Ten Stupid Things People Do To Mess Up Their IRA’S: Conclusion

8. Putting the wrong investments in the IRA. Don’t put municipal bonds in your IRA. The IRA pays no income tax, it does not need to take a reduced rate to receive tax-free income. Don’t buy an annuity in your IRA. The IRA is already tax deferred, you don’t need to buy a product for tax deferral – the IRA already gives you tax deferral.

9. Rolling all your retirement plans and IRA’s into one IRA because it is “neater,” or easier to invest. It can be very beneficial to have multiple IRA’s with different beneficiaries. That way, each beneficiary can use his or her own life expectancy for withdrawals. Also, some IRA’s and retirement plans may have grandfathered estate planning advantages that would be destroyed by moving them to another plan with a different beneficiary designations. Drawing out 401 (k)’s and profit sharing plans to put in an IRA is not always advisable.

10. Making charitable bequests out of other assets and giving IRA assets to your children and grandchildren. If you want to make charitable gifts when you die, and you have an IRA or retirement plan – the gifts should be made from the IRA or retirement plan. But beware, the beneficiary designation should not be a group or class gift including the charity as one of a group of beneficiaries.

This is an excellent place for a separate IRA for the amount to be paid to the charity on your death. The charity, unlike your heirs, can receive the IRA benefit free of estate tax and free of income tax. Because of the special tax breaks given to the charity, the IRA assets are worth far more to the charity than they are to your heirs. If you use the IRA assets for the charitable gift, instead of other assets, both the charity and your heirs get more.