Sometimes, It’s Too Late

Layers of rules are what we deal with when it comes to accumulating a net worth and managing a net worth.  There are IRS rules, requirements and restrictions that may be specific to the type of account or investment that you are in, as well as processes that are outlined in the custodial contract where your money is held. The complexity of rules can be intimidating enough to procrastinate on decision making, such as addressing the money you have, where you have it, and what you can do with it. Sometimes, not knowing the rules and your options can have an insignificant outcome. Other times, you may find yourself in a state of regret, because it’s too late.

I addressed a question from a lovely lady about whether a she and her husband could reinvest proceeds from the sale of a piece of real estate into another piece of real estate to defer their capital gains taxes. The rules for doing this are outlined in section 1031 of the Internal Revenue Code; the transaction is commonly known as a “1031 exchange”. This strategy has been successfully used by many investors as long as they have followed the specific timelines and procedures outlined in the Internal Revenue Code. Unfortunately for the couple asking the question, they had already closed on the sale of their property and personally received the proceeds. Thus, it was too late for a 1031 exchange. 

I had a conversation with an individual rwho had inherited retirement accounts as a non-Eligible Designated Beneficiary (non-EDB). He cashed in the IRAs to pay off debt. Had he used non-retirement money (which he had) and spared the retirement accounts, he could have continued the potential compounded growth along with the tax-deferral enjoyed by the retirement accounts for up to ten more years. The IRS allows this continued tax favor even though the IRA was not originally his. The opportunity was lost though when the money came out of the inherited IRA; funds cannot be put back in after they are withdrawn. Even putting money into one’s own IRAs or other retirement accounts is subject to income limitations and contribution limits. Thus, the magnitude of the deferral had been lost and it’s too late to go back.

Wealth is always In-Formation and shaped by the choices we make, sometimes with no going back,. Understanding the rules that govern your finances allows you to actively manage that formation. When multiple rules are strategically combined, they can accelerate your financial trajectory. But when those rules are unknown or ignored, time and opportunity may be wasted away.  Sometimes, it’s too late.

LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com SchulferAndAssociates.com

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.