1. Qualified assets may be the most heavily taxed assets you own and how to turn the IRA rules to your advantage. The full value of a qualified retirement account is part of your taxable estate at rates beginning at 34% and increasing to a maximum of 55%. In addition, unless you make the proper elections in a timely fashion, your entire account must be withdrawn within five years after your death at income rates ranging up to 39.6% federal tax and the corresponding state tax rate.
  2. The real age 70½ story (the minimum distribution rules). Unless you remain employed by the sponsor of your retirement account and own less than 5% of the employer, you must begin making minimum systematic withdrawals by April 1st of the year following the year in which you attain age 70½ (Required Beginning Date). You can always choose to withdraw more than the minimum, but to get the maximum benefit from tax deferral, minimum withdrawals will yield the best economic effect. If you fail to take the minimum required distribution in any one year, the amount not withdrawn will be subject to an excise tax of 50% in addition to the income tax imposed.
  3. Avoid being required to take two minimum distributions in a single year. Even though you are not required to take a minimum required distribution until April 1st of the year following the year you attain age 70½ , if you do not take the distribution until after 12/31 of the year in which you attain that age, then the following year, you must take a minimum distribution no later than April 1st (for the preceding year) and then another for the current year no later than 12/31 of the current year. A good tax plan looks at this issue before the end of the year in which you attain age 70½ so that the best decision possible is made depending upon other income attributable to you.
  4. Definition of a “designation beneficiary” and why it is important. If the participant does not have a “designated beneficiary,” the entire account will be taxed in the first five years after the death of the participant. “Designated Beneficiary” is a term of art in the Internal Revenue Code and refers to live persons only.
  5. The power of the spousal rollover. A spouse of any age can rollover the decedent’s qualified plan into the spouse’s own IRA and designate new beneficiaries. This is true even if the spouse has reached the Required Beginning Date and has started taken Minimum Required Distributions from the spouse’s existing qualified retirement account.
  6. How to stretch out minimum distributions for the life expectancy of your children or grandchildren. By designating a child or grandchild as the designated beneficiary of a qualified retirement account, the child or grandchild’s life expectancy will be used for the calculation of Minimum Required Distributions after the death of the participant.
  7. Distinctions between employer-sponsored plans and IRAs and when you should rollover from a sponsored plan to an IRA. Employer sponsored plans may have limitations or restrictions on designating of beneficiaries, required distributions, and other rules which must be followed. In addition, the sponsor must be given a copy of the participant’s trust if the trust is a named beneficiary. In many cases, after retirement, employer sponsored plans should be rolled over into an IRA in order to obtain the most liberal rules for the account. If your employer sponsored account includes highly appreciated employer securities, there are significant tax savings strategies which must be considered before you rollover to an IRA.
  8. Is an IRA community property? Probably. Although there is no definitive authority, ½ of the value of an IRA (assuming it was all earned during the marriage in a community property state) is included in the estate of a non-participant spouse who predeceases the participant for estate tax and the heirs of the non-participant have rights to ½ of the account. During lifetime, the Arizona courts can equitably divide all community property, including retirement accounts. There is decisional authority from other jurisdictions that has held that an IRA is community property and awarded a share of the account to the heirs of a predeceased spouse of the account owner.
  9. Dividing an IRA. We now know we can divide an IRA account into several shares and each beneficiary can take the benefits over that beneficiary’s lifetime. We can effectively use trusts to control the flow of the distributions. The key issue in IRA planning is now that the account must be distributed by October 30 of the year following the date of the accountholder’s death. The 2001 rule changes make multiple IRAs unnecessary and encourage simplification and careful planning.
  10. NUA and IRD issues abound. If you are retiring from a company and your retirement account consists principally of company stock, you may be able to take advantage of a rule that allows you to cash out the company stock at capital gains (“Net Unrealized Appreciation”) rate rather than ordinary income rates on the entire distribution if you withdrew the money after rolling it over into an IRA. In the right instance this may allow you to realize a significant tax savings while rebalancing your portfolio. This advanced technique is only available before you rollover a company retirement account into an IRA. Income in Respect of a Decedent rules allow a beneficiary to avoid double taxation by providing an income tax deduction for any estate taxes attributable to retirement account assets.
  11. What is Publication 590? The Internal Revenue publication explaining the basics of IRAs. If you are a do-it-yourselfer, then this publication must be in your library of tax materials.

At Bregman & Burt, we use a comprehensive counseling approach to estate planning to be sure you have a unique estate plan specifically tailored to solving the tax and non-tax issues confronting your family. Failure to appreciate the unique characteristics of retirement accounts is a common mistake that frustrates an otherwise carefully thought out plan.

Mark Bregman is an experienced planner of estates, let him show you how to avoid common pitfalls, save money, and create a comprehensive estate plan that will reflect your hopes, dreams, desires, and aspirations for you and your loved ones while taking advantage of advanced planning techniques when necessary to maximize estate tax savings.