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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Alternatepriorities on February 05, 2021, 01:43:37 PM

Title: Father's IRA and Roth
Post by: Alternatepriorities on February 05, 2021, 01:43:37 PM
Trying to help my father plan a bit ahead...

He has a Roth IRA and a Traditional which have slowly grown to be become meaningful money since hes retired because he mostly avoids spending anything more than his SS. He hits the age for RMD this year and he's also started having health issues that may soon make it impossible for him to continue living where he does (4 hours from a hospital and 5 hours from family who can help him)

Is there anyway to tap the traditional IRA to buy property closer to civilization without a massive tax hit? The only thing I can think of is using the amount of his RMD as a basis for calculating the payment on a mortgage... He's loath to go back to making house payments but I might be able to talk him into it if it really saves him money. His current home is worth less than it could be due to it's location in the middle of no where so despite being owned outright it's less helpful than it might be for buying a new place. It might also take a while to sell.

Aside from having beneficiaries designated on the IRA accounts and a will is there anything to be done to better prepare for leaving it behind? We're talking maybe $400k total assets including the property but it took him a lot sweat and some blood to earn and my siblings and I would best honor that by being as efficient with it as possible when he passes.

Title: Re: Father's IRA and Roth
Post by: secondcor521 on February 05, 2021, 02:56:49 PM
A few thoughts:

I'd give serious consideration to having him rent instead of buy, especially if his health is poor.  Owning a home is good in the long term, but in the short term the transaction costs of buying and selling (realtors, appraisals, title/escrow, mortgage fees, etc.) can outweigh the benefits.

It's also possible that his needs for where he lives might change.  He may need to move into some sort of care facility, retirement home, skilled nursing, etc.  And he might need the equity from his existing rural home to help pay for either his care or his entry fees into such places.

But yes, he may be able to get a mortgage based on his RMD's.  It's probably better to set up his RMD's as a monthly amount of RMD/12.  Banks love to see monthly income, and they generally consider RMDs income even though technically they're not.

As far as your last paragraph, beneficiaries on everything you can is an excellent start.  Check what your state allows - you may be able to add beneficiaries or use TOD/POD designations on his taxable account if he has one, his bank accounts (checking/saving), and possibly his house and car if applicable.  These designations are nice because the transfer can usually happen with just a copy of the death certificate instead of waiting for probate.

The other general thing to do is for you to make sure you're aware of all of his assets - at least the institution, contact phone, and rough amount.  If his memory or mental ability is declining, it would be a shame to lose track of any assets due to just losing track of them.  If your relationship allows, try to have a discussion with him to go over that stuff sooner rather than later.

Finally, you should also talk with him about his medical care wishes.  Does he have someone he wants to make decisions for him?  Does he want a DNR?  States differ in how they implement this stuff, so this may involve durable health care POA, living will, health care directives, POST (physician order for scope of treatment), or other such terms.
Title: Re: Father's IRA and Roth
Post by: Alternatepriorities on February 05, 2021, 05:17:01 PM

It's a good point about renting vs buying... However, I don't think there is any chance of my father living in a place where he isn't free to do as he pleases. He'd rather have not running water than have someone tell him were he can and can't plant his garden or build a greenhouse. I don't think he'd make it six weeks in assisted living, as his will to live is very much tied to being able to DO things and contribute. In a lot of ways I'd prefer to see him finish life on the land and in the home he's build himself over the last 40 years, but if that's not practical a place in this area is probably the next best thing. Plus he has grandkids here to keep him going a bit longer...

Any property he purchased in this area would be a family project with a clear plan for what we'd use if for when he's gone though. As I'm FI now I'm thinking seriously about buying land large enough to build him a cabin (think a large tiny house) on and a house for DW and I. One of the thoughts was to have him purchase that land/property and I'd build on it first for him and then for us as we have a house now.

Thanks for the thoughts on bank accounts and taxable accounts, they are both pretty small, but it would be nice to have as little in probate as possible and I hadn't thought about that. I know where his money is currently, not sure if my siblings do or not though. His mind is still pretty good, he tracks all his investments daily and did very well last year. It is something we should talk through though.