Let’s play a new game: Dave Ramsey Jenga®

To make this game, which is far from my favorite, a bit more interesting, I've invented Dave Ramsey Jenga. No, that doesn't mean Jenga® played with  "gazelle intensity," to borrow a phrase from Dave. It means we'll label a few core blocks with themes that mimic finance entertainer Dave Ramsey's philosophy, then see how stable a financial plan is once each piece is removed.

Related: Here's how Dave Ramsey racked up billions in listener losses

Here are the blocks we'll use:

1. 1. 1. 1. Gift Taxes
         2. Debt
         3. Inherited IRAs
         4. Annuities
         5. Calculated Rate of Return

We'll remove each block with an example of the bad advice given by Dave Ramsey. For anyone new to this column, remember this hallmark:

Bad math leads to bad advice, and bad advice hurts people.  

Dave Ramsey often fails to collect the types of details that registered advisors use to make informed client recommendations. (Photo: AP Images)

First Jenga® Block: Gift Taxes

Danita from Flint, Michigan recently asked Dave Ramsey how to set up a gift for her nephews. Here are some of the details:

1. 1. 1. 1. She inherited money from her parents' estate.
         2. Her father's wishes were for her to give each nephew $100,000.
         3. She has two nephews.

Dave's reply: "If an individual gives another individual a gift of over $14,000, the amount over that is taxed as a gift tax and probably as high as 55 percent."

Upon further consideration:

The top tax gift tax bracket is 40 percent, not 55 percent. Furthermore, this is on amounts in excess of $1,000,000 past the gift tax exclusion. The last time the top rate was 55 percent was about 15 years ago, when the estate tax limit was a fraction of what it is today. 

Although he correctly advised Danita to use the unified tax credit, he went on to prove he's not qualified to give this advice. (Remember, he's also not licensed.) Dave told Danita to seek out an attorney to avoid the tax. This isn't a legality issue, it's a tax issue. Danita should see an accountant or CPA since this requires a special tax return.

Dave also told Danita that she could gift the annual limit of $14,000 to each nephew and his spouse. While this is correct, it opens up a better question. Is Danita married? If so, both she and her husband could maximize the annual gift to each nephew and each nephew's spouse. In other words, they could gift $56,000 now and $44,000 in January… and bingo-bango, they'd be done.

This approach would be far better than the $28,000 for nearly four years that Dave Ramsey recommended. Either Dave didn't think of this or he didn't know they could do this. That means he was either incompetent or negligence. You decide.

Second Jenga® Block: Debt

Chris from Flint, Michigan recently asked Dave: How to start investing?

Here are the details:

1. 1. 1. 1. Chris is fully disabled.
         2. He received $750 per month.
         3. He is 58 years old.
         4. He has $25,000 in past-due debts from federally-insured student loans, child support payments, and consumer purchases.

Dave Ramsey correctly told Chris that federally-insured student loans are forgivable for the disabled. But before you start wondering why we're removing this block, let me say this:  Sometimes it's not about what you know, it's what you don't know. 

Related: Financial planning that helps families avoid college debt 

I once had a colleague whose partner, like Chris, was fully disabled and receiving benefits. This person had fallen behind on car and credit card payments. After a few years of no payments and continued full disability, the lenders forgave the balances since they generally can't garnish disability payments.

Dave Ramsey and I agree that people should pay their debts if they can afford to do so. In his syndicated monthly print column, "Dave Says," Ramsey once told a reader named Bill that "when it comes to paying off bills or debt, you should always pay what's owed if you have the money. There's a moral, as well as legal, responsibility involved."

However, on only $750 per month of income, Chris is not equipped to pay all of his bills and debts. Dave Ramsey agreed: "Well, you have absolutely no debt of any kind? You wouldn't be making it on $750 if you did, I suppose."

What hasn't been discussed is that past due child support, and taxes can cause disability payments to be levied. Chris should not consider paying any past due liabilities except those that can be collected, which are his child-support and taxes. There's a tool to help people out in this situation. It's called bankruptcy.

Good people sometimes make bad decisions. Sometimes the compilation of bad decisions births an obstacle insurmountable in size. Dave Ramsey filed for bankruptcy. He was healthy, young and capable of making a living, all of which Chris is NOT. With this in mind, Dave failed Chris.

Dave Ramsey tends to make sweeting advice when it comes to annuities. (Photo: iStock)

Third Jenga® Block: Inherited IRAs

Larry from Texas recently asked: Should I roll a Traditional inherited IRA over to a Roth IRA?

Here are the details:

1. 1. 1. 1. He's getting two inheritances: One he'll use to pay off the house, the other he'll invest.
         2. He's married
         3.  He's his late 50s.

Here's what Dave said: "If you roll it to a traditional inherited IRA, you have no taxes on it now. But there is a requirement that you pull a certain amount out of each per year. It's going to be a pretty aggressive requirement, given your age."

This may not sound egregious but it's 100 percent opposite of fact. Inherited IRA required minimum distributions are based on age, so the amount required to be distributed annually will be minimal given Larry's age, not aggressive.