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May 01, 2011 at 08:00 PM
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May means Mother’s Day, and in our family, it also marks the birthdays of both my mother and me. This week, I received a birthday present from my mom, made extra special because she passed away 10 years ago. As such, I am inspired to share with you the wonderful financial planning story that created my annual present from my mother.
My mom and dad never made much money. But no matter how small the paycheck, they always managed to make saving and investing a priority. An even greater priority for them was educating my sister and me. It was always expected that we would go to college and maybe even graduate school. So it came as no surprise that as a result of such education, their children are now in much higher tax brackets than they were.
Through consistent saving and good investments, my mom built up a very nice IRA. When she was diagnosed with multiple myeloma, she decided it was important to leave something directly to my sister and me. I worked with her on a strategic plan to do so.
Being a beneficiary
First, she converted her traditional IRA into a Roth IRA. She knew paying the taxes in a low tax bracket was a tremendous gift in itself. She spread the conversion and tax costs over four years to minimize the taxes. Then she made my sister and me beneficiaries of the Roth IRA. At her death, my sister and I each had the choice of accepting all the money income tax-free then, or keeping the wonderful tax-free Roth and receiving minimum distributions over each of our lifetimes. We both opted to keep her Roth as a beneficiary designation account and receive distributions each year that will likely continue for our entire lives.
