Your IRAs will be an important source of your retirement income and perhaps your legacy. How you handle them throughout your working life can help enhance and secure that retirement income.

First Things First: Establish an IRA. Most retirement saving occurs in the workplace, and you should absolutely contribute as much as you can to your 401k, 403b, or similar employer- sponsored plan. You are also able to contribute to an IRA or Roth IRA—as much as $6,000 annually ($7,000 if age 50 or over). Contributing to your employer-sponsored plan should be your priority. Even if you aren’t contributing the maximum there ($19,500 this year, or $26,000 if age 50 or over), use your IRA as a repository for those unexpected checks. Further, if your employer retirement plan does not have a Roth feature, establish a Roth IRA and fund it, even with a minimum amount. Beginning this year, you can contribute to your traditional IRA even if you are above age 70. For those working past traditional retirement age, this is a welcome change.

Consolidate, Consolidate, Consolidate. When you leave a job, don’t leave your retirement benefits behind. Roll them out into that IRA you have established. Do this for several reasons. Your 401k or other workplace account has a set menu of investment choices. In an IRA, you can invest in anything. Your former employer doesn’t want to keep track of you and chase you down once you are required to take distributions. You don’t want to forget about an old retirement account and risk losing it altogether.

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Limit your IRAs. You should have one traditional IRA, to hold all non-Roth retirement plan rollouts and any contributions you may have made. You should have one Roth IRA, to hold Roth 401k rollouts, conversions from your traditional IRA, and any contributions you may have made. If you inherit an IRA from someone other than your spouse (usually labeled as a BDA IRA, for beneficiary designation account), that IRA has special distribution rules and must be kept separate.

Allocate Investments for Maximum Impact. Before you get to your IRAs, any taxable accounts should be focused on stocks. Stocks held in taxable accounts are taxed at about half the rate of bonds and other fixed income. Any loss on sale has tax advantages. At death, assets held in taxable accounts get a new cost basis—their then fair market value. None of these tax advantages are available in IRAs. If you want to hold enough stocks that you must hold some in retirement accounts, it matters where you hold them.

Each type of IRA has its own tax flavor. Roth IRAs are tax free, both while the assets are in the account and when money is distributed. Moreover, a Roth IRA owner is not required to take any distributions, even after age 70. Because Roth IRAs are off the tax grid, favor faster-growing assets—stocks—for maximum tax-free appreciation potential.

BDA IRAs are the least tax favorable of these accounts. The beneficiary must begin taking distributions the year after the original IRA owner dies, even if that original owner was younger than 70. Distributions come out more quickly than those from a traditional IRA, and pending legislation (the SECURE Act) would require them all to be made within ten years of the original IRA owner’s death. In most cases, every dollar distributed from a BDA IRA is taxed as ordinary income. To minimize the unfavorable tax impact of BDA IRA distributions, focus fixed income in this account; that can limit future growth of this high-tax income stream.

Traditional IRAs fall in between. Distributions there begin at age 72 (an increase effective this year), allowing for more deferral than a BDA IRA. Distributions are taxed as ordinary income, resulting in less favorable cash flow than a Roth IRA. For most investors, traditional IRAs hold a mix of stocks bonds—whatever isn’t allocated using the above guidelines.

Leverage your Required Minimum Distributions. Beginning this year, IRA owners must begin taking required minimum distributions at age 72. Retirement distributions can begin as early as age 59-1/2—any earlier than that typically carry a tax penalty.

Consolidating retirement accounts simplifies those distributions. If you have multiple traditional IRAs, you can choose from which account(s) to take how much of your total RMD calculated across those accounts. The various custodians won’t know whether you’ve satisfied your RMD elsewhere, so each will nag you throughout the year. If you left a 401k with a former employer, you are required to take that specific RMD from that specific account. BDA IRA distributions must come from that specific account.

Most IRA owners need those distributions for retirement income. Those who don’t need all their distributions to support themselves have some intriguing options.

First, you can give some or all of your RMD directly to charity. That gift removes the distribution from your taxable income. In turn, that can reduce future Medicare premiums. Perhaps even better, it allows you the equivalent of deduction for that charitable gift while still taking the full standard deduction. You can give as much as $100,000 of your RMD directly to charity; a married couple can give that amount each.

If you still have un-accounted for RMD, use it for estimated taxes. Most retirees are required to make estimated tax payments quarterly. Taxes withheld from IRA distributions have a special rule—they are deemed to be paid ratably throughout the year, regardless of when they are withheld. That means you can withhold taxes from your RMD as late in the year as December without being penalized for making late estimated payments. If you pay less than the total payments due for the year, you must still make reduced quarterly estimated payments.

Maximize your Legacy. When you pass away, assets in your taxable accounts get a new cost basis, equal to their then fair market value. Not so with your traditional IRA—your beneficiary receives the same stream of ordinary income as you. An IRA left to your spouse is treated as your spouse’s IRA—he or she takes distributions starting at age 72, using the regular IRS distribution tables.

Non-spouse beneficiaries have more negative tax consequences. Regardless of age, your beneficiary must begin taking distributions the year after your death and must do so using an accelerated timetable. Beginning this year, non-spouses who inherit IRAs must distribute out the entire account within ten years. The non-spouse beneficiary of a Roth IRA is subject to the same distribution requirements, although those distributions are tax free.

Finally, regardless of who you name as your beneficiary of a BDA IRA you inherited from a non- spouse, that beneficiary steps into your shoes and continues the distribution schedule you established.

An IRA owner with any charitable intent at death should fund that gift from a traditional IRA or BDA IRA. A charity pays no tax and is indifferent as to the source of the gift. Family members should prefer to receive non-retirement assets, without the built-in tax liability. Techniques exist that could stretch out distributions to adult children, with a charitable gift at the end. Those can be expensive to establish but may be worth it for million dollar (or more) IRAs.

Note: Claire E. Toth, JD, MLT, CFP™, is Vice President and Chief Operating Officer at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit. Visit us at

Point View Wealth Management is an SEC-registered investment adviser and part of Peapack Private Wealth Management. For over 25 years, Point View Wealth Management has been providing customized portfolio management services and comprehensive financial planning solutions for individuals and their families to develop and achieve their financial goals.  

Contact us at or call us at 908-598-1717 to learn more about us and how we can help you and your family meet your financial objectives.

Point View Wealth Management is located at 382 Springfield Avenue, Suite 208, in Summit.