When people reach retirement age, many assume that the majority of the taxes they will need to pay are over. However, in many cases, taxes may be even more burdensome once a person has retired. Be it in the form of an estate tax, Roth IRAs, or life insurance plans, seniors have many questions about making the most of their retirement savings and ensuring they are still passing along assets and contributions to their beneficiaries once they have passed. Below are some common questions individuals thinking about retirement planning have, along with explanations to these issues—so Texans can ensure their retirement plan is not chipped away by unknown taxes.
What is the SECURE Act, and How Will it Affect My Retirement?
The Setting Every Community Up for Retirement Enhancement Act of 2019—better known as the SECURE Act—changed many of the rules and regulations for retirement income planning. One fundamental change that affects retirees is the elimination of the stretch IRA. In the past, a stretch IRA has allowed non-spouses that are inheriting a retirement account to stretch out disbursements of the account over their lifetime. Generally, retirees who knew their spouse would have enough money for retirement would utilize a stretch IRA to maintain their family’s assets by naming the youngest person in their family as the beneficiary. Now, the rule requires the beneficiary to receive the full payout of the inherited IRA within ten years of the initial person’s passing.
For many Texans, this means changing their retirement strategy for not only who will inherit their IRAs but also how the funds will be distributed after they have died. Because the funds must be distributed within ten years, individuals should reconsider naming the youngest family member as the beneficiary solely to “stretch out” the family’s wealth. Instead, Texans should consult with an experienced estate planning attorney to discuss their options.
How Can Life Insurance Help Pay for Taxes?
For many individuals who can no longer utilize a stretch IRA to help their family pay for unforeseen taxes over time, using a life insurance plan can mitigate these issues. Many families will use a life insurance plan—through the assets they received after their loved one’s death—to pay for any unexpected taxes like estate taxes and income taxes on IRAs. Because life insurance plans are not taxed like other assets, the assets from a life insurance plan can serve as tax-free retirement income that beneficiaries can use to keep them financially secure.
Because changes are constantly made to retirement savings—and the details can be difficult to understand—individuals reaching the age of retirement should contact an experienced estate planning attorney who can advise them on how to maximize their wealth for the future.
Contact a Houston Estate Planning Attorney
If you or a loved one needs assistance creating a Houston estate plan—or has questions about retirement savings—contact the dedicated Houston estate planning attorneys at McCulloch & Miller, PLLC. We understand that the nuances of tax law and retirement savings can be complex and difficult to comprehend; because of this, we are here to answer any questions you may have and explain how to make the most of your retirement savings. To speak with one of our experienced attorneys and to schedule a free consultation, give us a call today at 713-333-8900.