Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Published On
December 17, 2019

Joe and Big Al answer questions about coordinating Social Security benefits with Roth contributions and required minimum distributions, weighing the Social Security restricted application against survivor benefits, the Windfall Elimination Provision for teachers, whether to take RMDs from a brokerage IRA or an annuity – and of course, Joe will explain why he thinks that annuity is a terrible idea – and the fellas get into how to split an inherited annuity four ways and how to split a house eight ways!

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Show Notes

  • (01:09) Social Security, Roth Contributions and RMDs
  • (09:00) Social Security Restricted Application vs. Survivor Benefits
  • (14:59) My Wife is Subject to the Windfall Elimination Provision. Should I Claim Social Security Early?
  • (22:22) Should I Take RMDs from a Brokerage IRA or Annuity?
  • (29:39) How To Split an Inherited Annuity IRA Four Ways for Tax Efficiency?
  • (35:47) Can Mom Do a Primary Residence Transfer on Death for 8 Beneficiaries?

Resources mentioned in this episode:


Sign up for a Retirement Class:

Download the Social Security Handbook:

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Today’s episode of Your Money, Your Wealth® is all about strategizing. Joe and Big Al answer questions about coordinating Social Security benefits with Roth contributions and required minimum distributions, weighing the Social Security restricted application against survivor benefits, the Windfall Elimination provision for teachers, whether to take RMDs from a brokerage IRA or an annuity – and of course, Joe will explain why that annuity is a terrible idea – and the fellas will also get into how to split an inherited annuity four ways and how to split a house eight ways! I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

01:09 – Social Security, Roth Contributions and RMDs

Joe: You got a question. That’s what we do all day now.

Al: Yeah it is. It’s all that we do.

Joe: That’s it.

Al: It seems.

Joe: We try to get them all-  grind it out here.

Andi: I think you guys are popular now.

Joe: We could be.

Al: Except there- we still only have 20 listeners because they’re the same people over and over.

Joe: I know. I feel bad for you. So here are 15 questions.

Al: I know you guys are struggling.

Andi: We do have that actually from James I think. He sent in about 50 questions for you guys to answer.

Joe: We got Peter and Suzi from San Diego. “Hi, Joe and Al.” Huh. No Andi. “It’s been a few years since my wife and I graduated from the seminar series you presented at USD.” I don’t think Al was anywhere near USD a few years ago, Peter and Suzi.

Al: I taught one course at USD. With you.

Joe: I remember that. That was an afternoon course and the guy fell asleep-

Al: He fell asleep when you were talking. He perked up when I talked.

Joe: Remember you were talking about oil and gas?

Al: Oh he loved that.

Joe: He did love that.

Al: You were talking about Roth conversions. Snores-ville.

Joe: Oh my God.

Al: He was in the front row too.

Joe: We both know who that was.

Al: Yep we do.

Joe: “I’ve been putting my degree to good use converting traditional IRA funds to my Roth as tax amount allows.” All right good for you. Apparently that’s all we teach too.

Al: Apparently. I try to talk about something else.

Andi: You said it makes the biggest difference.

Al: It can.

Joe: It can. In some circumstances. “I just turned 69 last month and will be retiring in July 1st, 2021 when I’m 70. Which I’ll be, which I’ll be turning the previous year. I’ve had some questions that aren’t clearly spelled out in any of the information” that he can find online. All right let’s kind of see what he’s got here. “During all of 2020 I’ll be working full time and presumably I should start collecting Social Security in October 2020 when I turned 70.” Yes, you would want to collect Social Security as-

Al: At age 70. There’s no down downside of collecting it then. In fact, there’s only a negative because if you wait you don’t get that money.

Joe: Nope, you’re losing out. “Am I still allowed to make a full Roth contribution for 2020?” Yes, as long as you have earned income in 2020. There is no age limitation for ROTH IRAs. It’s only traditional IRAs.

Al: You just need to have earned income and the earned income that you would have from the beginning of the year which would be sufficient.

Joe: Yeah. We don’t know how much he’s making but if you’re making under $193,000 as a married couple-

Andi: If you keep reading on, he tells you how much he’s gonna make.

Joe: Oh sorry. “Will I get a full Social Security payment for October 2020? Or partial? I should be getting about $3000 a month Social Security. Does working full time affect the Social Security amount? I make about $140,000 a year.” So now you answered my question, so you’re good Roth IRA contributions. Yes, check the box. “Will I get a full Social Security payment in October 2020 or partial? Well when’s your birthday? October what? It doesn’t say. Yes, you would get a full benefit for October.

Al: I think a lot of people, they hear stuff about if you make a certain amount of income like over $17,000. You don’t get to keep all your Social Security. That’s only when you’re under full retirement age which right now is age 66. So at age 70 it doesn’t really matter what you make. You’ll get your full Social Security.

Joe: So you’re good. You can make $140,000 that year, you’re over full retirement age collect at 70. It doesn’t matter how much you make you’re going to receive your full benefit. “2021 when I’m 70, I’ll get a half year full pay 6-month pension, about $7000 a month and 12 months Social Security. Does working 6 months in 2021 affect Social Security i.e. if the 6 months total is more than the lowest of the 35 years, will 2021 count instead?” The answer is yes, that would increase your benefit the following year. Absolutely will.

Al: Correct.

Joe: So if you’re making $140,000 a year, you work 6 months, or if you wanted to continue to work the full year? Yes, your Social Security would increase the following year because they take the highest 35 years. So that year if it was higher than any other year that would replace that year. So it’s only going to benefit you cash-flow-wise if you continue to work. “Am I still allowed to make a full Roth IRA contribution in 2021?” I’ve already answered that, yes. “Will I need to make an RMD during 2021? The transition to retirement certainly has a few financial considerations. Thank you very much. You guys are very entertaining. We listen to your YouTube presentations.” So I kind of wanted to answer that as I went there because there’s about 15,000 that Peter’s asking us.

Andi: So he asked if he can make a full Roth contribution for 2020 and then he asked if he can make a full Roth contribution for 2021. Because there are two different situations in his mind.

Joe: In 2020 he’s working. He’s got income. He makes $140,000 a year. As long as he is earning income you can make a full Roth IRA contribution.

Al: Yeah as long as the total income is less than $193,000.

Joe: If you have earned income in 2021 you can make a full Roth IRA contribution in 2021.

Al: Even though it’s a half year. That’s plenty of income. You have to just make over $7000, which is the current amount for a Roth contribution if you’re 50 and older.

Joe: “So will I need to make an RMD during 2021?” You turned 70 and a half in 2021. So you would have to take an RMD that year or the following year in 2022. So you could pick 2021 or 2022. If you take it in 2022 you would just have to take 2 of them.

Al: Which may work out better.

Joe: Because he’s working 6 months in 2021.

Al: On the other hand he’s got a lot of pension income. So maybe it doesn’t really matter that much. I don’t know. But I got to do the math. But you can either take one in 2021 and one in 2022 and so on or you can take 2 of them in 2022. That’s fine. You just going to have more income more required minimum distribution income in that year. And I think Joe, to me it really depends upon what your income looks like in the year you turn 70 and a half versus the following year. As to whether you want to do one and one or do none and then two in the following year. Because what you’re trying to do is stay out of higher tax brackets. That’s really what it comes down to.

Joe: What Peter was referring to, Peter and Suzi, we teach adult education classes all over Southern California. We teach them in Los Angeles, Irvine, Brea, San Diego, all over San Diego. So if you want to attend one of the classes as Peter and Suzi did, and apparently they got some stuff, some didn’t stick.

Andi: They learned Roth conversions.

Al: We apparently talked about it.

Joe: Apparently. But the whole Social Security, we must have only spent about 30 seconds on that.

Al: It wasn’t clear. Or maybe that was the class. Let’s talk about oil and gas.

If you live in Southern California and would like to get more of the tools and confidence you need to make informed decisions about retirement, like Peter and Suzi did, sign up for one of Pure Financial Advisors’ two-day retirement classes in San Diego or Orange County. Get the information you need to help you plan for the retirement you’ve always dreamed of. Learn about your retirement needs and expenses, investments and sources of retirement income, risk management, asset protection, estate planning – and Social Security and Roth conversions. For dates, times and locations, visit YourMoneyYourWealth.com and click “Retirement Classes”.

09:00 – Social Security Restricted Application vs. Survivor Benefits

Joe: Hey which one are we doing here? John from Tucson Arizona?

Al: Yes sir.

Joe: All right. Johnny from Tuckson, Arizona. Ever been to Tucson, Big Al?

Al: I don’t think so.

Joe: Really?

Al: Yeah I’ve been to Phoenix and out West a little- out East a little- but I don’t think I’ve been to Tucson.

Joe: That’s where Dave Clark, he lives in Tucson.

Al: I know.

Joe: I have family that lives in Tucson.

Al: I know you do.

Joe: I’ve been to Tucson many, many times. Love Tucson.

Al: We have a question from Dave in Arizona. I wonder if it is Dave Clark. We’ll get there.

Joe: “So when am I up for my review?”

Al: “Am I going to get a raise? What’s the cost of living this year?”

Joe: “Dear Joe and Al. Great, great show and info.” All right. Thank you. “My question is about a restricted application and dying before 70.” Jeez, John.

Al: Got serious stuff-

Joe: Wow. Wooo. “My wife is 66 and I’m 70. She started a restricted application September of 2019. So just a few months ago she is receiving 50% of my full retirement amount. If I were to die before she reached age 70, could she then stop the restricted application and apply for widow survivor benefit until she reaches 70 and then apply for her own age 70 benefit which would be a much larger amount?” OK there’s a little backstory I guess behind all of this.

Al: There is.

Joe: Maybe we can help our listeners. Do you want me to take a stab or do you want to go for it?

Al: Yeah you’re good at this one.

Joe: So restricted application. So what a restricted application is, is that John’s wife could either take her benefit or a spousal benefit. Usually- the law changed and I could get into the recent law change but because of their age, they were grandfathered in for this type of claiming strategy. So John is collecting his benefit. His wife says I don’t want to take my own benefit. I want mine to continue to grow. Because if you let your own benefit grow from your full retirement age to age 70 you’ll get an 8% delayed retirement credit.

Andi: Each year.

Joe: Each year. So it’s a pretty big deal if you can let it grow. But the problem is that people like John are morbid. They’re like what if I die? So what happens if I die and I delayed it and all of this other stuff? What happens? But I think John’s a very loving person because he cares about his wife and wants to make sure that she’s going to maximize the benefit.

Al: So he’s concerned about the next 4 years because he’s thinking what if she is not 70 when I pass away?

Joe: Correct. So what happens- so what John’s wife is doing, she filed a restricted application that allows her not to claim her own benefit but to claim the spousal. So she is claiming half of John’s benefit, his full retirement age benefit.

Al: Which by the way is probably different than what he’s currently receiving. Depending upon when he started taking the-

Joe: Yes. I don’t know when-

Al: Like let’s just say he started taking it at age 70. She doesn’t get half of his age 70 benefit, she gets half of his benefit at what it would have been at age 66.

Joe: Correct. And if she claimed the spousal benefit at age 62 she would receive actually not 50%-

Al: Even less, right, correct.

Joe: So she’s claiming that and then so John’s saying how would about if I die?

Al: And the next 4 years.

Joe: I get hit by a bus. Struck by lightning playing golf. And then all of a sudden what happens to my wife’s benefit? Can she then say I want to claim the survivor benefit? So we’re getting all three benefits in that question.

Al: That’s pretty good.

Joe: So what a survivor benefit is, is that she then would go to John’s benefit. So she could claim John’s benefit depending on what John’s benefit was. So she took that- Let’s see John’s benefit is $2000. So she is claiming the spousal benefit today. She’s getting $1000 dollars. Let’s assume her full retirement age benefit is $2000 as well. John decided to claim his benefit at full retirement age. Take the $2000. John’s wife said I’m going to let mine continue to grow 8% per year. I want to claim mine at age 70. So $2000 is going to be worth $2600, something like that a month. So she’s like I want the $2600. But in the meantime, I’m going to claim the spousal benefit. I’m going to claim $1000 off of John’s record. So now John’s claim in his $2000. She’s got $1000. They’re living the happy life. Living $3000. John gets struck by lightning. He passes away. Now what the hell happens? Is what the question is. OK so what happens is, she mourns John, because she’s sad, you died. Then she calls Big Al. And says what do I do? She can claim to the widower’s benefit. Widow’s benefit. Survivor benefits. So now she’s gonna get $2000 because your benefit was $2000. So now her benefit is going to still continue to accrue when she turns 70. Then she would flip hers on. Then get the $2600.

Al: If in fact it’s greater. You’ve kind of made this long drawn out. The answer is, very simply, Yes. She can immediately switch to the survivor’s benefit if that’s a greater benefit.

Joe: I just wanted to help the listeners to paint the picture of how complicated this stuff can be.

Al: You kinda kept going in circles there for a while.

Joe: I was not.

Al: It sounded like it to me. So the answer is yes, she can claim survivors benefit immediately. That’s the answer.

Joe: Got it.

14:59 – My Wife is Subject to the Windfall Elimination Provision. Should I Claim Social Security Early?

Joe: Let’s go to Mark from Illinois. “Hello.” Hello Mark. “I always enjoy the shows. My question revolves around Windfall Elimination Provision as applied to a public school teacher in Illinois.” It’s his wife, Al, just in case you’re keeping score.

Al: Got it.

Joe: “Currently drawing her $4000 a month pension that also is eligible for Social Security from a previous job. Should a high earning spouse, me, draw early Social Security at 62 versus drawing down $1,500,000 401(k) IRA to put off Social Security till full retirement age? Given that the teacher’s spouse cannot draw against spouse’s Social Security in the 401(k) IRA acts as an insurance policy. Assume both of us are retired at 60, no debts, no kids. Not planning a move, plus a $50,000 cash balance retirement plan will also join the mix at age 60. Thanks for your thoughts.”

Andi: $500,000.

Joe: What’d I say?

Andi: $50,000.

Joe: Sorry Mark, didn’t mean to short change you there. $500,000 Al.

Al: OK.

Joe: So, I get his thought process here. So he’s like the wife’s got $4000 bucks. That’s good. Should he claim Social Security at 62? Versus taking dollars from the retirement account? What do you think?

Al: Well he says should a high earning spouse, me, draw early? I guess in a later sentence he says they’re retiring at age 60. Because when I first saw that I thought he was working at age 62 and then you would not because you would make too much because of the income limitation.

Joe: But he’s saying that because he’s looking at the Windfall Elimination Provision of a claiming strategy saying “given that teacher’s spouse cannot draw against spouse’s Social Security.” Well her pension is $4000. So is he saying if he dies, the $1,500,000 is going to be the insurance policy? Or if she dies there’s no spousal benefit? But I don’t know what she claimed as a pension benefit. Is there a survivor benefit on the pension? So she could say 100% survivor so $4000 a month for me and then if I die then Mark gets $4000? But it also sounds I’m a high wage earner I have a higher benefit even at 62 to my benefit is going to be pretty good. So maybe I supplement my income at 62 to live off of. So I don’t have to touch the retirement accounts and if I were to pass away or the spouse passes away we still have a larger nest egg because the drawdown was a lot less in those earlier years.

Al: Right. So that’s a great question.

Joe: I don’t think it matters about the Windfall Elimination Provision. I think he just wants to claim early just because he likes to see the balance of his retirement accounts like every other American that claims Social Security earlier. And so with schoolteachers they don’t go into Social Security, they go into CALSTRS or in his situation TRS, Teachers Retirement System.

Al: Right. And when you’re a teacher even though you had another job where you could get Social Security benefits there’s something called a Windfall Elimination Provision that basically eliminates a lot of the Social Security benefit because the government doesn’t really want you to double-dip.

Joe: So his question was like my Social Security benefit’s going to be fairly sizable maybe I’m maxed out.

Al: Because I made a good high income.

Joe: And then in the question we had with John, he was talking about survivor benefits, spousal benefits and things like that. Well if you have a spouse that’s a school teacher that didn’t put a lot of money into the Social Security system they put into another pension plan. They don’t qualify for any of those types of benefits.

Al: Not even the survivor.

Joe: So he’s saying man if I waited to get my Social Security and have this big plan and if I die my wife’s not really going to receive a lot of benefit from it so maybe I’ll just take it as soon as I can get it. So if I died this big nest egg is going gonna take care of her.

Al: And I think usually when we talk about husband or wife we want the person with the highest benefit to wait as long as they can. So the survivor gets the higher of the 2 benefits. But in this case the survivor if it’s her wouldn’t necessarily get his benefit because of this Windfall Elimination Provision. So I would say in this particular case you almost think about it as if you’re single, wouldn’t you? Because if Mark felt like he had a long life expectancy you’d probably wait till 70 and if he didn’t you might take it earlier.

Joe: But the $4000 dollar pension is more than probably what his survivor benefit is going to be anyway.

Al: Could be.

Joe: So it doesn’t matter. In my opinion.

Al: Plus he’s got a lot of other assets and we don’t know what he’s spending. So it’s kind of hard to answer.

Joe: So the wife is going gonna have about $50,000 income coming in. He’s got his Social Security. I would push it out. I’d wait. Because longevity risk is probably a bigger risk than protecting your surviving spouse when she’s already got a fat pension.

Al: Agreed. And that’s what we normally say push it out as long as you can unless you have health issues or impaired life expectancy. That’s what I’m saying, if he were single you would push it out till 70 just because the longevity risk unless you had a pretty good sense you were not going to live that long then you’d take it earlier.

Joe: But what do most people do?

Al: They take it as early as they can.

Joe: And why do they do that?

Al: Because they don’t want to use their retirement accounts.

Joe: They like to look at that balance-

Al: They like to see that statement balance that keeps growing instead of coming down.

Joe: It’s like I don’t want to draw on that. The good savers are terrible spenders.

Al: But I will say it and it depends upon how you calculate your assumptions. But 80 years old is somewhere around the breakeven point if you want to think about it that way. So John if you think you’re gonna live 80 or longer, wait till age 70 or wait as long as you can.

Andi: Actually this is Mark.

Al: Mark sorry. John’s the one before. Thank you. And if you don’t think you’re going to make it to 80 for one reason or another maybe you take it earlier. That’s what I would say.

Joe: There’s a lot more to it. But they’re retiring early. How much money are they spending? It looks like they’re going to have a couple million dollars in tax-deferred accounts. Does it make sense to draw from tax-deferred accounts that are not tax-favored versus your Social Security that is going to be tax-favored to push that out to have a higher benefit? You put the tax equation in there too. I think it probably makes sense to push it out.

Al: I agree unless he feels like he’s life impaired.

Joe: Yes. Absolutely.

Obviously there is a lot to this – and actually, there are over 2700 rules around claiming Social Security. Since it is one of the most important decisions you’ll make for retirement, it might be a good idea to download our Social Security Handbook. It’ll walk you through who is eligible, how benefits are calculated, the difference between collecting early and late, working while taking Social Security, the rules around spousal, survivor and divorced benefits, and the all-important taxation of your Social Security benefits. Click the link in the description of this episode in your podcast app to visit the show notes and download The Social Security Handbook, yours free from Joe and Big Al and Your Money, Your Wealth®.

22:22 – Should I Take RMDs from a Brokerage IRA or Annuity?

Joe: You want to go to Stan?

Al: Sure.

Joe: We got Stan from Richmond, Virginia.

Al: Nice.

Joe: He goes “Thank you for your informative podcast.” You’re welcome. “I have an RMD question. Here’s my situation-“

Al: By the way, required minimum distribution is what RMD stands for. Oh, you used your cough button.

Joe: I did.

Al: First time in 5 years. That’s pretty good.

Joe: “Here’s my situation. I have 2 IRAs. Any thoughts regarding from which I should start taking RMDs and when? I want to start RMDs in 2020 as I turn 70 and a half although I could delay till 2021. One IRA is a brokerage with a balance of about $75,000. The other IRA is an annuity and has a current cash balance of $250,000 but it has a withdrawal base of $330,000.” So he’s got a guaranteed lifetime withdrawal benefit on this annuity contract. So this annuity’s making me sick is what’s happening. So he’s got a withdrawal base of $330,000. “Each year I don’t withdraw the income, the base goes up by about $20,000 and his income would increase by about $1200 a year. At 70 and a half, it would be about $21,000 per year. Once I start withdrawals the increase stops and never resumes. At age 75 my level withdrawal rate bumps to 6 and a half from 6 and 70 baa baa baa baa baa.” He’s married and he doesn’t need the money. So he’s bought a product that is giving him a guaranteed income for life that he doesn’t need. So there are some flaws in his planning right away. So he needs to take an RMD, should he take it from the $75,000? Or should he take it from this product that he purchased that has all sorts of different bells and whistles on it that’s probably costing him a fortune and he’s paying for all of this insurance that he doesn’t necessarily need?

Al: By the way let me stop you one second. So when you have IRAs, you can have 2 IRAs, 5 IRAs, 10 IRAs, you can take your required minimum distribution out of 1 or 2 or 4 or all 10, in any way that you want. So that’s what he’s asking.  Should he take it out of one or the other? Now by the way, if you have multiple 401(k) accounts, you have to take a required minimum distribution from each 401(k). So just remember that.

Joe: So Stan’s asking, “I’m married we don’t need the RMD money for essential expenses but would like a couple of extra stuff for travel, supporting our children, student loan repayments, entertainment, qualified charitable deductions. We have other taxable and Roth accounts that have modest account balances. With the RMDs we might nudge into the 22% federal tax bracket and with a full guaranteed benefit of this annuity product, we would very likely do so. In my opinion that would not be a killer.” OK cool. “Our Social Securities are already taxed at 85% due to my pension income. I’m actually one year younger than my wife but she has the better longevity based on our parents’ lives and gender. I am leaning on taking the RMD or perhaps more like a Roth IRA conversion from the brokerage IRA and then that lets the annuity continue to increase. On the other hand, one point of an annuity is to outlive my original investment. Only if there’s a cash value when I die, can my wife continue to receive the guaranteed income. I do not have some permanent life insurance.

Andi: He does have some.

Joe: Oh I’m sorry. “Do have some permanent life insurance to help my wife after death. Thank you very much.”

Al: So the real question is he’s got an annuity that each year he gets a higher income benefit for life. And should he kind of keep that there because of the higher income benefit and take the required minimum distribution from his regular brokerage account? Or should he take it out of the annuity? So what say you?

Joe: I think he’s already made up his mind.

Al: He’s just trying to verify you agree with him.

Joe: No I would blow out of the annuity.

Al: So you don’t agree with him.

Joe: But I think Stan likes this annuity. But I don’t truly think he knows the product.

Al: Well so let’s start with the cash balance versus the withdrawal base. Cash balance is $250,000. So does that mean if he were to pass away that’s what his wife gets? Is that what that means?

Joe: Yeah. The withdrawal base is income only.

Al: That’s income only. So in other words, that has nothing to do with what you get if you pass away. That’s just what your income is based on.

Joe: Correct. So there’s probably a roll-up of 7% on the product. So he purchases for X. It’s probably doubled in the last 10 years and now he’s getting five. But he’s 70 and a half so his life expectancy is what 15 years? And he hasn’t even pulled any money out of it. So that’s why the insurance company’s saying we love this guy. We love Stan. Because we’re charging you a ton of fees to hold this product and then we’re going to show you these hypotheticals. Here keep waiting, keep waiting, keep waiting. Don’t take any money out of this product, don’t take any money out of this product. And we’ll show you these increases in your guaranteed income withdrawal benefit.  For life. Because all they’re going to end up doing is give you your own money back.

Al: That’s the cash balance.

Joe: Yes. And then that’s what he said, he goes “once the cash balance is gone then there’s really no insurance for my wife.”

Al:  Now if Stan lives to 100-

Joe: 105. It’s all good.

Al: Works out pretty good.

Joe: So that’s beside the point. He’s not asking me my opinion on his annuity. Take it out of the brokerage account. Who cares? Because keep your annuity but spend a bunch of money keep those insurance companies in business Al. But I would relook at my overall strategy because he wants to do charitable deductions with it. So he’s buying this product that is super expensive that he’s not necessarily using because that extra dollars in his retirement account he doesn’t need it for a guaranteed income. He wants to use it for some travel, maybe help pay the kids. And then he wants to do QCDs. What are you doin’ Stan? So anyway. It’s not Stan’s fault. It’s the insurance agent that sold him that.

Al: It probably looked good.

Joe: But I would convert the $75,000 and then I would just maybe get a second opinion on the insurance product that you purchased from a fee-only fiduciary that doesn’t sell products just so you truly understand what your internal rate of return. That’s what he wants- that’s what I would tell Stan to do. What is your internal rate of return on this product?

Al: Or if he gets another opinion and he likes the annuity then keep the annuity, take the required minimum distribution out of the brokerage account, don’t convert it because you’re going to want to use that money for your RMDs, so you don’t have to touch the annuity. That’s the other approach.

Joe: All right. Thanks a lot for the question, Stan.

29:39 – How To Split an Inherited Annuity IRA Four Ways for Tax Efficiency?

Joe: We got Abel. No location given.

Al: Where is that?

Joe: Where is Abel?

Al: Yeah.

Joe: Abel. Where the hell are ya? “Hello. I received a death beneficiary IRA from my father. It’s currently in an annuity and I’m inquiring on splitting it up with my 3 siblings. It’s $100,000. What would be the best way to distribute this money without being heavily taxed?” What do you think Al?

Al: It sounds like Abel got the IRA from father. And I’m just guessing perhaps that the father just put Abel’s name on it without including the siblings. So “splitting with my three siblings”, so I guess there are 4 people and so for some reason, this went to Abel. So I think-

Joe: Or maybe Abel could be the trustee.

Al: Could be. Yeah, could be. I guess let’s just say you inherited an IRA for example. And for some reason, you want to include your brother and sister that weren’t on it because your mom, you’re her favorite-

Joe: Yes, I’m her favorite, for sure.

Al: So it’s in your name. You can’t just say here you take a third of it. You’re not really allowed to do that.

Joe: Can I disclaim?

Al: If you disclaim it then it goes back to the will or trust and it may not go where you want it to go. You could do that. I have a better idea perhaps. So let’s say there’s  $100,000. OK. And let’s say your tax rate is, I don’t know 25%. So if you were to take it all out at one period of time there’s $75,000 leftover. And let’s say if there’s a total of 3 siblings, maybe it’s 3 siblings plus Abel, I don’t know. But if there’s a total of 3 siblings then each sibling would get $25,000. Maybe keep it in the IRA. But you just use other money if you have it and just pay your siblings $25,000. That way there’s no current taxation. How about that?

Joe: Yeah. No. If that’s truly the issue. Because sometimes we get questions- that Abel’s that the trustee of this or executor or whatever of the estate, dad dies, and then he and his 4 siblings or 3 siblings were named beneficiaries of annuity IRA. Then it’s like-

Al/Joe: How do you split that?

Al: So it could be that question. I agree.

Joe: And that’s a lot easier than Al’s scenario. I take a road less traveled.

Al: That’s if it went to Abel only. So you’re saying father left the IRA to the kids and now Abel’s trying to figure out how to split this annuity 3 or 4 ways. How would you do that?

Joe: Well it’s in an IRA. First of all. So that’s good. The bad news is that it’s in an annuity. I’m not sure what type of annuity product it’s in. But I’m guessing that dad didn’t do anything where it needs to be annuitized or wasn’t annuitized, it’s just a lump sum IRA annuity that’s sitting at MetLife. You could say to MetLife and say we need to split this within the beneficiaries, here’s the death certificate of Dad. And they would split the IRA into 4 different IRAs, into 4 different inherited IRAs. So, Abel, yours would say your father’s name. Let’s call him- what’s a-

Andi: Cain.

Joe: Cain.

Al: Cain and Abel. Look at that. We’re getting biblical.

Joe: Wow.  Jonathan is your father’s name let’s say. It would say “Jonathan-

Al: Abel’s father’s name is Adam.

Joe: -for the benefit of Abel.” And then you would do the same thing for all 4 siblings that you have. Or 3 siblings that you have. So that titling would be your father’s name, deceased, on whatever date that he died, for the benefit of the beneficiary. Then now you would have 4 separate IRAs that are split with each of the beneficiaries have full control of their own IRAs. You do have to take a required minimum distribution from the inherited IRA. Based on your life expectancy. Now if the trust was the beneficiary of the account and if it wasn’t the see-through or a look-through trust, now you could be stuck with having to take the required distribution based on the oldest sibling or the oldest beneficiary. So when you have IRAs or annuity IRAs and all this other stuff at death, stuff gets fairly complicated.

Al: It does.

Joe: Especially let’s say if he’d just put Abel’s name down. It says Abel you know you’re my oldest I trust you. Just make sure you take care of the kids. Well, Abel’s, “how the hell do I get it out of the retirement account?”

Al: And if that’s the case you go with my answer and come up with something creative. Otherwise, you’ve got to just withdraw it and pay the tax on it and you could do that potentially. But then there could be surrender charges on the annuity and all kinds of stuff. So that may not be what you want to do but that may be your only choice. On the other hand, if it’s what you were thinking Joe which is it’s in the different siblings’ names but you just have to take a single product and split it 3 or 4 ways then-

Joe: And then they could do a direct custodial transfer into Fidelity, Vanguard.

Al: But do you think the annuity company would take an annuity and split it into 4 different contracts? Like if there are 4 different kids? I don’t know the answer to that.

Joe: You could probably- I would move it out first-

Al: If you could, if there wasn’t a big surrender.

Joe: So. All right great question. Need more information as always.

35:47 – Can Mom Do a Primary Residence Transfer on Death for 8 Beneficiaries?

Joe: We got Dave. He writes in from Arizona.

Al: That’s a big state. Tucson, Phoenix.

Joe: He could be in Scottsdale. I don’t know, Yuma.

Al: Yuma. That could be.

Joe: Oh, you’re the headliner. Big Al.

Al: I got the headline.

Joe: Andi and Joe. I’m-

Al: You hardly got mentioned.

Joe: He typed it, forgot about me. “Love the show.” He’s got a question regarding TOD, transfer-on-death beneficiary designations. “My mother, a widow in Arizona, wants to avoid her will going to probate. She has set up her estate to be TOD, transfer-on-death, for all of her investable assets. She has 8 beneficiaries, 3 children, 5 grandchildren. She wants to designate her primary residence in the same manner where she would designate the 8 beneficiaries in a TOD on the title of her home. As her executor, I’m fine with the TOD on her investable assets as it’s easy to do and a good solution to avoid probate. However, I’m wondering if there is a better way to handle the real estate as it seems that it may get messy with so many individuals as beneficiaries on a primary residence. We would plan to sell her home if something happened to liquidate” and he’s interested in your thoughts, Alan.

Al: My thoughts, well I think Dave this plan does work. And so I think not everyone realizes this. Maybe let’s talk about the difference between wills and trusts. So with a will, typically the assets get distributed in accordance with your will and if it’s above certain dollar amount based upon the state that you live in, it goes to probate. Now there is a work-around. And the workaround is this transfer-on-death designation, and by the way, we’re talking about non-retirement assets only. Retirement assets like IRAs, 401(k)s, Roth IRAs those have beneficiary statements anyway or already I should say so they do not go through probate. But what does and what can go through probate is your non-retirement assets but that workaround is you set up a transfer-on-death designation and it’s relatively easy for bank accounts, for brokerage accounts, things like that. It’s relatively new Joe that you can start doing it with real estate, at least in California. It was probably, I want to say 3 or 4 years ago that that that it became available in California. I don’t know Arizona law as well but based upon Dave’s comments it sounds like Arizona has a similar rule, transfer-on-death. It is messy though because now you got 8 people on a deed which is probably what would happen in the will anyway. So the only way to make it less messy is if there are enough assets so that maybe one or two the kids can be on the home and the other kids get the liquid assets. But you know there may or may not be enough assets to do that. Usually what most parents are trying to do is make it equal for their kids. And if they have a home with a lot of equity and just a few other assets it’s pretty hard to avoid that.

Joe: But Dave is saying he’s cashing it out. He’s going to sell the house. So cash is going to be distributed anyway.

Al: Well what he says we had planned to sell her house if something happened to her.

Joe: Well something’s going to happen to her Alan.

Al: Eventually.

Joe: I just don’t know when.

Al: I guess that’s true of all of us. So liquidation would not be an issue.

Joe: I don’t know with 8 beneficiaries, just get a living trust. Spend a couple of thousand bucks. Avoid the headache and then you’re the trustee. You cash- you’re in charge. So there are not 8 different people on the deed. So you sell the house, you’re in charge, you put everything in cash, and then you just cut checks, 8 different checks to the beneficiaries

Al: So let’s go down that path a second because either way, you avoid probate. But in the case of the living trust it’s owned by the trust and it can be distributed to all 8 kids as a tenant in common interest. Or the trustee can just sell the property as you said and the trustee can sign because the trustee of the trust can sign and then you’re right. You can distribute it 8 ways. That is simpler. If the property is going to be sold before she passes it doesn’t really matter.

Joe: It doesn’t matter. But I think she needs a place to live Al.

Al: Yeah well it says sell the house if something happened.

Joe: Death.

Al: Well it could be. It could also be-

Joe: It’s just a polite way- It’s his mother. “If something were to happen.”

Al: No, no, no. They could be going to long-term care. She doesn’t need the home anymore.

Joe: What do you say? I mean that’s just a polite way to say die.

Al: Or going to a long term care facility.

Andi: The fact that it says “if something were to happen to her” leads me to believe that he’s not talking about when she ultimately passes. He’s talking about something happening to her in the meantime.

Al: But she may never pass. Maybe she’s a vegan.

Joe: Well. No. Yeah. So.

Al: You are right. The best way is to put in a living trust and then-

Joe: But that’s a lot of beneficiaries. When things happen, when people start getting inheritances, it changes family dynamics.

Al: It can.

Joe: And if you don’t have a very good written estate plan it can get ugly.

Al: And so let’s just go down the path which is what Dave is saying. He puts it in a transfer-on-death with 8 beneficiaries. So she passes away. Now there are 8 owners. So when they decide to sell the property collectively, which is hard for 8 people to agree-

Joe: I got about 5 grandchildren in there.

Al: But what has to happen is all 8 need to sign the final closing documents and that can be difficult, to say the least.

Joe: Dave, go with the living trust.  Spend a couple thousand bucks.  Have mom buy it and then I think your life will be a lot easier.

Al: It’s much simpler.

Joe: We’ll see you next week.  The show’s called Your Money, Your Wealth®.


Whether the concern is illness, incapacity, going to long term care, passing, or even divorce, nobody wants to be bogged down with paperwork.  Save the headache – download and fill out the Estate Plan Organizer now with all of your accounts, beneficiaries, wills, trusts, and insurance policies, and store it in a safe, easily accessible place for your loved ones. Don’t forget to update it regularly! The Estate Plan Organizer is in the podcast show notes at YourMoneyYourWealth.com. Click the link in the description of today’s episode in your podcast app to get it. We’ve got a few Arizona derails at the end of the episode, stick around for ‘em if you enjoy the off-topic banter.

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