Retirement Planning

 Introduction

Retirement funds represent a valuable asset and thus are an important segment of a retired person’s income picture. The attorneys of Grimaldi & Yeung LLP are uniquely qualified to assist you and your family in maximizing your retirement benefits.

Retirement accounts such as IRAs, 401(k)s and 403(b)s are tax-deferred savings and are an important source of income. Funds deposited into retirement accounts are not subject to income tax until they are distributed. Taxes are paid at the time of distribution.

It is generally best to defer income distributions as long as possible. Distributions can begin at age 59-1/2 without penalty, however, income tax will be due. If you are younger than 59-1/2, and want to take a distribution, you may do so without penalty in special circumstances, such as to pay medical expenses. This may be done only if certain requirements are met. As such, properly timed distribution can result in maximizing these assets and minimizing the tax.

Minimum distributions from retirement accounts are not required until April 15th of the year after a person turns 70-1/2. Generally, it is advisable to take only minimum distributions. However, in a year when substantial medical deductions will be taken, it may be advisable to take a larger distribution, as the deduction can offset the tax. Consult with a financial planner or with the attorneys at Grimaldi & Yeung LLP before taking this step. We can offer sound counsel before you take large retirement fund distributions.

Roth IRAs

Roth IRAs are an innovative retirement option that has certain tax advantages. They use income which has already been subject to income tax. Then, provided certain requirements are met, the funds grow tax-free and are not subject to additional income tax when withdrawn by the account holder. The restrictions vary according to law, but generally include:

  • A minimum time for the account to be open before withdrawals can be made.
  • A minimum age of the account holder before anything other than the principal can be withdrawn.
  • An income phase-out, which generally tends to allow those with lower adjusted gross incomes to contribute a higher percentage of their incomes to Roth IRAs.

Unlike traditional IRAs, there are no requirements that funds be withdrawn at a certain time. However, the apparent tax advantages may not be realized depending on how long you live, your income tax rate once you begin to withdraw funds, and other factors. Seek the advice of a qualified adviser, CPA or your GY attorney to determine whether the Roth IRA is a retirement savings option appropriate for your estate plan.

Designating A Beneficiary

Retirement funds allow for the naming of a beneficiary upon death. It is imperative that you regularly review the designation of beneficiary on each account and confirm that each financial institution has the correct designation of beneficiary form on file. Each account should designate both a primary and a contingent beneficiary. It is almost never advisable to designate the Estate as the beneficiary. This results in an accelerated income tax on the full amount in the retirement account.

Most married couples are advised to designate their spouse as primary beneficiary, as the spouse has the unique ability to roll over the IRA into his or her own IRA, and also to designate new beneficiaries. This gives the survivor (spouse) a second chance to postpone the income tax payment during the survivor’s lifetime. Only a spouse can roll an account over into his or her own IRA. In certain circumstances, a Trust can be a beneficiary of an IRA, but special drafting is required.

Medicaid Planning

Medicaid applies special rules to retirement accounts. The principal held in a retirement account can be exempt when the Medicaid recipient receives a regular income distribution. Our firm can help to protect these valuable retirement accounts by coordinating retirement and Medicaid planning.

In Medicaid planning, if the spouse is a retirement account beneficiary and also on Medicaid, Grimaldi & Yeung LLP can determine an optimum alternate plan. Designating the children as the beneficiaries of the retirement accounts may be a better option. If the designated child is disabled, a Special Needs Trust, should be established for this beneficiary. Again, our firm has substantial expertise in the establishment of Special Needs Trusts and can balance the benefits and cost of each option.

529 Plan: Retirement Funds For Grandparents:

Education Savings – An Estate Tax Savings Plan For Grandparents

Many retirees wish to provide for their grandchildren’s education. College or Educational Savings Plans are often referred to as 529 Plans or Uniform Gift to Minors Plans. These plans can structure tax exempt gifting to your grandchildren. If you wish to contribute to a family member’s education, 529 Plans allow you to accelerate your gifts by making up to 5 years of exempt gifts at one time.

This amount is established annually by the federal government. It is indexed for inflation and will increase in time. The amount in the Savings Plan is specified for education and related uses for the individual. The fund can grow, tax-free. If the college fund is not used and not spent on education and related expense, or needed for education, it is returned to the owner of the fund (for example, the grandparent) and the owner will be liable for the deferred income tax accrued.

An Essential Part Of The Estate Planning Picture

In summary, IRAs have become a great source of family wealth, as they provide income stability during the later years. Decades of deferred income tax savings can allow retirees to build a savings nest egg. We welcome the opportunity to partner with you to make the most of your retirement savings.

 

Topics On This Page

  • IRA & Roth: Qualified retirement plans
  • Designating a beneficiary
  • Medicaid planning
  • 529 Plan