As we step into the promise of 2025, it's the perfect time to refresh our financial outlook and align our strategies with the opportunities that lie ahead. The start of a new year invites us to reflect on our progress and set intentions for our financial future. In this New Year edition of Building Wealth, we're focusing on two timely topics that resonate with many of us as we navigate our mid-career years. Our first feature, "Raising Financially Smart Teens," couldn't be more relevant as we begin a new year. Just as we set resolutions for ourselves, it's an ideal time to consider how we can empower our teenagers with financial wisdom. We'll explore practical strategies to nurture financial literacy in our youth, setting them up for a prosperous future. The second topic, "Choices for An Inherited IRA," addresses a complex financial situation that many may face. As we embrace new beginnings, we'll guide you through the considerations and choices associated with inherited IRAs, helping you make informed decisions that honor both your present needs and future aspirations. As we embark on this new year, remember that your financial journey is uniquely yours. While we offer insights and strategies, the key is to tailor them to your personal circumstances and goals for 2025 and beyond. |
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Raising Financially Smart Teens: Preparing for Their Financial Future As children enter their teenage years, equipping them with essential financial knowledge and skills becomes crucial. Many teens express anxiety about their insufficient understanding of finances, highlighting the need for comprehensive money education. However, only half of all U.S. states provide financial education as part of their schooling curriculum, leaving the burden on family and friends.1,2,3 Starting the Conversation One of the most effective ways to teach teens about money is through regular, open discussions. These conversations can help teens feel more comfortable with financial concepts and encourage them to ask questions. Topics can range from basic budgeting to more complex subjects like investing and credit.2 |
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Earnings and Spending Money While teen employment has decreased over the years—only about 37% of 16—to 19-year-olds work today compared to 59% in 1979—providing spending money can be an effective alternative. This gives teens the opportunity to practice budgeting and spending their own money. Some parents act as bank accounts and lenders, allowing kids to go into debt and repay when they get more spending money.3,4 Banking and Saving By high school, teens should have their own savings account and potentially a checking account with a debit card. Look for accounts that offer features like mobile deposits and person-to-person payments. Encourage them to set realistic savings goals, such as saving for a new gaming console or smartwatch.3 Understanding Credit As teens approach adulthood, it's crucial they understand credit concepts. Consider allowing them to become an authorized user on your credit card to start building their credit history under your guidance. Discuss topics like credit card rewards and the consequences of taking on debt or missing payments. Share your own credit experiences, both triumphs and mistakes, to help them make confident decisions as adults.3,4 Investing for the Future When your teen has accumulated some savings, introduce the concept of investing. You might consider setting up an account for them and encouraging regular contributions over time.3 Letting Them Learn from Experience While it's important to guide your teens, allow them to make some financial decisions independently, even if you think they might be frivolous. Learning from small mistakes now can prevent larger ones in the future.4 Remember, the goal isn't to make your teen a financial professional overnight but to gradually build their financial confidence and competence. By providing guidance, opportunities for hands-on experience, and open communication about money matters, we can help raise a generation of financially savvy adults. |
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Options for An Inherited IRA: Navigating Your Financial Legacy Inheriting an Individual Retirement Account (IRA) can be a complex financial situation. With recent changes in legislation and IRS regulations, it's crucial to understand your choices and responsibilities as a beneficiary. Let's explore some key aspects of inherited IRAs and what’s available to you. Understanding Inherited IRAs An inherited IRA is an account you receive when named as a beneficiary of someone else's IRA after their death. The rules for these accounts differ depending on your relationship with the original account owner and when they passed away.5 Key Factors Affecting Distribution Requirements Several factors influence how you must handle an inherited IRA:
Choices for Spouses As a surviving spouse, you generally have the most flexibility. Your choices may include:
The 10-Year Rule for Non-Spouse Beneficiaries For most non-spouse beneficiaries who inherited an IRA after 2019, the "stretch IRA" choice is no longer available. Instead, you must empty the entire account by the end of the 10th year following the year of the original owner's death.8 Exceptions to the 10-Year Rule Some individuals, known as "eligible designated beneficiaries," may still use the life expectancy method for distributions. This group includes:
Roth IRA Considerations While Roth IRA owners don't have required minimum distributions (RMDs) during their lifetime, beneficiaries of inherited Roth IRAs are subject to the 10-year rule. However, distributions from inherited Roth IRAs are generally tax-free.6 |
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Recent IRS Guidance The IRS has provided some relief regarding RMDs for beneficiaries subject to the 10-year rule. For 2024, the IRs waived RMDs in inherited IRA beneficiaries.9 Rules to Remember Once you reach age 73, you must begin taking RMDs from a traditional IRA in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. For a Roth IRA to qualify for tax-free and penalty-free earnings withdrawals, distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be made under certain circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals. Tax Implications This email is for informational purposes only and is not a replacement for real-life advice. Consult your tax, legal, and accounting professionals if you have specific questions about your inherited IRA or inherited Roth IRA. Remember, tax rules are constantly changing, and there is no guarantee that the treatment of certain existing rules will remain the same. Remember that distributions from inherited traditional IRAs are generally taxable as ordinary income. It's wise to consider how these distributions might impact your overall tax situation.5 Understanding your options for an inherited IRA can help you make informed decisions about managing this financial legacy. Given the complexity of the rules and potential tax implications, consider consulting with a financial professional to discuss your specific situation. |
1. PsychologyToday.com, January 7, 2023 |
This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm.