Another installment of our reporter’s extended interview with noted retirement specialist Phil Cannella, founder and CEO of First Senior Financial Group and host of The Crash Proof Retirement Show™.
Question: So what’s this I hear about “the earth suit”?
Phil Cannella: If something doesn’t age, it can’t grow old. Your spirit doesn’t die. Your legacy doesn’t get older. It’s your earth suit that gets sick and your body that grows old as you cycle into a new phase, an unknown phase that’s determined only by your faith.
Q: And how does that relate to retirement?
Phil Cannella: Once you leave your earth suit behind, your legacy keeps on. And the moments of your life that you’ve sacrificed to convert into a monetary value, well, they should remain in your family right where they belong.
Q: I see. That’s a good way of looking at it.
Phil Cannella: Life after death, financially speaking, refers to your legacy, your accounts and the money you’ve worked so hard to accumulate in your working years. What’ll happen to those accounts after you pass away?
Q: Maybe a better question is, What do you want to happen to those accounts?
Phil Cannella: That’s my point. Who should collect what you worked for and accumulated in your life: the government or your loved ones?
Q: I think most people would say that’s an easy one.
Phil Cannella: You can leave a legacy behind and the way to do it is by structuring your IRA accounts in such as way that you guarantee they’ll be handed down to your heirs. There are options available to you in the second half of your financial life, the retirement phase, to help see to it that your legacy will thrive, and when you get right down to it, allow you to control your assets from beyond the grave.
Q: So as a practical matter, what should people do?
Phil Cannella: If you’re married, you’ll want to list your spouse as the primary beneficiary so that he or she can arrange for what’s called a spousal continuance, allowing them to make your IRAs their own at your death. This isn’t a Stretch IRA wherein you stretch the required minimum distributions over the beneficiary’s life expectancy. Your spouse will actually take ownership over the account and transfer the title to his or her own name. And if you had the right advisor who showed you how to convert your IRA into a Roth IRA, no taxes will fall due. Your spouse has the option to roll over your account into his or her own IRA or keep it as a separate account, and if it’s a Roth, your spouse won’t have to take RMDs. In general, if you pass away before your spouse, the government assumes that you will pass along your IRA to your surviving spouse. In fact, if you wish to make a non-spouse the primary beneficiary of your IRA, your spouse must sign off on this wish on your beneficiary form.
Q: Are there any ‘catches’?
Phil Cannella: There’s a special set of rules that govern this scenario. Oftentimes, IRA owners want to leave part of their IRAs to their spouse and part to their descendants. Not to worry, you can leave part to your spouse and part to your other heirs by noting percentages on your beneficiary form. You’d be surprised how easy it is to do all the things I speak of when you simply know what to do!