Ken Moraif  

Hello everyone, and welcome back to the retirement planners of America podcast, where we try to have more fun than a human being should be allowed to have when talking about all this financial stuff. And this time, we have a very exciting topic, which is the seven mistakes that IRA owners make. And I don’t want you to make any of these mistakes, and that’s why we’re making this podcast for you. So, Jeremy, hello, 

Jeremy Thornton  

hello. 

Ken Moraif  

How are you doing? 

Jeremy Thornton  

I’m doing well, Ken, how are you 

Ken Moraif  

I am very excited about this podcast. 

Jeremy Thornton  

Yeah, 

Ken Moraif  

I’m, you know, this is what I love to do, love to talk about, love to plan for. And you know, I’m a tennis player, 

Jeremy Thornton  

okay

Ken Moraif  

And you know, people, when you watch a tennis match, or even in football or any sport for that matter, we always like to see, you know, how the offense does. That’s the exciting thing, right? The touchdowns. You know, the big, exciting shot that wins the point. You know, whatever it may be, but really it’s who makes the least mistakes that ends up winning. Like in tennis, for example, if you make no mistakes, you’re gonna win practically every match. 

Jeremy Thornton  

Yes, 

Ken Moraif  

You know. And it’s the same thing in baseball. They count how many errors there are in, you know, all in practically every endeavor, it’s all about not making mistakes, 

Jeremy Thornton  

yes. 

Ken Moraif  

So the way you win, in my view, is by not making mistakes. 

Jeremy Thornton  

Yeah. And how do you get better? You review tape, and you look at all the mistakes you did make, and you try to counter that, right? 

Ken Moraif  

Exactly, 

Jeremy Thornton  

yeah. 

Ken Moraif  

So we want to help people to not make these seven, 

Jeremy Thornton  

yes

Ken Moraif  

Not four, not five, not six, seven, 

Jeremy Thornton  

yeah, not a completely exhaustive list of mistakes you could make, but these, I believe, would be considered some of the most egregious mistakes you can make, or costly, 

Ken Moraif  

fair enough, there are probably many others that people can

Jeremy Thornton  

Okay, so let’s talk about the first kind of mistake that people can make. Are there limits on contributions that you can that anyone could really do in a kind of a day to day kind of, look, 

Ken Moraif  

yeah. So basically, you want to take advantage as much as you can of IRAs, in my opinion, all right, because the money  grows without being taxed, you take it out potentially tax free or, you know, so there’s a lot of advantages to it, and because of that, there are limits to how much you can put into them, right? So what they do is they have these limits, and these limits change almost every year, so they get increased due to inflation. So sometimes people think you know that my contribution limit is x, but then next year, it’s x plus some fact, so it’s more so make sure you check that all the time. Make sure you’re maximizing based on the contribution limits. Yeah. So that’s the one of the first mistake, I would say, is not taking advantage of increased contribution limits. 

Jeremy Thornton  

Yeah. Are there specific like life events that can increase those limits as well, and that just increasing from year to year would due to inflation or policies things like that. Are there special like age brackets or things like that, where you have special allowances for increased contributions? 

Ken Moraif  

There are yes, if you are over 50, they have these, what they call catch up provisions. And those catch up provisions also go up. So yeah, those the contribution limits for you, your spouse, your you know, your age, be aware of those things so that you can maximize the amount of contributions that you can make. 

Jeremy Thornton  

Awesome. Okay, so, speaking of spouses, let’s say that my spouse is not working in, you know, the business world, or really for a job or anything like that. What should we consider there? Or what mistake could we make when not taking them into consideration? 

Ken Moraif  

Yeah, so Exactly. So mistake number two is forgetting that a non working spouse can actually make contributions to an IRA as well. Okay, the key thing is that you have to be making a contribution. But if you are, your spouse  can as well. 

Jeremy Thornton  

Oh, interesting, 

Ken Moraif  

yes, and it’s a lot of people are not aware of this, and it can be significant, because if you use a deductible IRA version, then that can give you an additional deduction, you know, based on whatever those contribution limits are. So it could be $7,000 potentially or more of a deduction that you’re not taking because you didn’t realize that your wife or husband could put money into an IRA as well. Even though they’re not working, they’re not employed, so yeah, the non working spouse can make contributions as well. Make sure you do that. So that would be mistake number two, 

Jeremy Thornton  

okay, number two, number three, what should we consider when we were thinking about penalties? Are there penalties? What could they be and how could they affect us? 

Ken Moraif  

Yeah, so we talked about that in another podcast that we made. So I encourage everybody you know, go to our podcast page and look for the one on how to take Ira distributions before the age of 59 and a half, okay, without penalty. So that would be a case where somebody is taking money out before 59 and a half, and they’re paying penalties, which could are 10% right, and they’re doing it unnecessarily because they were not aware of the 72t provision, which we talked about in the other podcast, and we’re not going to talk about here. 

Jeremy Thornton  

Yes, indeed,

Ken Moraif  

we’re so mean, yeah, 

Jeremy Thornton  

easily watchful. Just click, just click the link. You’ll get there. Okay, so let’s go to number number four. And this one, I feel like we’ve talked about quite a bit as well, is beneficiaries. 

Ken Moraif  

Yes, you know, over my career, gosh, I have seen, man, I don’t even know how many I would say, 15,000 Ira beneficiary forms. 

Jeremy Thornton  

Yeah, that’s a lot. 

Ken Moraif  

Oh, my I’m getting a headache And it’s very interesting to me how frequently I see that the beneficiary designations on there are incorrect. They’ve done them incorrectly. Their family situation has changed. They’ve gotten married, they have new kids. They have, you know, they lost a child. Unfortunately, there’s a lot of reasons why the beneficiary designation may have changed, and they didn’t think that they should go and change the beneficiary designation in their IRA. So, you know, when we’re onboarding a brand new client, and when we meet with existing clients on a periodic basis, you know, we always go over the beneficiary designations to make sure that they’re that they’re correct to the current moment. 

Jeremy Thornton  

Yeah. 

Ken Moraif  

And the good news is that you can change those beneficiary designations as often as you wish. Sure, you know. So if you wake up one day and you’re not in love with a child anymore, you don’t even have to tell them. It’s very easy. You just call us up and say, okay, was 50/50. No longer. It’s 100% that one now and then we’ll say, Now, calm down. But you can’t do that. So until the date of your death, the beneficiary designations can be changed as often as you wish, but the key point is that you keep them updated. 

Jeremy Thornton  

Yes, 

Ken Moraif  

and it’s really, it really surprised me early in my career, how often the beneficiary designations on IRAs were incorrect. They were not up to speed. 

Jeremy Thornton  

Yeah, that could be a damaging thing for you to leave behind for the rest of the family. Okay, well, speaking of beneficiaries, would for number five, is naming a trust going to be an issue for an IRA beneficiary? 

Ken Moraif  

Yeah, that’s really interesting, because it is a while ago, if you named a trust as a beneficiary of your IRA, then the entire distribution upon your death became taxable. 

Jeremy Thornton  

Oh, wow. 

Ken Moraif  

And the reason was because an IRA is they is the beneficiary, could only be a living human being, and if you named a trust as the beneficiary, that was not the case. This is a trust. Is not a living human being, and so therefore you just basically took the whole distribution and 100% of it became taxable, 

Jeremy Thornton  

right

Ken Moraif  

Well,

Jeremy Thornton  

three, four years ago, they decided that, okay, people want to have a trust be the beneficiary, because I have a minor child, or I have, you know, somebody that’s not going to be responsible with the money, or, you know, the variety of reasons why you would want to have a trust be the beneficiary of your IRA, 

Ken Moraif  

yes, 

Jeremy Thornton  

okay, so they change the rules, but here’s where the mistake can happen. If you just name your trust as the beneficiary, then that does not create non tax the that that tax ability upon your debt that I was describing. 

Ken Moraif  

Yes, 

Jeremy Thornton  

they gave very specific rules as to the language that you have to use to make it that is this trust can be the beneficiary of your IRA. Again, they didn’t want to people to abuse this, 

Ken Moraif  

right

Jeremy Thornton  

So they said very specific rules, which may surprise you, that the that the IRS would have very specific rules, 

Ken Moraif  

yeah,

Jeremy Thornton  

but they do. So you have to, if you’re going to name a trust, you can, but you have to use the IRS is very specific language and their rules to make it. So if you don’t do that, then the problem I described still exists, 

Ken Moraif  

yeah,

Jeremy Thornton  

so you have to be careful there. Don’t make that mistake. 

Ken Moraif  

Yeah, absolutely. Okay, so IRAs, we’ve talked about required minimum distributions. Where is that going to be a hang up for some people, 

Jeremy Thornton  

yeah, so required minimum distributions were created because back when they invented the IRA, they had this brilliant idea that we want Americans to save lots of money so that when they retire, the government has to, doesn’t have to support them, and they have self sufficiency and all of that. And it’s a great idea. It’s wonderful. And so we’re going to incentivize everybody by giving them a tax deduction for putting it in it grows without being taxed. And later, they added the Roth version, which means now it’s grows without being taxed. It all comes out without being taxed. But it created a problem for them, 

Ken Moraif  

yes, 

Jeremy Thornton  

and the problem for them was that there are people that may not need that money ever, 

Ken Moraif  

right

Jeremy Thornton  

And if that’s the case, then they will never take the money out ever. That. 

Ken Moraif  

Why is that a problem? Ken, 

Jeremy Thornton  

well, because they won’t ever collect any taxes on it. Oh, that is a problem for the government. 

Ken Moraif  

Yeah, they don’t like that at all. Jeremy, there’s a consistent theme going on here. So, so they created the required minimum distributions, basically to force you to empty the tub, to drain the tub, you know, over your life expectancy, so that this tax freeness, tax deferral goes away. They didn’t want it to last forever, 

Jeremy Thornton  

right

Ken Moraif  

And so the required minimum distributions force it to be essentially drained out. And if the end, we have made a podcast about that, so I won’t go into those details, but the mistake is to not abide by those rules, because if you don’t, it’s a 25% penalty on that which you should have done, 

Jeremy Thornton  

that’s a lot,

Ken Moraif  

 and tax on that which you now take out to satisfy the aforesaid required distribution that you never took out. So number six on our list is not taking your required minimum distributions, and there are some planning strategies you can use around that, to mitigate the taxes or to eliminate the required minimum distribution, or at least reduce them significantly. But again, we’ve done other podcasts for that 

Jeremy Thornton  

absolutely okay, so let’s go on to number seven. We’re talking about trust beneficiaries, all that kind of stuff. What should be thinking of whenever we’re thinking about who’s going to inherit, or our errors to these IRAs specifically, 

Ken Moraif  

yeah. So, yeah. So the mistake here is not taking account the greedy, unwashed, undeserving, yeah, heirs, 

Jeremy Thornton  

right

Ken Moraif  

And, you know, I get a lot of pushback on that. I get people who, you know, they say, Ken, my, my heirs are not greedy, you know, but so I’m like, Okay, well, they’re not greedy, but they are unwashed. Okay, so you need to hose them down. It’s a joke. Yes, okay, everybody calm down. But yeah, how do you so IRAs, you know, once you die, go to your heirs, right, who you’ve named. And so there are some planning opportunities there that if you don’t spend some time thinking about, then they could end up paying more tax than they would if you had done proper planning. You know, we have a lot of instances where people are not going to use up everything in their IRA by the time they die, or they don’t need the money at all, 

Jeremy Thornton  

right

Ken Moraif  

Or, and it’s going to go to their heirs. Okay, so that brings up, how do we invest this? 

Jeremy Thornton  

Yeah

Ken Moraif  

okay, so if I’m talking to which actually happened a client that’s 80 years old, they have money over here. This IRA is, I’m never going to touch it, 

Jeremy Thornton  

okay, yeah. 

Ken Moraif  

So how do we invest that? Well, we’re not investing it for you, 

Jeremy Thornton  

right 

Ken Moraif  

Mr. 80 year old client, 

Jeremy Thornton  

right

Ken Moraif  

We’re investing it for your kids, of course, 

Jeremy Thornton  

right

Ken Moraif  

 And they’re 50 Yeah, so therefore we’re going to invest it as if we’re investing for a 50 year old, not an 80 year old. Okay, so there are some things like that. There’s also, you know, what happens in terms of how they have to take distributions once they inherit it, what are the best ways for them to do this? So not taking into account the greedy, unwashed, undeserving heirs, part of this is also a mistake that you could make. 

Jeremy Thornton  

Awesome. That is all seven that we had. 

Ken Moraif  

Those are seven. 

Jeremy Thornton  

That’s seven.

Ken Moraif  

Wow. That was impressive. So ladies and gentlemen, I hope you had as much fun as we did, watching and enjoying this as we did, making it for you. Hope it finds you healthy, wealthy and wise, and of course, make sure you like and subscribe. But that helps us out a lot, and we’ll talk soon.