Local Column Cancelled in The Huntsville Times

As of a few weeks ago, The Huntsville Times Business Editor decided to take the paper in another direction - with more of a national focus. As the last local columnist writing for the Business Section, my column was "cut" and it will no longer been published. If you have questions or concerns about this action that you'd like to submit, please feel free to contact Steve Byers at steve.byers@htimes.com. Or, you could write an editoral if you'd like to share your opinions more widely, letters of no more than 250 words can be mailed to: Your Views, The Huntsville Times, P.O. Box 1487, Huntsville AL 35807 or faxed to 256-532-4420 (typed letters only) or emailed to: letters@htimes.com.

If you choose to write the Editor, here are the rules: Letters or emails must bear the writer's full name including middle initial, address with zip code, and daytime phone number. Middle initials and zip codes will be published. Other information is used for verification but not published or given to other parties. Individual letter-writers may be limited to one published letter every 30 days. Letters become the property of The Huntsville Times and will not be returned. Letters may be edited and may be re-used in any medium.

I share this with you for a few key reasons. First of all, I want you to know that I see this as a natural evolution in my career and life - a positive move forward. I have been praying for God to "open and close the right doors". Writing the column was excellent "press" for our firm but was certainly a drain on my time. So, my intention is not to have a public outcry for the column in hopes of having it reinstated. My hope is that our local paper will receive comments from people across our city to make our paper better. There is quite a difference in opinion at The Times as it's future direction. They are at a critical point, losing market share to the internet. Any feedback they can get from loyal readers will be of help. Although I got many comments on my column, The Times heard very little. They need our opinions, our voices, and our ideas. I hope that many of you will take the time to email Steve and the Editorial desk with your feedback on how to help Huntsville continue to grow, be progressive, and be supported by a strong paper with a variety of information.

Inheriting an IRA or 401K - If You Aren't a Spouse

A tremendous number of Americans have money in an IRA. Many more are sinking huge portions of their salaries into a 401(k) accounts. With an increasing number of employers also contributing matching funds, it is no wonder that the fastest growing, largest pot of money in our society today sits in some sort of retirement plan.

Many never think about what happens when family members inherit these accounts and The Tax Man wants his piece of the action.

A ticking time bomb.
IRA's and 401(k)'s are not inherently bad investments. Quite to the contrary! Most of them trigger a tax break when money is added. At the very least, no tax is owed on earnings until the money is ultimately touched. There is an increasing trend to retire and either live off the earnings of these accounts or never touch them at all. Even the mandatory withdrawals at age 70 ½ don't deplete the account for a long time. This leaves a lot of money to beneficiaries that has never been taxed. Leaving money to your spouse as beneficiary doesn't trigger any taxes if no withdrawals are made. But once the funds finally make it to the children, that's when things get interesting. Too many times, the children just cash out the whole account minus the tax. On average, this leaves only 50-80% of the balance in their hands.

Beneficiaries other than a spouse can cash out and pay a ton of tax OR take payments which allow most of the money to continue to grow. This cushions the tax blow. Payments are made from an account called a Beneficiary IRA and can be paid out - for as short as 5 years or as long as a lifetime. For more money in the long run, the Beneficiary IRA is the only way to go.

Let's look at an example.
Out of a $500,000 IRA, if a son decided to cash out, he would walk away with about $300,000 after tax. Instead, if the son were age 50 and set up a Beneficiary IRA, he would start off taking an income of around $16,000 per year AND have close to $750,000 at his age 65 if the investment grew at 6%.

Rules get even more tricky if no beneficiary is listed or if "estate" is listed on the beneficiary form. Also, if the beneficiary is a non-living person (like a charity or trust), then other rules apply.

It is best to consult a qualified financial planner on the subject, especially if your beneficiary has designated multiple children or a charity. You could end up limiting the growth of your 401(k) or IRA when it passes to your heirs just by not knowing your options or dying at the wrong time!