple number that they through their 70s going to be at about about 20 grand. Each of withdrawals.

Assuming that the that the IRA doesn't go up or down by significant amount. So he's just looking at take out 40 grand a year out of both IRAs. Almost like Robin from his kids, you know Robin from their inheritance is done really needed. He didn't want to spend it and then you know his tax rates are going to be a little higher than 40%, but But she is 40% to keep the math simple. So they withdraw that 40 grand they pay 16,000 in taxes and that leaves him with 24 g K and that just happens to be the premium for life for a million-dollar survivorship are second to die policy so with the most competitive huge company like a hand I policy opulence as transcendentalism, Mike and state government so that means that when the first person passes away.

It isn't that when the second person of the of the married couple when they died.

Then the named beneficiaries would then get the 50 million box right half-million each, so he pays off when the second person dies, so it's obviously less expensive to ensure two people paying off at the second death.

And there's one person and then the second thing is is we can withstand a few health conditions because the insurance company. They're doing their underwriting or their deciding whether to issue the policy and at what rate they can can average the two people so you got a premium of $24,000 a year and that's for life. Now you have paid is $24,000 as long as one of them is alive. So if one of these two people live 230 and pay a lot of money over 30 years. Specific her is still not can add up to the million box okay so when you start really looking at the stuff and run the numbers on the all of a sudden said that this makes sense and a huge gigantic first benefits that need jump out at his the kids get $1 million tax-free and get $1 million for the got a hand back over Jackson's it's exactly right. And that's one of the main reasons were doing. It is are you going to get life insurance benefits to beneficiaries are tax-free and then there's is another huge benefit on me. Not that we anybody wants is to happen, but no heaven forbid, they both get parole in an email they're gone in three weeks now, but there's still the million dollar sit in the IRA so that you have and they also get the life insurance right or if it happens 10 years from now, there are still many of the IRA and they get the life insurance tax-free.

So now to pay the taxes on the million dollars.

Let's keep in mind this is really only for people that don't need to spend their IRA during their lifetime. Okay, but there may be a lot of you out there, so I'm just going over and working every IRA session working to go over some of the other strategies when people do need the money and we have done in the past but working to just this is for people, a married couple were we put both IRAs together. We don't mix them actually is the accounts but for tax purposes, and distribution purposes.

We do, and for these people is million dollars of second to die survivorship life insurance and guaranteed premium premiums can never go up $24,000 a year for for life have to pay the premiums for Wanless 220 S.'s you know, he started to get a little concerned as I made them concerned.

I said you know what concerns me about this whole thing is we go along. You die in your 80s.

You died 82 and now his wife continues living and then she goes up in her 80s and she gets into her 90s and somewhere along the line the kids start helping her with her money as a get a CPA involving get some trust department at the bank and some research. What's is $24,000 life insurance premium went. What's the deal here in an and there's a danger. She just forgets to pay it. We have a lot of older people. I mean, just there's all kinds of things they can go on. I would have some concern writing the policy like that that the policy might lapse 15, 20 years from now and then the kids never get their inheritance can stranger things have happened. So what I propose to him, let's go with the 10K plan so that doubled the premium premium for those again. I don't know the 10K plan is a template I show you what I've learned yeah yeah template attend a plan is that when you rather than continue make premiums forever. When you set the plan you can pave panic for 10 years and the policy is paid up. It's done nothing technically, it's exactly right. And we got illustrations made that from the insurance company that is guaranteed aesthetics of the premium went from 24,000 a year to $48,000 a year. I'm using round numbers here but then they only have to pay premiums for 10 years and then it will be paid up at and so here we get into another thing that you teach that a lot of CPAs don't teach is like all we can take more money out of your IRA than the 24,000 we could 1048 hour of the 40 was there was with her minimum skin to be about if the balance stays the same. So we've taken the minimum, the distribution is not a minimum distribution.

We've turned the distribution of up to 80 grand a year just how much they got a withdraw to net 48 figure pay 32 in taxes and then the $48,000 premium is going to go to the insurance company is an annual premium that's gonna happen for 10 years and then the IRAs can be about out of money. We invested the IRA and some more conservative stuff so that they know house and have another crash and then they don't have the money to pay the premium to withdraw so you know what were doing is were draining the IRA over 10 years paying the taxes using the net amount to pay the premium on a life insurance policy that can pay a death benefit to their kids when the second one of them passes away, it completely avoids the estate. The kids are just name to keep the lawyers out of it and assist writers a check made out probate now method and we merit it comes in its tax-free and even if there is a bunch of money left to marry when they get it they can use that much about life insurance money to help pay the taxes on the rights and then we just use the contingent beneficiary make the grandchildren.

The ultimate beneficiaries of one of the kids predeceases the second one of them to die.

Okay, say mom was 201 of the daughters could pass away before mom does. Then again, it's all through beneficiary will just go to those grandchildren today tax-free. So there you go. I mean, there is one purpose for an IRA today on finishing well and again that there is we do more shows will talk about more different purposes and more different things you could do if you need long-term care insurance to go along with this other purpose. All those things are available at the seminary stab at Cardinal guy.

Don't forget the Cardinal to go with again to just email Hans child there at the website and he will be happy to send out his book the complete Cardinal guide to planning for and living in retirement. Thanks consulate awesome. Thank you. We hope you enjoyed finishing well brought you by Cardinal visit Cardinal for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care and life insurance, investments and taxes as well as constant best-selling book, the complete Cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows when you get Hans book go to Cardinal if you have a question, comment or suggestion for future shows.

Click on the finishing well radio show on the website and send us a word. Once again that's Cardinal Cardinal

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