IRA Category Archives — Page 3 of 4 — Houston Estate Planning and Elder Law Attorney Blog Published by Houston, Texas Estate Planning and Elder Lawyers

How a Taxable Investment Account Can Be Good for Your Retirement

Published on: October 24, 2016 | By McCulloch & Miller, PLLC

We’ve been so inundated with the idea of tax-free investment accounts that the taxable investment account’s role in retirement planning is underutilized and overlooked.

If you’re like most Americans, you’ve got at least one and maybe a few retirement accounts. You like the tax benefits that come from having IRA's, 401k's, 403b's, 457b's and defined benefit plans. You know you’ll have to pay income taxes when you start taking distributions from them, except for the Roth accounts, but seeing those accounts grow makes you feel good. And if you have a Roth, you like knowing that even if you aren’t getting a deduction now, distributions will be tax free. But there are other kinds of investment accounts for retirement planning.

As Physician’s Money Digest says in “10 Reasons You Need a Taxable Investment Account,” taxable retirement accounts are ignored because we’re so focused on IRS-approved retirement accounts. But you might think about supplementing your savings with a taxable retirement account. This can be a regular, old-school investment portfolio that’s not linked to any government regulations and that you’re building for retirement.

Too Old for an IRA? You Can Still Be Tax-Smart

Published on: September 9, 2016 | By McCulloch & Miller, PLLC

If you are working after 70 ½, there are still ways to save money tax-free.

Wage earners are not permitted to put money into a traditional IRA in the year they turn 70 ½ according to the Kiplinger article, “Tax-Smart Ways to Save When You're Too Old for a Traditional IRA.” But you would still be able to contribute to a Roth IRA, as long as your income in 2016 is less than $132,000 if single or $194,000 if married and file taxes jointly. In addition to the money growing tax-free in the Roth IRA with no time limit, you don’t have to take any RMDs (required minimum distributions).

You can contribute up to the amount you earned for the year (your net income from self-employment), with a maximum of $6,500—that’s $5,500 for everyone under age 50, plus $1,000 for people age 50 and older. If your earnings are well over the $6,500 maximum, you can just contribute that amount. However, if your earnings are near or under the maximum, you’ll need to know what is considered compensation and how to calculate your allowed contribution.

What You Don’t Know About Estate Planning Could Hurt Your Family

Published on: August 29, 2016 | By McCulloch & Miller, PLLC

Think of an estate plan as a love letter to your family after you have passed.

You’d be surprised at how many people you know don’t have a will or an estate plan in place. They may be among the many who have an unspoken belief that if they don’t have a will, they won’t die. That would be terrific—if it were true. Or, they think that only people who are wealthy or have complex tax issues require estate planning.

The Sabetha (KS) Herald’s recent article, “Understanding the estate planning process,” says that both of these ideas are wrong because your level of wealth and the ultimate tax consequences of your estate take a back seat to the planning and care of your family and other heirs.

Here’s One Way to Avoid the 401(k) Penalty

Published on: June 9, 2016 | By McCulloch & Miller, PLLC

The double nickel year has potential for allowing you to tap your 401(k) without an early withdrawal penalty, but you have to know exactly how it works to avoid problems.

There's one exception to the rule that you must be at least 59 ½ to tap your 401(k) without incurring a 10% early-withdrawal penalty, but you have to tread carefully. If it is the year you turn 55 or older and you leave your job, there's no penalty. You will still owe tax on the withdrawal—a $10,000 payout at a 25% tax rate will still cost you $2,500. There's no free lunch, even here. But, the good news is you don't get hit with a $1,000 early withdrawal penalty.

It doesn't matter how you separate from service. In fact, retiring, being laid-off or even termination will spare you the penalty. Provided you're 55 by the end of the year you leave the job, the rule applies, says the Kiplinger's article, "When You Can Tap a 401(k) Early With No Penalty."

Financial Tactic for Houston Alzheimer’s Patients: A Trusteed IRA

Published on: May 4, 2016 | By McCulloch & Miller, PLLC

Houston families with an Alzheimer's patient must address the issue of financial planning as well as care and treatment. A number of planning tools should be discussed once a diagnosis has been made.

Any family faced with helping a loved one who has been diagnosed with Alzheimer's disease has a number of challenges ahead. In The Wall Street Journal's "Voices: Consider Trusteed IRAs for Clients With Alzheimer's," the article suggests that frank discussions must begin to address a number of concerns for the present and the future. Issues include care and treatment, wishes for care when the person can no longer speak for themselves, determining who will manage finances, estate planning and how a spouse will be supported during the loved one's illness—however long it may last.

Many of those with an Alzheimer's diagnosis really are concerned with not becoming a financial or practical burden on their family. Loved ones can encourage them to see an elder law attorney to help them organize and designate their assets early, so that they will ensure appropriate distribution before they're not able to manage their money directly.

What Houston Surviving Spouses Need to Know About Inherited IRAs

Published on: April 5, 2016 | By McCulloch & Miller, PLLC

Perhaps the most important thing to do when you inherit an IRA is your homework. Start by finding out exactly the type of IRA you have inherited, and then find out what kind of beneficiary you are. USA Today's article, "If you inherit an IRA, make a plan before doing a thing," starts with the premise that the person inheriting the IRA is a surviving spouse, and outlines four options.

Roll the inherited IRA assets into your own IRA. This has several advantages. The beneficiary can postpone required minimum distributions (RMDs) until age 70 ½, and beneficiaries can use their own life expectancy to calculate RMDs. Plus it's pretty easy. You don't have to keep both an inherited IRA and your own IRA, they can be combined, but the disadvantage is that the beneficiary will (with a few exceptions) have to pay a 10% penalty tax on pre-59 ½ distributions, and RMDs could be accelerated if the deceased spouse was younger than the surviving spouse.
Transfer assets into a properly-titled inherited IRA. There are a few advantages to this. For starters, the spouse beneficiary won't have to pay the 10% penalty tax when taking withdrawals from an inherited IRA prior to age 59 ½. Also, you may be able to delay RMDs if the deceased spouse was younger. However, this is pretty complex. The beneficiary will have to keep their own retirement accounts separate from their inherited IRA.

Is Roth IRA Conversion a Good Fit For Your Houston Estate Plan?

Published on: March 17, 2016 | By McCulloch & Miller, PLLC

Not everyone who has a traditional IRA is a good candidate for a Roth IRA conversion, according to The Motley Fool's article, "5 Things to Consider Before Making a Roth IRA Conversion." While every person's situation is different, there are five key elements to consider before making the change to your retirement accounts.

Your tax bracket. These days it's not unusual for retirees to be in a higher tax bracket during retirement. However, many of us have the option of investing in a Roth IRA, which doesn't offer an up-front tax break—but lets you withdraw funds in retirement tax-free. If you think you are going to be in a higher tax bracket when you retire, you might consider converting some or all of your retirement savings to a Roth before you retire. Converting some or all of your traditional IRA money to a Roth IRA will also give you some tax diversification in retirement to hedge against future changes in tax rates and related rules.
Estate planning. One of the great things about a Roth IRA is that it isn't subject to required minimum distributions (RMDs) at age 70½, unlike a traditional IRA, where you must withdraw an IRS-mandated amount annually at that age. Plus, it's subject to income taxes. Roth IRAs can continue to grow tax-free for as long as you live, and if your beneficiary is your spouse, he or she can roll over the account and make the Roth IRA his or her own with the same rules (non-spousal beneficiaries are subject to an RMD, but that distribution isn't taxed). In addition, non-spousal beneficiaries can take the RMDs over their entire life expectancy. This is a terrific benefit for younger beneficiaries like children or grandchildren.

Ring In the New Year with a Roth IRA

Published on: January 1, 2015 | By McCulloch & Miller, PLLC

Sharron Epperson, who is CNBC’s senior personal finance correspondent, stressed the importance of retirement planning in the coming year — with two products in particular.

Need a financial resolution for 2015? Save as much money as you can in a Roth IRA. One of the best things you can do to set yourself up for financial success in the future is to be strategic with your savings.

According to a recent article at gobankingrates.com, titled “CNBC’s Sharon Epperson on Why You Need a Roth IRA in 2015,” in the event of an emergency make sure you're able to withdraw your contributions at any time without incurring penalties or fees. This is also a terrific way to save for retirement, because you might be in a higher or lower tax bracket when you’re in your 60s. Who knows?

Houston Residents and Roth IRAs

Published on: December 12, 2014 | By McCulloch & Miller, PLLC

These three questions merely scratch the surface of other factors that may need to be considered. Keep in mind that your estate at age 45 is likely very different from the one you’ll have at age 65 and 85 — your accounts change, you spend/inherit assets, and you gain/lose family members. The more complex your situation, the more you’ll benefit from working with a skilled financial adviser, tax specialist, and estate attorney.

If you are considering a Roth IRA, ask yourself these three questions:

1. Will your Roth outlive you? In estate planning, the top two reasons for Roth conversions are to bequeath tax-free assets and to reduce your taxable estate. It’s critical to project your spending lifestyle relative to your net worth to understand how your assets may be used in retirement. This allows you to see what assets are likely to be part of your remaining estate.

Supreme Court Ruling Says IRAs Not Protected from Bankruptcy

Published on: October 30, 2014 | By McCulloch & Miller, PLLC

As a result, financial advisers and families are taking steps to shield IRA assets for children and other beneficiaries in case those heirs ever find themselves in bankruptcy proceedings.

Is your IRA protected from creditors in the event of bankruptcy? Not anymore. Because of the recent unanimous high court decision, experts and families are taking steps to protect IRA assets for beneficiaries in the event those heirs declare bankruptcy.

A recent Wall Street Journalarticle, "Court Ruling Sparks Rush to Shield IRAs," finds that many advisers are urging clients to create a trust as the IRA’s beneficiary, or to set up an IRA as a trust account while the owner is still alive. Either way, the original owner has access to the money before he or she dies. Depending on the type and terms, trusts can shield assets (including an IRA) against creditors.