The 7 Biggest Concerns for Your Retirement and Estate Planning


Posted over 4 years ago. Applies to Massachusetts, 3 helpful votes



Does a Roth Conversion Make Sense?

You probably know that 2010 is a special year for people considering converting a traditional IRA to a Roth. In this year there are no MAGI income limits on how much you can convert. In addition, you have the opportunity to spread out the income tax you pay on your Roth conversion into 2011 and 2012, mitigating the tax bite. That means that if a Roth conversion is going to make sense for your family, now is the time. But does it make sense? Well, that all depends. When you convert from a traditional IRA to a Roth you are essentially pre-paying the income tax that you would otherwise have paid over a period of years as you took required minimum distributions after age 70 and 1/2. By paying the tax now you guarantee that any distributions you (or your beneficiaries) take later will be income tax-free. Because there are so many factors involved, a Roth conversion is something you should consider carefully with a trusted estate planning attorney and financial advisor.


Do You Have the Right Beneficiares?

Many people we speak to haven't looked at the beneficiaries of their IRAs since they first opened the account. They may have changed banks or brokerage houses, had new children or grandchildren, or even lost a spouse, all without ever thinking about what those beneficiary designations say. This can be a real problem! If your IRA doesn't name a beneficiary at all, or names a beneficiary who has since passed away, it will go through probate and deal with all the costs and time delays of the court system AND an income tax payable almost immediately. If your IRA names the wrong beneficiaries - say an ex-spouse - the consequences might be even more undesirable. Instead of an inheritance, you may have left your family a nightmarish lawsuit!


Is Your Beneficiary's Inheritance Safe?

Like most families we help, you may have taken steps to make sure your IRA reaches your children and grandchildren intact, but if they have problems of their own - divorces, lawsuits, family issues or creditors - they may never get to enjoy that IRA. You may be aware that an IRA you set up for your own retirement has special protection if you are sued or become bankrupt, but an inherited IRA has no protection at all and if left to your children or grandchildren outright, the entire amount of the inherited IRA will be vulnerable to all claims of creditors, lawsuits and ex-spouses. The solution? You can establish an asset protection trust to protect your family legacy and your children. Request a report by contacting us through our website or by calling our offices at (781) 237-2815.


Will You Avoid the 70% Tax on IRAs and Other Retirement Plans?

You heard that right - without planning, your qualified retirement plans can be taxed at a rate of 70% or more, once federal and state estate and income taxes are paid. That means that your children will only inherit $300,000 from your $1 million IRA while Washington, DC and Beacon Hill divide up the remaining $700,000 between them. You can prevent that from happening, but it is critical to meet with a trusted legal and financial advisor to create a plan that will work effectively and is sure to benefit your family and loved ones.


If You Have a Trust as a Beneficiary, Make Sure it is the Right Kind of Trust!

While the right trust can offer significant tax benefits and asset protection, not all trusts are created equal. Many trusts that are designed by other law firms to avoid probate may cause serious, unintended tax problems for your beneficiaries. The wrong trust can: (1) Cost your spouse the opportunity to trust your IRA as their own, deferring required minimum distributions with a spousal roll-over. (2) Require your children or grandchildren to fully distribute your IRA within five year, accelerating income taxes and costing them the opportunity for years of tax deferred growth available with a stretch IRA.


Avoid Mistakes When Rolling an IRA Over to a Roth or to Another Custodian

An IRA rollover might bring you all kinds of benefits, from more investment choices to the increased flexibility of a Roth IRA, but if you want to handle the IRA rollover yourself, be careful! The rules are very precise and specific and one mistake could leave you owing income taxes and penalties. If you take a check from your current IRA custodian, you only have 60 days to get the funds to a new custodian or else owe income tax (and penalties fi you are under 59 1/2). Unless you specify otherwise, most custodians will automatically without 30% of the value of your IRA when they cut you a check, but you must still rollover the full 100% or be taxed. That means you will need to come up with the other 30% within 60 days and wait until the end of the year to have your money refunded. A safer route is to use a custodian-to-custodian rollover and have your new brokerage firm or bank handle the funds and rollover for you.


Avoid Spending Your Retirement Nest Egg Too Quickly And Make Sure Your Money Lasts

Many people we speak to are concerned about outliving their money. Their IRAs and other retirement plans often make up the bulk of their liquid assets, but they're not sure how to invest them and manage them in retirement. Whether you are considering retirement, newly retired or have been retired for years, it is critical to review your planning, including your cash flow other income and expenses. That can allow you to make decisions about how to manage your IRA withdrawals without jeopardizing your lifestyle or family's legacy.

Additional Resources

At the Estate Planning and Asset Protection Law Center we can help you sort through retirement planning questions and concerns. To learn more, request a Retirement Protection & Maximization Report from our office or attend a free Trust, Estate and Asset Protection Workshop in Wellesley, MA.

Estate Plan and Asset Protection Law Center

IRS Tax Information on Retirement Plans

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Asset protection trust

An asset protection trust, as the name implies, protects assets in it from future creditors, and can lessen the effects of events like divorce or bankruptcy.

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