What Comes After a Trillion?

Parlay Your IRA into a Family Fortune: 3 Easy Steps for creating a lifetime supply of tax-deferred, even tax-free, wealth for you and your family
by Ed Slott

"The best source of IRA advice" (The Wall Street Journal) introduces a three-step plan for turning an IRA into a lifetime of tax-deferred, even tax-free, wealth.

Ed Slott's book The Retirement Savings Time Bomb . . . and How to Defuse It taught Americans how to protect their hard-earned cash from the IRS's coffers. Now, "America's IRA expert" (Mutual Funds Magazine) returns with a bulletproof plan for ensuring your IRA's continued longevity, tax-favored, for generations.

In Parlay Your IRA, Ed Slott shows you how to make the most out of your retirement plan. Slott's three-step strategy cuts through the tax laws and provides simple, easy-to-follow instructions for managing your IRA and other retirement income. Learn what you can do to parlay it into a fortune during your lifetime, and what you must do now to ensure that your beneficiaries will have all the options available to capitalize on the opportunity you've created for them to keep your money growing.

Packed with strategies, tips, answers to frequently asked questions Parlay Your IRA into a Family Fortune offers real solutions to making the most of your retirement money.

Learn how to:

• Achieve unlimited tax-free income when you retire.
• Pass more assets on to loved ones and other beneficiaries
• Keep retirement assets in the family for decades, even generations, and pay minimal or no taxes
• Protect your retirement account from creditors, divorce, bankruptcy, lawsuits, or other problems that could expose it to loss
• Use a Roth IRA to build a tax-free fortune

And much, much more.

"If Willy Sutton were alive today, he wouldn't be very interested in banks - because that's not where the money is. To be specific, Willy would find about $4.5 trillion in total deposits at U.S. depository institutions, according to the Federal Reserve. But far greater assets are accumulating in retirement plans, where Americans now hold an estimated $11 trillion of wealth. For frame of reference, that's about $2 trillion more than the total market value of all publicly traded U.S. stocks."

— Judy Diamond, Journal of Financial Service Professionals, July 2003

The Perfect Storm

This book is based on one simple, but powerful, premise: The longer your IRA is sheltered from taxes, the more it will grow in accumulated wealth. The key to sustaining that shelter and achieving such growth is to milk the tax laws for all they are worth!

IRA exposure to taxation is unavoidable. The tax rules generally require that sheltered retirement money begin to leave its nest when the owner turns 70½ or dies, whichever comes first. It is when IRAs are exposed to taxes during a period of transition, such as inheritance, that they become vulnerable to the most complex tax rules known (or unknown) to man.

Since exposing IRAs (including Roth IRAs) to taxation at inheritance time cannot be avoided, it is critical for IRA owners to plan for that eventuality. It is equally important that those who will be inheriting IRAs know what to do when the time arrives. If not, the consequences could be disastrous.

On the flip side, it is also when IRAs are in transition during inheritance that the opportunity presents itself to parlay them into a fortune! I call this combination of risk and opportunity the "perfect storm," because either way the result can be a potential windfall. The question is: For whom - you, your family, or Uncle Sam?

Uncle Sam really doesn't have to do anything to cash in - except hope that you make a mistake setting up your IRA so that the opportunity for your beneficiaries to keep it growing will be lost. Of course, even if you make no mistakes, the government still gets a second bite at the apple when your beneficiaries actually inherit - if they expose the IRA to taxes, they will sacrifice the option for continued growth. On top of all this, the taxman gets a third swipe at your IRA - because even if you make no mistakes and your beneficiaries do everything as instructed, a slipup on the part of your financial advisor, or the financial institution (bank, broker, mutual fund company) holding your IRA, can kill the chance to grow the account into a fortune by making the IRS your biggest beneficiary. Slipups of this magnitude by financial advisors and financial institutions are not only quite common, but widespread.

These are the land mines that must be successfully sidestepped so as not to trigger an explosion of taxation that costs you and your family the opportunity to parlay your retirement nest egg, no matter how small, into an obscene amount of cash over time.

IRAs in Transition

Over the next decade, the greatest transfer of wealth in American history will take place - to the tune of approximately $11 trillion in current retirement savings! By the year 2013, most of the surviving members of the World War II generation (approximately 40 million aging Americans) will have passed into history, and that generation's accumulated life savings in IRAs and other retirement accounts will have passed to their children, the baby boomers (approximately 77.6 million Americans, according to the U.S. Census Bureau). Meanwhile, the number of baby boomers now retiring will swell to record numbers, all of them faced not only with managing the transition of their parents' IRAs to themselves, but also with setting up their own IRAs for transition to their children.

It is critical that you, your heirs, and the financial advisor handling your affairs start preparing for the perfect storm now. Whether you are married, single, or an unmarried domestic partner, this seismic event presents a chance to build a lifetime supply of tax-deferred, in some cases even tax-free, wealth for you and your family. Or risk losing that chance - perhaps for a generation.

No Weak Links

If you read my earlier book The Retirement Savings Time Bomb...and How to Defuse It, you've got a leg up, because you already know the moves necessary to keep your nest egg from being gobbled up by the confiscatory taxes levied on retirement accounts when you start taking money out to live on.

Now you are ready for the slam dunk - to parlay what you've protected into a fortune. So there are no weak links in the chain, several key elements must be addressed to achieve this slam dunk:

1. What you can do now to parlay your IRA into a windfall during your lifetime.

2. What you must do now to ensure that your beneficiary - spouse, domestic partner, or child - has all the options available for growing your IRA into an even greater fortune after you're gone.

3. What your beneficiary (or beneficiaries) must do at the time of inheritance to be able to take full advantage of these options.

4. How to pick a financial advisor who is an IRA expert to help you and your beneficiaries make all the right decisions.

How to Use This Book

Sidestepping just one or two land mines won't do. You need to hurdle all of them. That's why this book is divided into three parts, each devoted to what you must do to avoid that particular land mine. Under our current tax laws, an IRA can be turned into a windfall that will take care of you and your family for generations. This book shows you how.

My strategy for sidestepping all three land mines has evolved from more than 20 years of experience as a CPA consulting with clients on estate and tax planning, preparing tax returns, as well as being a keynote speaker, teacher, and coach to consumers and professional financial advisors. It shows you and/or your heirs how to:

• Convert your traditional IRA (or other plan) to a Roth IRA now, and achieve unlimited tax-free income when you retire.

• Name a beneficiary who can make the most of your retirement savings after you're gone.

• Pass more assets on to loved ones and other beneficiaries.

• Keep retirement assets in the family for decades, even generations, with minimal or no taxes.

• Expand your knowledge of passing on and inheriting retirement accounts - the largest single asset most people have - and make better, more cost-efficient use of financial advisors.

• Take advantage of the latest tax laws and inherited IRA rule changes.

• Integrate your IRA with your overall estate plan to create the ideal estate plan for you and your family.

• Avoid obscure tax traps if you inherit an IRA or other retirement account.

• Protect your retirement account from creditors, divorce, bankruptcy, lawsuits, or other problems that could expose it to loss.

• Keep track of key beneficiary and other vital instruction material.

• Keep track of key IRA deadlines (missing them could be devastating).

• Use a Roth IRA to build a tax-free fortune for your family.

• See that beneficiaries do not miss out on special tax benefits, deductions, and tax elections they may not know about (because their financial advisors don't know about them either).

• Evaluate whether an IRA trust is right for you and your family.

• Use IRA trusts to protect and grow savings for your family.

• Take advantage of the separate account rules governing IRAs when there are several beneficiaries, so that each one can independently parlay his or her share into a fortune.

• Set up your retirement account so that it allows your beneficiaries the greatest flexibility in seizing advantage of every possible post-death option available.

• And much more.

Assets for a Lifetime

This is a comprehensive, winning strategy for taking advantage of existing tax laws to parlay your IRA or other retirement account assets into a potentially tax-free fortune. No matter how large or small the account, no matter whether you are married, single, or among the millions of today's unmarried domestic partners, this goal is attainable.

If you have worked long and hard all your life to build a nest egg and want to see it keep going and growing, this is the plan for you. It's time to knock the ball out of the park - with a home run that takes care of you, your loved ones, and their loved ones for generations!

© 2005 Viking, a division of Penguin Putnam, used by permission.

About the Author

Ed Slott is a highly sought-after professional speaker, CPA, and tax adviser. His diverse client list includes major corporations such as Fidelity Investments, American Express, Merrill Lynch, Nationwide Insurance, and Oppenheimer Funds. Ed Slott frequently appears in The Wall Street Journal, The New York Times, USA Today, and on broadcast television and radio programs nationwide. He is publisher of the popular monthly newsletter "Ed Slott's IRA Advisor." For more information about Ed Slott and his numerous speaking engagements, please visit his website: www.irahelp.com.