By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

If the Grinch and Bad Santa both passed their FINRA Series 7 exam and decided to open an investment advisory firm, I’m pretty sure they would combine forces to intentionally deliver some of the WORST financial advice possible. Here are some of their truly terrible, hideously horrible, good-for-nothing planning ideas:

Bad Santa: “Everything on TV and the internet is TRUE. Invest your IRA in gold coins that you can run your fingers through.” Be careful! If you have gold coins or bullion in your IRA, those coins must be in the custody of a qualified trustee or custodian. If they are tumbling through your fingers like on the commercials, there is a good chance you have a taxable distribution – along with all the normal under-age 59 ½ penalty consequences.

The Grinch: “Don’t worry about liquidity for IRA RMDs – the IRS is here to please.” Untrue! Liquidity for required minimum distribution (RMD) purposes is a big concern for some IRA owners. You have a beachfront investment property in your IRA, but no cash? That in and of itself is perfectly acceptable. But if you are subject to RMDs, you can’t cleave off the balcony for distribution, so you better figure out how to either generate some cash within the IRA, or identify how you might leverage the IRA RMD aggregation rules. The IRS does not care about your liquidity issues. The RMD must be taken, and it is the IRA owner’s responsibility to do so.

Bad Santa: “Rental property in a Roth IRA? Access your tax-free rental income today!” No, sir! Rental income within a Roth IRA is simply “earnings,” like dividends or capital gains or stock appreciation. Additionally, Roth IRAs follow strict ordering rules – contributions come out first, then converted dollars, and then earnings – so you can’t just target and withdraw the rents. Plus, Roth IRA owners must follow the standard 5-year clock rules. “Rental income” definitively does NOT get to bypass all the normal Roth IRA distribution guidelines.

The Grinch (with his evil snarl): “Roth conversions are best left to the last day of the year. Until then, enjoy some holiday cheer.” Nope. Untrue. The deadline for a Roth conversion is December 31. If you want to do a Roth conversion in the 2023 tax year, it must be initiated before the calendar changes. And some custodians will set their internal Roth conversion cutoffs even earlier to ensure they don’t get buried with last-minute requests. To avoid the possibility of missing the 12/31 deadline, do your Roth conversions sooner rather than later.

Bad Santa: “IRMAA brackets? Pay them no mind. Just do your Roth conversion and all will be fine.” Definitively NOT true! The Medicare Income Related Monthly Adjustment Amount (IRMAA) brackets are a cliff. Just one dollar over, and you can fall into paying more each month. Roth conversions are NOT excluded for IRMAA calculations and can easily push a person into a higher bracket. For anyone 63 or older, be cognizant of this “stealth tax” before doing any conversion.

The Grinch: “Reviewing beneficiary forms is a waste of time. I’d rather sip eggnog mixed with a rotten brown lime.” How many court cases have we seen where people’s lives were turned upside down due to a beneficiary form being forgotten, filled out incorrectly, or never updated? Happens all the time. It may not be glamorous, but an annual review of beneficiary forms could be the most important planning strategy of all.

Where is the SEC oversight?!? Where is the compliance department? Bad Santa and The Grinch are unscrupulous! Come back in a couple of weeks for Part 2 and see if this terrible, no-good advisory team continues to put coal in the IRA stockings of all the Whos down in Whoville.