Cincinnati, Ohio Estate Planning

Make the Most of Your Retirement Savings Potential

“Everyone wants to retire with ample savings in their bank account. Plan your retirement, by avoiding these eight common IRA mistakes.”

IRAs, or Individual Retirement Accounts, are great tools for retirement savings. The best tactic says Born2Invest in the article “Retirement planning: 8 common IRA mistakes” is to make the most of your IRA, as early in your career as possible. That will give you a larger nest egg later in life.

Avoid these classic errors and keep that IRA growing!

Not contributing. This is the biggest mistake of all. Most of your retirement income will come from money you saved while you were working, not the gains they earn. Missing a single year means missing out on the compounded growth that occurs over time. Save as much as you can.

Not contributing enough. Traditional IRAs and Roth IRAs let you contribute $5,500 every year. Once you turn 50, there’s a catch-up contribution so you can contribute up to $6,500. Saving the maximum amount, lets you enjoy the benefits from a tax and savings perspective.

Examining tax benefits. There are different rules for Roth IRAs, different rules for traditional IRAs and (you guessed it!) different rules for 401(k)s. Educate yourself about the different benefits that each offers. If you’re in a high tax bracket now and expect to be in a low tax bracket later in life, you might want to use a traditional IRA. However, for the opposite, a Roth might be your best bet.

Don’t forget the distributions. This is one of the costliest mistakes that people can make. Traditional IRAs have Required Minimum Distributions (RMDs) that require you to take out a certain amount, starting when you turn 70½. Did you miss the window? Tax penalties are steep: up to 50%. Roth IRAs don’t have RMDs, except when the account is inherited by a non-spouse beneficiary.

Pick the right retirement account for you. Far too many people just pick a traditional IRA without exploring other options. Maybe a SIMPLE or a SEP would be right for you. If you’re self-employed, there are several different retirement accounts and you may be able to put away more pre-tax dollars.

Don’t miss rollover deadlines. When you change jobs, you can roll over an old 401(k) to an IRA, with no tax penalty. However, those funds have to make it to the new account within 60 days. Best bet: do a direct rollover and remember you can only do this once every 365 days, for all your IRAs.

Invest wisely and effectively. IRAs give you some degree of choice over where you invest. Don’t just opt for the most conservative funds; diversify with a balance of higher risk and return vehicles and more stable, low-interest ones. Don’t put your money at risk but don’t let it stagnate either.

Forgetting to name beneficiaries. Just like other investment accounts, you’ll need to name a beneficiary for your retirement accounts. What your will and other estate documents say does not have any impact on the distribution of assets in your retirement accounts. You must name beneficiaries, and if possible, successor beneficiaries, so your assets go where you want them to. Repeat: the beneficiary designation supersedes your will, so chose your beneficiaries with care and review them every few years.

Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plan or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.

For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).

Reference: Born2Invest (Sep. 11, 2018) “Retirement planning: 8 common IRA mistakes”

Stretch IRA Changes Could Be Coming – Cincinnati Estate Planning

IRAs have become an important estate planning tool. However, as Congress seeks ways to raise revenue, they might make those IRAs less desirable for estate planning purposes.

Over the last few decades, estate planners, in Cincinnati and elsewhere, have grown very fond of IRAs. The retirement accounts allow people to name a beneficiary who gets the account automatically without the need for a will or trust, after the current account holder passes away.

It is a very simple way to pass wealth to the next generation that has many uses in estate planning.

IRAs make estate planning easier, in most cases.

With one type of IRA, known as a stretch IRA, the beneficiary of the account can even delay taking out required minimum distributions and save a lot on taxes.

However, that benefit is now coming under fire as Kiplinger reports in "Death of 'Stretch' IRAs Would Mean Loss of Flexibility for Beneficiaries."

Congress is considering doing away with the ability to stretch IRAs for non-spouse beneficiaries, if the accounts hold more than $450,000.

This proposal has passed in the Senate Finance Committee as it is expected to raise federal revenue by a substantial amount. If this passes and becomes law, estate plans will need to be revisited.

This idea is not yet currently law.

However, people who uses IRAs as an important part of their estate plans would be advised to keep an eye on this issue and to start thinking about alternatives for their estate plans.

It would not be a good idea to get caught off guard.

Should this pass, failure to adjust your estate plans could cost your heirs large sums of money.

Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.

For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526). 

Reference: Kiplinger (August, 2017) "Death of 'Stretch' IRAs Would Mean Loss of Flexibility for Beneficiaries."

Making Charitable Contributions Work – Cincinnati Estate Planning

While you're alive and have philanthropic goals, give appreciated assets held in a taxable account to charity. For charitable bequests, designate your IRA or tax-deferred employer retirement plan. Why? Suppose a hypothetical Al Cole wants to give $10,000 to charity this year. Instead of cash, he donates $10,000 of ABC Corp. stock that he bought for $2,000. As long as Cole's holding period is more than one year, he'll get a full $10,000 charitable tax deduction. Yet those shares might be worth only $8,000 to Cole after paying tax if he sold them himself. The retirement planning and estate planning benefits are big. Say Cole has $1 million of securities: $500,000 in a taxable account and $500,000 in a traditional IRA. Cole wants to leave $500,000 to charity and $500,000 to his son Bob, who is in a high income tax bracket. If Cole leaves the taxable account to charity, Bob will inherit the IRA. Bob will have to take distributions, which will be highly taxed on top of his other income. Instead, Cole can leave his $500,000 IRA to charity. The charity or charities can cash in the IRA bequest and owe no tax, as they are tax-exempt. Now Bob will inherit the $500,000 taxable account. He won't owe any income tax on money he withdraws. He also won't owe any capital gain if he happens to sell securities in the account right away, before they gain more value. That's because he gets a cost basis step-up to market value on those assets.

Investor's Business Daily's recent article, "How You Can Squeeze Tax Breaks From Charitable Giving," says that this maneuver works very nicely if the taxable account holds appreciated securities. A Partial Payout strategy applies whether you want to bequest all or just some of your IRA. Experts suggest that it's better to use your IRA for donations in your estate plan. But you have to decide how you want to do it.

Consider the following scenario as an example: Ida Bass has a $500,000 traditional IRA, and she wants to leave $50,000 to charity from that IRA. The rest of the IRA is to be split evenly between her two children (Many IRA beneficiary forms require percentage allocations for multiple beneficiaries). Another way to do it would be for Ida to just leave 10% of her IRA to charity. The IRA form could designate that each of her kids will inherit 45% of the amount in the account at her death. This would leave the dollar size of her charitable bequest indefinite—potentially leaving more to the charity if the IRA grows or less if its value decreases.

Whether you implement the fixed amount or the percentage approach, problems can arise. Those who will inherit the balance of the IRA need to ensure that the charity is paid in full before September 30^th of the year after the death of the donor. If you do that, those getting the balance can stretch out required distributions of the IRA balance and extend their tax deferral. However, if you miss the September 30^th deadline, the taxable distributions will be accelerated. So individual beneficiaries should be aware of what they need to do if a charity also is on the form.

One other idea is to split the IRA. Bass could transfer $50,000 from her $500,000 IRA to a new IRA account, so that her favorite charity would be the beneficiary of the new IRA. That way her children won't have to worry about the charity if they want to claim the maximum tax deferral from the IRA they inherit.

Speak with an experienced Cincinnati estate planning attorney to learn more and to see if this strategy is right for you.

Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.

For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website.  If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).

Reference: Investor's Business Daily (October 02, 2015) "How You Can Squeeze Tax Breaks From Charitable Giving"