Florida Estate Planning, Probate and Asset Protection

IRAs Targeted in Obama Budget

President Obama’s budget, just sent to Congress, proposes to cap tax-advantaged savings across all accounts at $3 million in order to raise $9 billion over 10 years. The proposal is being spun as a way to prevent wealthy private-equity executives from amassing huge IRAs—like Mitt Romney’s, once estimated to be worth as much as $100 million. But it would also curb the savings ability of self-employed professionals like doctors and lawyers.

Three budget plans are winding their way around the capitol, to include President Obama’s. While the details are thin and the pundits are still weighing in, self-employed professionals need to take heed. They are tax targets when it comes to their retirement savings.

For retirement savers and those making powerful use of an IRA, here’s at least one tidbit the rumor mill has been circulating well before the budget’s release. If enacted, “wealthy” individuals would be pinched with a $3 million cap on their IRA holdings.

Several sources have reported on this, to include Time Magazine in an article titled “Obama’s Budget Would Cap Tax-Advantaged Savings.” Although $3 million may sound like a lot, it may end up affecting more savers who otherwise might not be considered traditional tax targets: self-employed individuals like doctors, lawyers, and entrepreneurs. The self-employed all have unique abilities (and needs) to contribute large amounts to their IRAs.

So, who is the intended target of this kind of a cap? One name keeps surfacing: Mitt Romney. Remember that fabled $100+ million IRA, as pointed out by the Boston Globe in an article titled “Obama budget would pinch IRAs of wealthy with $3m cap.”

The analyses of the proposal are still being churned out, and there are some important details to be hammered out as well. At present, this cap is no more than a proposal and part of a budget plan none-too-well-liked by either side. Nevertheless, this kind of cap and its prying look at tax-advantaged plans is worth watching.

Reference: 

Time Magazine (April 10, 2013) “Obama’s Budget Would Cap Tax-Advantaged Savings”

The Boston Globe (April 10, 2013) “Obama budget would pinch IRAs of wealthy with $3m cap”

Roth IRA Planning Easier After the Fiscal Cliff

Good news if you’re among the millions of Americans who have a 401(k) plan. The so-called fiscal-cliff bill includes a provision that lets workers with 401(k)s, 403(b)s and other defined-contribution plans convert to a Roth at any time.

After the fiscal cliff deal, the Roth IRA just keeps getting better and better for more and more people. First, however, you need to understand what the Roth IRA is, how to use it, and most important, how to know if it is right for you.

A recent CNN Money article titled “More savers can convert to Roth 401(k)s under fiscal cliff deal” says it all. Nevertheless, there is more to a Roth IRA than meets the unaided eye. 

Essentially, the Roth IRA reverses the normal IRA by requiring that you pay the income taxes on money deposited in the account up front when you deposit them instead of when you withdraw the money later. Also, in addition to no income taxes when withdrawn, with a Roth IRA you have no Required Minimum Distributions (RMDs) later on.

The fiscal cliff deal lets more people, and those of lower incomes, convert their IRAs into Roth IRAs if they settle the tax burden up front. This can help with estate planning for their loved ones, too.

According to experts, however, a Roth IRA may not be right for some folks. A recent MarketWatch article titled “Roth conversions easier, but are they right?” addresses this concern.

As with all things financial, as well as legal …look before you leap. This is especially true when it comes to tax law changes brought by the fiscal cliff deal.

Reference:

CNN Money (January8, 2013) “More savers can convert to Roth 401(k)s under fiscal cliff deal ”

MarketWatch (January 3, 2013) “Roth conversions easier, but are they right?”

Tough Retirement Decisions for Small Business Owners

Danny Sullivan dreams of gardening and spending time with his grandchildren, but that's just a fantasy. Retirement is out of his reach, at least for the foreseeable future.

Talk about being kicked when you’re already down.  That’s the feeling many small business owners have as they ponder retirement in these tough financial times. Surviving the recession is one thing, but retiring in one seems next to impossible.

The Wall Street Journal considered this topic in a recent article aptly titled “'The Economy Stole My Retirement.'”

If you are a small business owner on the one hand – a role that requires flexibility and ingenuity – and a baby-boomer on the other, then this recession has been more than a case of terrible timing. No, it’s thrust you into “business purgatory.” Do you find yourself with one foot in management and the other foot (or maybe just that big toe) in the golden sands of retirement?

A baby boomer who is a small business owner faces a very tough call right now. Should he or she sell for the best offer today, which is generally the low-ball offer, or hold out for some future value which more accurately reflects what the business is truly worth? A tough call, indeed.

For the owners of small businesses and the heads of family businesses, make no mistake about the difficulty of your position. It’s impossible to foretell the future, but since you already know what is most valuable to you (your family and your business), take the time to carefully weigh your options and seek appropriate professional counsel.

Reference: The Wall Street Journal (September 12, 2012) “'The Economy Stole My Retirement'”

Couples Over 60: Marriage or Cohabitation?

"For a number of Orlando people in this age group, it's a financial issue. A woman could lose her pension if she remarries. It is just too costly. So even though they may feel they are not behaving appropriately, people feel they don't have choices."

More seniors today are choosing to cohabitate instead of walking down the aisle, and the consensus is not that the institution of marriage is lost as we age – it’s more of a financial decision to protect one’s retirement income.

Regardless, whether you (or a loved one) elect to marry or to cohabitate, you really ought to carefully weigh the consequences and seek appropriate counsel.

The dilemma between marriage and simple cohabitation (truthfully, it’s not so simple) was explored in a recent Yahoo! article by way of Bankrate.com. The article, titled “Financial pros and cons of shacking up after 60,” illustrates that there is much to think about, breaking many of the most important financial decisions into stages.

Essentially, there are important ramifications either way when it comes to retirement income, social security, and the medical care available through Medicare or Medicaid. And then there are the greater concerns of what is to happen to your respective families: whether they remain separate or have become joined, what inheritances to leave, or even how to ensure the well-being of the survivor.

Whether or not you choose to marry at an older age, make sure you have carefully considered the consequences of your decisions and then plan accordingly.

Reference: Bankrate, Inc. via Yahoo! Finance (August 17, 2012) “Financial pros and cons of shacking up after 60”

Retirement Cash Flow and Retirement Planning

Estate planning is critical to make sure your assets are passed down as you wish. But another component of estate planning for Orlando couples is making sure that the surviving spouse has enough money to live on.

Most married couples want to ensure that all of their resources are available to provide for the surviving spouse, upon the first death. However, without careful retirement planning now, surviving spouses could find themselves in a “cash flow” pinch just when they need income most.

Estate planning is a process with many moving parts. While much focus is given to saving estate taxes, avoiding probate, and transferring wealth between generations, failing to incorporate retirement planning can be hazardous to your wealth.

This estate-planning dilemma was the centerpiece of a Kiplinger’s study recently featured in the Chicago Tribune. The article, titled “Retirement: An estate-planning pitfall,” brought to light the difficulty of lost income to surviving spouses. The first spouse’s passing often disrupts what the couple had always taken for granted financially – predictable cash flow.

The article reviews sources of income impacted by this first death, including social security and pensions. As with all aspects of estate planning, it is crucial to understand the importance of getting competent counsel in advance. In fact, couples should investigate the impact of death on cash flow while both are alive in order to avoid unpleasant surprises later.

Reference: The Chicago Tribune (July 17, 2012) “Retirement: An estate-planning pitfall”

Expatriates Get A Tax Swat Upon Exit

U.S. citizens or long-term residents who expatriate after June 16, 2008, are treated as having sold all their worldwide property for its fair market value the day before leaving the U.S.

As far as the IRS is concerned, permanently leaving the country is something on the order of dying, because the tax burden is the same.

Here’s the deal: When you expatriate and renounce your US Citizenship, the IRS will treat you as though you sold all of your worldly assets at their fair market value the day before leaving. Consequence: The IRS will tax all such worldly assets as a “capital gain.” Accordingly, this tax event is known as the “exit tax.”

There are certain exclusions, to include the cases involving dual-citizenship or expatriation before age 18.5. Why? Because in either case you wouldn’t qualify as a “covered expatriate.” Additionally, you can escape this taxation if you have an overall value of less than $651,000 of (supposed) income.

Still, if you’re hoping to spend your golden years abroad, then it’s unlikely you will escape the grasp of the IRS by the above exclusions. Nevertheless, planning just might limit how much the IRS can take.

If nothing else, this kind of complete appraisal of your property is consistent with your overall estate planning. So, for those considering expatriation even remotely, why not kill two birds with one stone and make a full inventory of your assets right now. In addition, some strategic gifting may help lower the amount of your assets subject to the “exit tax” should you elect to pull the proverbial trigger.

For more background reading on this subject, consult a recent article in Forbes titled Tax Expatriates: We'll Always Have Paris.

Reference: Forbes (May 1, 2012) “Tax Expatriates: We'll Always Have Paris”

Small Business Owner Retirement Perspectives

Retirement plans have their place, but many entrepreneurs starve their business of needed working capital by putting money instead into tax-deductible accounts such as traditional 401(k)s. They think they are saving taxes.

Small business owners, by and large, have a hard time thinking beyond their business. It is a significant part of their very lives. If you are a small business owner, now may be the time to start thinking of your business as its own retirement vehicle, at least according to a recent guest columnist over at Forbes.

For retirement planning, a business owner typically has to take out of the business what would otherwise be capital for growth. You’re taking it out to put into a tax advantaged plan like a 401k, hoping it will grow there enough to make up for the taxes to be paid later. In addition, you are doing so in the belief that you’ll be in a lower tax bracket when you call upon those funds later on. But what are the returns on that account? It may be that a properly capitalized company will give far greater returns.

According to the Forbes article, a small business owner has to exist in a couple capacities, and the self that is an “individual” cannot be eclipsed by the self that is the “business owner,” nor the other way around. Ideally, perhaps, they can work in a synergy.

It is a risky strategy, especially for those nearing retirement, but it may be worth looking into the original article’s numbers.

Reference: Forbes (January 25, 2012) “Fund Your Business Before You Stuff  Retirement Accounts”

COLA Is Increasing

Social Security recipients will get a cost-of-living adjustment of 3.6 percent in 2012, a welcome boost after two years of no increase.

Although it’s been two years since Social Security beneficiaries saw some additional respite from rising inflation, finally we’ll see a COLA increase for 2012 and an adjustment of 3.6%.

The COLA, or Cost Of Living Adjustment, has been a nearly annual increase in Social Security payments. Why? To keep benefits consistent with inflation. Otherwise, seniors would be at the mercy of rising prices on fixed incomes. Lean times in the economy, however, have meant cutting back COLA for the past two years, leaving many seniors with no choice but to further tighten their belts.

The 3.6% increase will be warmly received by many. For example, beneficiaries receiving $1,186 a month, the average for retired workers, will see monthly benefit increase of $43.

To be sure, it’s not a dramatic increase (and less than the last COLA of 5.8%), but it is better than no increase at all.

Reference: AARP (October 19, 2011) “Social Security Beneficiaries Welcome 3.6 Percent COLA”

 

Debt Deal: Not (Really) A Done Deal

If there’s any lesson to be learned from the recent debacle in Washington, D.C., it’s this: Don’t run your personal finances the way the U.S. government does. “Don’t live beyond your means, and don’t increase your debt levels, especially when heading into retirement,” said Greg Rosica, a tax partner in the personal financial services group at Ernst & Young and a contributing author to the Ernst & Young Tax Guide 2011. “Don’t emulate the federal government.” – “How the Debt Deal Will Affect Retirees”

I suppose it goes without saying that the past few weeks have been a rather tumultuous time, and especially so for America’s seniors. It’s quickly proving to be a vital time to take stock of the situation and prepare. Luckily, the news is awash with important reminders and advice about what’s at stake.

First, the debt deal was finally passed. As I mentioned last week, it’s already been called a mixed bag by AARP, but the bad may outweigh the good and there are specific changes to watch with interest. Robert Powell of MarketWatch has put together another resource detailing what you ought to know with a special emphasis on budget cuts on programs (both the $1 trillion already going into affect and future cuts to Medicare), along with interest rates and taxes.

Immediately following on the heels of the debt deal, however, the S&P downgraded the U.S. and forced a rather volatile “market correction.” As SmartMoney points out in this article, it’s like 2008 all over again, because it’s the baby-boomers who have the most to lose and must taken action to engage strategies to protect their nest egg if market forces continue to threaten it.

And, finally, there’s looking to the future… the future of rehashing the past few months and the debt debate. The deal that was reached calls for the commission of a super committee to make more suggestions for cutting the debt. That means Medicare and Social Security might not remain safe, since the debate isn’t actually over. Indeed, if the committee’s suggestions are not implemented, then immediate spending cuts to Medicare will go into affect by Christmas. Reuter’s, for one, thinks there’s reason enough to be wary of the super committee altogether, especially if you’re concerned about retirement. In fact, they’ve found eight reasons to worry.

 

Reference: MarketWatch (August 4, 2011) “How the Debt Deal Will Affect Retirees”

                  SmartMoney (August 8, 2011) “The 2011 Correction: Another Bad Turn for Boomers.”

                  Reuters Money (August 5, 2011) “8 ways the super committee is not super for retirement”

 

ELDER LAW / RETIREMENT CAREERS

"For retirees calling it quits from the 9-to-5 world, it might be worth considering another career move: landlord." 

In today’s economy, it seems that everything old is new again … albeit with a bit of a twist. Years ago, it was common for older couples – and frequently widows – to rent out rooms for extra income. Taking in boarders was a viable way to supplement income.

Well, the idea is back, with a bit of a twist. As Baby Boomers face the cold, hard facts of retirement, they are increasingly changing the definition of the term to include at least some form of work. While you may not be ready to hang out a shingle on the front gate, “Rooms for Rent,” you might consider becoming a landlord. In fact, the venerable Wall Street Journal writes that it may be just the ticket, especially given the uncertain prospects for stocks and bonds and the meager interest rates on savings accounts.  

Think about it. It’s a buyer’s market now, so purchasing a multi-family home is more financially feasible. And, the trend toward the renter’s lifestyle is picking up steam.  All this means you have a low cost of entry into a market that is expected to expand. Starting to make investment sense?

Sure, it’s a career of sorts, but you also need to think of it as an investment. Weigh everything in the short term, including start-up and maintenance costs, as well as the marketability of the location you’re considering. But then also keep your long-term goals in mind, including appreciation and eventual sale. Buying in a depressed market, after all, is only a steal if that market bounces back. Finally, don’t overlook the possible danger of having all your eggs in one basket since being a live-in landlord will unite your home, equity, and employment, into one potentially risky asset.

Like any retirement move, don’t make this one too quickly. Discuss your plans with a professional who can help you sort out the details, including how an investment rental property could affect your Social Security benefits. Remember, too, that this lifestyle may not suit you. In which case, you would be wise to explore other, more enjoyable options.

Reference: The Wall Street Journal Online (June19, 2011) “Want a job? Become a landlord.”