Retirement Answers

Jacob: 00:00

Hey, everybody, and welcome back to the Retirement Answers podcast. My name is Jacob Duke. I'm a certified financial planner, and I'm glad that you're here. Today, we're gonna be covering three, questions that I've received recently that I think are just important to know as you're either approaching retirement or already in it. And so I think it's just important to understand these different concepts as you kinda approach retirement.

Jacob: 00:22

So, we're gonna go ahead and get started. The first question I recently received was, who will inherit my IRA whenever I die? And it's kind of based on this idea of, well, I have a will, I have a trust, and then I have my IRA account. Who will receive my IRA whenever I die? Well, the main thing to know here is that whoever is named as the beneficiary on your IRA account, that is who will perceive it.

Jacob: 00:47

So for example, you can have anybody named on your IRA account as the designated beneficiary. The main thing here is it doesn't matter what you have in any other documents. Whatever it says as the beneficiary on the IRA account itself is who that account will go to. Well, what if you don't have anyone named? Well, then the account will go to probate and it will kind of enter your estate and then it will go through probate and then the courts will decide who receives that IRA.

Jacob: 01:12

But the main thing I want you to know is who you name as the IRA beneficiary on the account is who will receive it. So, a common question I get or a common misunderstanding that a lot of people have is that, well, in my will, I have my son named as my beneficiary, for example, but on the account, I have my daughter named as the beneficiary. Well, tough luck for your son because they're not gonna get any of that money in the IRA because whoever's named as the beneficiary on the IRA is who will receive it. So that's one thing to know. Wills, they're good for stating kind of your wishes, but in terms of leaving assets to someone, there's going be much better way to do that.

Jacob: 01:47

Name either if you have an account, whether it be an investment account, 401 ks, IRA. Name the beneficiary on the account paperwork. If it's a nonfinancial account or maybe it's real estate or something like that, I would probably consider using a trust or setting up a trust to do that because that is a way more efficient way to do it. If you don't have any beneficiaries named on either account or just real estate assets or any other type of asset, All of those different things will go into, probate, and then the courts will decide who will receive those different assets. And that's just a not fun process for anybody because there's gonna be a delay in terms of how long they have to wait to receive those assets, and then also there will be a cost associated with it.

Jacob: 02:24

So, wills are good for kind of setting your wishes. They're not very good for transferring assets to another person or another generation. So make sure that you have your IRA beneficiary named properly. And I would also definitely encourage you to have a contingent beneficiary named because, for example, if it's you and your and your spouse is the beneficiary of your IRA or your four zero one k, and then both of you get hit by a bus at the same time, well, who does it go to next? Well, I want to make sure we have that contingent lined up so that there's no confusion or that there's no probate having to happen because there simply wasn't a contingent beneficiary named.

Jacob: 02:57

And then perhaps if you have younger children that are below the age of majority or 18 or 21, and you don't want them to receive that money, technically, they won't have to receive the money if they're under that age, but I would consider perhaps using a trust as a beneficiary for an IRA. Beyond that, I typically recommend instead of putting a trust as the beneficiary of an IRA, I would recommend having an individual person. I won't get into all the detail of that because there is some obscurity and just a lot going on there. But to be the safest possible, I would say name an individual person as a beneficiary of a retirement account. So that's IRAs, Roth IRAs, four zero one k's, things like that.

Jacob: 03:34

If you have to, you can name a trust. The main thing is you want that trust to be structured properly so that there's no additional trust taxes that would be applied. So it's easier just to make sure you're naming an individual. So I hope that kinda answers that question, you know, who will inherit my IRA? And this kinda goes for all accounts.

Jacob: 03:51

Right? Whoever is named as the beneficiary on the account is who will receive it. Who cares what your will says? That has no authority over, who is named actually on the beneficiary. One issue potentially there could be, let's say you get divorced and you still have your spouse named as your beneficiary on your IRA or four zero one ks and you never get that changed.

Jacob: 04:10

Well, as soon as you pass away, whoever's named as the beneficiary is who will receive that account, even if you don't want them to. It doesn't really matter what your will or your wishes are. Whoever's named as the beneficiary will receive that. So hope that helps. Go check your, beneficiaries on all your accounts, make sure they're up to date, make sure they're accurate, and then that way you won't have any of these issues moving forward.

Jacob: 04:30

Alright. So the second question that I recently received was, can I contribute to a Roth IRA and a Roth four zero one k at the same time? And the answer to that is yes. You absolutely can. In 2023, you can contribute up to a maximum of $6,500 into an IRA and then $22,500 into a four zero one k.

Jacob: 04:49

And those are for if you're under age 50. If you're over age 50, there are catch up contributions that would be applicable for you. If you wanna contribute more than those annual maximums, you have that opportunity if you're over 50. But IRAs and 401ks are viewed as different account types. An IRA is an individual account type.

Jacob: 05:05

A four zero one k is through an employer. So the contribution limits don't combine or overlap at all. They're technically separate, they're viewed separately by the IRS. So you can contribute $6,500 in 2023 to the IRA and then 22,500 to your four zero one k for a total of 29,000. That's if you're 50.

Jacob: 05:22

Obviously, if you're 50, you can contribute more than that. Now the main thing that a lot of people are gonna run into, especially if you're a high income earner, is that you can't contribute to a Roth IRA directly. You have to be under certain income limits to even be eligible to contribute to a Roth IRA. If you're over those income limits, then you would be, able to do what's called a backdoor Roth IRA, and then you could get the money into the IRA that way. But if you're a single filing taxpayer, the income limit for you to be able to contribute to a Roth IRA is if you make under $153,000 in a single year.

Jacob: 05:55

So you can contribute money if you make under that amount to your Roth IRA for that year. For married filing jointly couples, it is 228,000. That's the income limit to be able to directly contribute to a Roth IRA. But like I said, you know, if you are making above those limits, you can always do a backdoor Roth IRA to get money into the Roth account. That would just mean you have to obviously contribute the money to the IRA, then quote convert it to the Roth.

Jacob: 06:18

But the main thing to make sure on doing a backdoor Roth IRA is that there are two things that need to happen. Number one, you do not need to do a rollover from your four zero one ks or four zero three b or anything like that. You can't do a rollover from an employer plan in the year in which you do a backdoor Roth IRA because that money will then be subject to having to also be rolled over. So for example, if you did a backdoor Roth IRA and then you do $6,500 as your backdoor Roth contribution, then you also roll over an old four zero one k that's got $500,000 into it, then you now have to convert $500,000, of income, basically, from your traditional IRA to your Roth IRA and pay taxes on that. That would not be a smart idea nor advantageous.

Jacob: 06:59

You're gonna pay way too much in taxes. So number one, make sure you don't do a rollover in the same year in which you do a backdoor Roth contribution. And then also, if you have any money that's already in a tax deferred IRA, a SEP IRA, a simple IRA, or a traditional IRA counts for this. If there's any money in those account types, you have to convert all of that money that's in there in order to do the backdoor Roth IRA as well. So a simple way of just kinda understanding this is you can't have any money in an IRA that's tax deferred in order to a backdoor Roth IRA.

Jacob: 07:28

So that's just the easiest way to understand it. And that's kind of the main things that I see people running into issues with. So, yes, you can contribute to a Roth IRA and a Roth four zero one k in the same year. Those contribution limits don't overlap. The contributions don't count for one and the other.

Jacob: 07:42

They're technically separate, so you can contribute to both separately. Alright. So another question that I received recently is, if my spouse dies, what happens to their Social Security payment? Do I get to continue receiving both both of those payments, theirs and mine? And this is a super common question because it applies to most people who are retired.

Jacob: 08:01

If you are both receiving your benefits, the surviving spouse is entitled to continue receiving the higher of the two. So you won't be able to receive both yours and theirs. You get to continue receiving the amount that is higher. So for example, if you're receiving $1,500 and your spouse is receiving $3,000 as your Social Security benefits, you would be able to continue receiving their benefit, and you would stop receiving yours. Now, if we wanna be technically correct, you actually continue receiving your benefit, and then you would add on top of yours from your spouse's benefit up to whatever the amount is higher.

Jacob: 08:35

So if the spouse's amount is higher, like I gave in the example earlier, you would continue receiving the 1,500 that you were originally receiving on your benefit, and then you'd also begin receiving 1,500 a month from your spouse's benefit for a total of 3,000. So the maximum you can receive is just whoever was earning more. What so let's just say that the roles were reversed. Right? Let's say that you were earning 3,000 as your Social Security benefit and then your spouse was earning 1,500.

Jacob: 09:01

Well, you just continue receiving 3,000 and then you don't get to add anything to that. Theirs just simply goes away. So you just get to receive the higher of the two. But that's the main thing to know there is if both of you are already receiving your benefits, then you get to just receive the higher of the two. Now today, I'm not gonna get into some of the different, I guess, complexities that come into play whenever a spouse is not yet receiving their benefit.

Jacob: 09:25

I actually did a podcast on that back on episode two where you can go back and listen to that if you'd like, but that talks more about what happens if my spouse is not receiving their benefit yet, and then they pass away, and then their benefit would have been higher. What are you entitled to in that situation? That's a really good question, but that, is something I'm not gonna dive into now. Go back and listen to episode two and learn more about that. So, hopefully, these three questions that I've received recently are somewhat helpful for you as you kinda navigate some of the questions you're having.

Jacob: 09:55

Feel free to reach out to me and submit any questions you have because I think that all of us have a lot of similar questions, just different nuances to it. The more that I can answer, the better off everyone will be because everybody's got similar questions. They're just unique to you specifically. So, hopefully, these different ideas and facts around these different topics are helpful for you as you continue to navigate your retirement and wealth building journey. I appreciate you so much for being here.

Jacob: 10:19

I hope this is helpful. And, once again, my name is Jacob Duke, and this has been Retirement Answers. I look forward to speaking with you again next week.