Retirement planning and estate planning


Retirement plans (i.e. retirement plans, 401 (k) plans, employer-established IRA plans, etc.) make up the bulk of the assets held by most Americans. Plans that meet certain legal requirements under ERISA federal law are tax-privileged to encourage growth and provide the account holder with a comfortable retirement. For example, the account holder is allowed to defer payments from his retirement account until the calendar year in which he turns 70-1 / 2 years old, so that the account can grow tax-free during this period. Once the account holder is 70-1 / 2 years old, he / she must begin making minimum distributions (MRDs) and those distributions are subject to income tax.

However, with one exception, the tax advantages of pension accounts should not benefit the heirs or beneficiaries after the death of the account holder. If the account holder has designated his spouse as the beneficiary of the retirement account, the surviving spouse may after the death of the account holder either roll the deceased’s account to their own account or remain beneficiaries of the deceased’s account and postpone the acceptance of distributions until the calendar year in which the deceased spouse turned 70.-1/2. Would have completed the year of life.

However, estate planning becomes more complex when the beneficiaries of the retirement plan are other than the surviving spouse. In this case, the beneficiary must take MRDs for a period of five years or for the life expectancy of the beneficiary, sometimes referred to as the “stretch period”. If a trust is the designated beneficiary of the deceased’s retirement account and all beneficiaries of the trust are individuals, then the MRDs are calculated based on the beneficiary with the shortest life expectancy (i.e. the oldest beneficiary).

The whole subject of retirement planning is extremely technical given the requirements of ERISA and the regulations issued by the Internal Revenue Service. Likewise, incorporating an individual’s retirement assets into their estate plan can be a complex task. Topics to consider include the following:

1. How to maximize the extension period so that the balance on the retirement account can grow tax-free for as long as possible;

2. Ensure that the assets are shielded from the beneficiary’s creditors; and,

3. Providing a structure for the distribution of old-age funds (e.g. limiting disbursements to prevent a wasteful beneficiary from wasting their share of the funds in one fell swoop).

Before proceeding with your estate plan, keep the above points in mind.

© 06/12/2017 Hunt & Associates, PC All rights reserved.


Source by Charles A. Ford