Who Owns Your IRA?

All right, let’s talk about who owns your IRA. So for this let’s start with more of a business example and let’s imagine you own this business and let’s say it’s worth $500K. And there you are, you own 70% of this business. Meanwhile you have a silent partner that owns 30% of the business. And let’s fast track down the road here and let’s imagine you built that business from $500K upwards to $2M. Now you own 60% of the business and meanwhile your silent partner has grown their share upwards to 40%. So when is it that you should be considering maybe buying out that silent partner? So I’ve done this as a business example, but essentially what I’m describing to you is your IRA or your retirement plan, 401K, 403B, etc. So you’re sitting on this retirement asset that essentially hasn’t been taxed yet. And so you’re facing a major tax impact at some point down the road. So you can’t just go and say hey, you know what? I’d like to cash out of my IRA. Let’s use that $500K example and say hey, give me that full $500K. No, again that’s where the IRS between your Federal and State taxes if you wanted that lump sum, you’re going to have a heavy tax impact. And the challenge with that that you see the bigger the number gets, the bigger the percentage your silent partner grows. So the good news is you have options. Have you ever potentially considered a Roth conversion? So a Roth conversion is where you take a taxable IRA and you look at converting some or all of it over to a Roth IRA. Now again, that would be a taxable event to transition that money from taxable to tax-free, but it’s one that can be done over a period of a number of years. So you don’t have to necessarily do it all at once which typically doesn’t make a lot of sense in a number of cases. But it can be done over a period of years. Is this is something you’ve talked to your Financial Advisor about? I wouldn’t rely on necessarily on your Accountant to be handling this type of conversation. They’re typically looking at just the current year and trying to keep your taxes as low as possible. But it is something you should be sitting down talking with your Financial Advisor about over the long-term impact of your IRA and how to potentially be exiting that IRA over a period of years. So again, look at your retirement accounts. Treat it like a business. Look at how you can be potentially removing that silent partner from your retirement account over time.