Avoid Making This Mistake with an Inherited IRA
By Douglas Goldstein, CFP®
If you are the beneficiary of an inherited IRA, avoid immediately withdrawing the money. If you make an immediate withdrawal, you might forfeit the tax-deferred status of the account and be subject to paying taxes. A proper withdrawal strategy for an inherited IRA can minimize your tax bill.
What you need to know when you inherit an IRA
In an effort to encourage savings, America lets the assets inside an IRA account grow tax deferred – owners only pay tax once the funds are withdrawn. If you are the beneficiary of an IRA, depending on how you title the account and withdraw the assets, you too can take advantage of tax-deferred growth. Any mistake made in titling, transferring, or withdrawing funds may not only cause you to lose future tax-deferred growth, but also may make you liable to pay current taxes on the funds. To maintain the tax- deferred status, your new account must be coded as a “beneficiary IRA” by the custodian of the account.
The inherited assets in an IRA can be sold, and other securities bought in accordance with the new owner’s wishes. There is no need to maintain the inheritance in the exact positions as you received it.
What you need when planning your estate
If you have an IRA, make sure you list beneficiaries so that one day, the IRA’s assets are not subject to your estate’s probate. Update your paperwork, especially after a divorce, to ensure that the beneficiaries are the people you actually want to receive the funds. Make sure to mention to your beneficiaries that when the time comes, they should check with their financial advisors about how to best handle the inherited account.
Can you move an inherited IRA to Israel?
Can you transfer an inherited IRA to Israel? Unfortunately, once the funds leave America they lose the tax-deferred status of beneficiary accounts. Therefore, it is crucial that you open a “beneficiary” IRA account with a U.S. brokerage company or bank.
If you need help opening or dealing with an inherited IRA or opening a U.S. brokerage account, go to: www.Profile-Financial.com/inheritedIRA.
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.
How to Avoid Tax Mistakes When You Receive an Inheritance
By Douglas Goldstein, CFP®
When receiving an inheritance, it’s important to avoid making tax mistakes. Certain tactics, such as opening a U.S. brokerage account (see below for an interactive tool) can help. Watch out for these mistakes:
Mistake #1 – Taking money out of an IRA
To maintain the tax-deferred status of an inherited IRA (Individual Retirement Account), the money must remain in a specially titled account. As an heir, you can transfer the IRA into a “beneficiary IRA” (a.k.a. “stretch IRA”) and not pay taxes on the account’s capital growth until money is withdrawn. Transferring the money overseas jeopardizes the tax beneficial status. As many overseas bankers and investment advisors may not know this crucial piece of information, work with professionals who are well-versed in cross-border investing and tax law.
Mistake #2 – Choosing the wrong investments for an IRA
The IRS allows U.S. citizens not to pay capital gains tax (or tax on interest and dividends) when they sell stocks for a profit inside an IRA. Since you don’t pay capital gains tax on profits, your growth is compounded, because you’re not giving a piece away every year to the government. Generally, annuities, municipal bonds, and other tax-advantageous investments should not be part of an IRA.
Mistake #3 – Not strategizing for estate tax
American citizens who bequeath their estates to their American children are exempt from estate tax if the estate (as of 2015) is under $5.4 million. If you think your future inheritance will be above that amount, strategize with your investment advisor and tax professional to minimize potential taxes. If you live in a different country than your beneficiary, make sure that your strategy includes avoiding tax mistakes.
If you think you might inherit an American IRA, use this free interactive tool to help you realize why opening a U.S. brokerage IRA account may be a good tax saving strategy. Try it at www.Profile-Financial.com/Interactive and then call our office with questions (02-624-2788).
Doug Goldstein, CFP® is the director of Profile Investment Services, Ltd., a firm that specializes in cross-border investing and helping people open U.S. brokerage accounts from overseas. He is a licensed financial advisor both in America and Israel, and does not give tax advice. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Call 02-624-2788 for a consultation about handling your U.S. investments from Israel.
Why You Might Benefit from Having a U.S. Brokerage Account
By Douglas Goldstein, CFP®
Unsure of the benefits of a U.S. brokerage account? Use a free interactive form to find why it may be helpful to keep some of your investments in America even though you live in Israel. See the URL below.
One of the most common financial problems Americans living in Israel face is when their U.S. investment company closes their account because of their Israeli address.
There is no legal reason why you can’t have an Israeli address on American brokerage and IRA accounts. In fact, while some investment companies balk at your foreign address, others have no problem. (My company, Profile Investment Services, Ltd., specializes in dealing with people who live outside the United States but still want to have their investments held in America.)
This issue can affect you even if you don’t have an American investment account
Often, clients initially call my office when they receive an inheritance from a family member in America. American brokerage houses are used to domestic business, and dealing with foreign addresses is difficult for them. Other than the time difference, there’s often a difference of culture. Most American financial advisors don’t have foreign clients and aren’t familiar with the basics of cross-border investing, dual tax codes, and international retirement planning. I’ve even seen cases where foreign clients are given incorrect forms, which can create all sorts of problems. For example, American citizens living abroad should sign a W-9 form, not a W-8BEN, even if they have a foreign address.
What forms are needed?
As a cross-border investment advisor who specializes in helping people living in Israel with American brokerage accounts, I recognize the need for easy-to-understand information on how to manage U.S. investments from Israel. I created an interactive tool to clarify the forms you need to sign when opening an account and which investments you can buy.
The form takes less than five minutes to fill out, and can save hours down the line: Try the form at www.Profile-Financial.com/interactive, and then watch a few videos on the topic that you’ll find there.
Call (02) 624-2788 if you have any questions about managing a U.S. investment account from Israel.
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.
The Best Way to Pay for a Wedding
By Douglas Goldstein, CFP®
After accepting all the good wishes and mazal tovs, the first thing parents of a newly engaged couple need to think about is the best way to pay for a wedding.
Making a wedding can be costly. If you have savings to cover the cost, great. That’s the topic of today’s article. If you haven’t saved for the big day, however, you’ll need to adjust your child’s expectations since you should certainly not take on debt to cover a four-hour party (no matter how much your bank – or children – encourage you).
From which account should you withdraw?
If you have retirement accounts, don’t use those funds to pay for a wedding. Those funds were earmarked to pay for your retirement, and will likely be subject to onerous taxes and fines if you withdraw them before retirement age.
If you have some well-performing assets and some under-performing assets, which ones should you sell? Though it’s not written in stone, analysis of stock portfolios often shows that winning stocks tend to outperform losing stocks going forward. So all else being equal, sell the stocks that are at a loss. Another benefit of selling positions that have declined is that you won’t have to pay capital gains tax.
Sometimes people accumulate a large cash position in their savings or investment account. Although cash is a safer investment than stocks and bonds, today’s interest rates won’t make you rich, so depending on your other investments, it may be wise to withdraw the cash. Just make sure you don’t use your emergency fund to pay for the wedding.
A pre-nup?
Before writing any checks to pay for the wedding, make sure the bride and groom sign a halachic prenuptial agreement. Not sure why? Send me an email (doug@profile-financial.com) and I’ll send you a copy of the article I wrote about it.
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.