How Flexible Estate Planning Can Save Your Children Money

Using Flexible Estate Planning as a Possible Solution for the Death of the Stretch IRA

How Flexible Estate Planning Can Save Your Children Money

The previous posts in this series discuss the proposed legislation that would spell the Death of the Stretch IRA, and offer some ideas that you might be able to incorporate into your own estate plan to reduce its devastating effects. This post will show you how flexible planning can minimize the damage that income taxes could do to your childrenís inheritances after the Death of the Stretch IRA.

The $450,000 Exclusion, Use it or Lose it!

I want to go into detail about something that I first mentioned in my post of February 28, 2017, which was the proposed $450,000 exclusion to the Death of the Stretch IRA legislation. The proposed legislation said that each IRA owner would be entitled to their own exclusion of $450,000. Regardless of how many retirement accounts you own, and how many beneficiaries you name on them, it is critical that you donít overlook the fundamental step of making sure that your exclusion can be used after your death. If you donít use it, you will lose it!

Readers who have been around as long as I have may remember estate planning in the late 90ís, when the top federal estate tax rate was an outrageous 55% and only $600,000 of your estate could be protected from it. And in order to protect more of your assets from the IRS, attorneys had to draft elaborate trusts (often referred to as marital, or A/B trusts) which would allow each spouse to have a $600,000 exclusion of their own. That way, a total of $1.2 million of your familyís money could be exempted and would pass to your children without being subject to federal estate tax. Remember those days?

Common Beneficiary Language Can Cause Your Heirs to Lose an Exclusion

Well, now you have to think the same way about the $450,000 exclusion that is proposed in the Death of the Stretch IRA legislation. The proposal says that the change will apply only to the extent that an individualís aggregate account balances exceed the exclusion amount. But what do most people do when they fill out their beneficiary forms? They say, I want my spouse to have this money, and if my spouse dies before me, I want it to go to my children. Sound familiar? Well, suppose you have $450,000 in an IRA, and your spouse has $450,000 in an IRA. You die, your spouse rolls your IRA in to her own IRA, and now she has $900,000. In an earlier post, I told you that your spouse is an exempt beneficiary ñ so any money that you leave to her wouldnít have been subject to the $450,000 exclusion anyway. But suppose your spouse dies a week after you do. Since her IRA was worth $900,000 when she died, your children can only exclude $450,000. So half of her account could be sheltered under the old IRA rules, but the remainder would be subject to the proposed new IRA rules.

A Better Plan – Use Both Exclusions

A better plan would be to make sure that, if possible, you and your spouse can use both of your exclusions. For example, suppose you have $1 million in an IRA, and your spouse has $1 million in her own IRA. Both of you have estate planning documents that give your surviving spouse the right to disclaim to the next beneficiary in line. You die, and now your spouse has a decision to make. Sheís your beneficiary, and she can accept your IRA if she feels she needs the money. But suppose she doesnít need all of it? She could say, ìIíll be quite comfortable with only $550,000 of this, plus the $1 million from my own IRA.î In that case $450,000 of your IRA would go to the next beneficiary in line ñ your children. Since the amount that your spouse disclaims is within the exclusion amount, $450,000 of your IRA will go to your children and can be distributed according to the old rules. Then when your spouse dies, her entire IRA will pass to your children and they can exclude $450,000 of her IRA from the new rules too.

Flexible Estate Planning is the Key

Flexible estate planning allows your surviving spouse to decide who gets what after your death, and is the key to minimizing the harsh effects that the Death of the Stretch IRA legislation will bring if it is passed. Stop back soon for some more random thoughts!

-Jim

For more information on this topic, please visit our Death of the Stretch IRA resource.

 

P.S. Did you miss a video blog post? Here are the past video blog posts in this video series.

Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?

Are There Any Exceptions to the Death of the Stretch IRA Legislation?

How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?

What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

How Does The New DOL Fiduciary Rule Affect You?

Why is the Death of the Stretch IRA legislation likely to pass?

The Exclusions for the Death of the Stretch IRA

Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA

Using Roth Conversions as a Possible Solution for Death of the Stretch IRA

How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA

How Flexible Estate Planning Can be a Solution for Death of the Stretch IRA

More on Retire Secure! Third Edition… Coming Soon!

Retire Secure! Third Edition, A Guide To Making The Most Out Of What You've Got, James LangeThe third edition of Retire Secure!, Retire Secure! A Guide to Making the Most Out of What You’ve Got is set to be released in the coming months, (stay tuned for exact date). This revised Third Edition of Retire Secure! covers how to develop an estate plan that, among other goals, seeks to continue the tax-favored status of your retirement plans or IRAs long after your death using the stretch or inherited IRA—a strategy that has been, and continues to be, threatened by congress. Lange has a history of staying ahead of the curve, seeing trends and changes in the tax laws and developing strategies for his clients in advance to keep them on the right path toward their financial goals. He was among the first to predict the coming changes to the tax law on Roth IRAs and wrote a peer-reviewed article for The Tax Advisor (official journal of the AICPA) that would go on to win article of the year in 1998. He is continuing this trend in this Third Edition by laying out the possibility of the death of the stretch or inherited IRA as we know it, and providing avenues to reach the same or better outcomes for your family including the use of charitable remainder unitrusts, or CRUTS and life insurance.

Lange offers up plenty of new content in this Third Edition including cutting edge analysis on the unique synergy between Roth IRA conversions and Social Security Maximization that his office has been developing. Using Social Security maximization techniques including spousal benefits like “Apply & Suspend,” and timing small appropriate Roth IRA conversions to take advantage of lower tax brackets in retirement can make hundreds of thousands of dollars of difference in your retirement portfolio… and he’s got the study to prove it.

Virtually every chapter of Retire Secure! contains recommendations, analysis, and case studies that have come from a deep understanding of tax law, estate planning, investing, and “running the numbers” and are proven to work.

Read this upcoming book and make the most out of what you’ve got for your retirement and your family’s future security.

Jim LangeA nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train ad educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

Please complete the form below to receive reminders about the upcoming release of Retire Secure! Third Edition

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Retire Secure Third Edition Coming Soon!

Retire Secure! Third Edition, A Guide To Making The Most Out Of What You've Got, James LangeNow more than ever, one question plagues millions of Americans approaching or already in retirement, “Will my money last as long as I do?”

While no one can answer these questions with complete certainty, you can do three things to significantly improve your odds—develop an appropriate portfolio, cut your taxes, and take advantage of strategies that will improve your retirement income like Social Security benefit maximization combined with timely Roth IRA conversions.

Retire Secure Third Edition

Due for release in a couple of short months this edition explains how you can use IRAs, retirement plans, Roth IRAs and Roth 401(k)s, Roth IRA conversions, and Social Security techniques like “Apply & Suspend” as well as other tax-favored strategies to let Uncle Sam subsidize your retirement and your family’s lifestyle for the remainder of you and your spouse’s life, and perhaps beyond.
The information and examples in this Third Edition of Retire Secure! draws from the more than thirty years’ experience James Lange has as a practicing CPA. Lange provides critical advice for all stages of IRA and retirement plan savings and distribution, covering the best strategies to accumulate wealth while you are still working as well as the best strategies to spend your IRAs and retirement plans once you are retired and doing your legacy planning. Lange explains how to maximize tax-deferred savings during the accumulation phase and reveals the most tax-efficient ways to withdrawal money from your account during retirement.

Read this upcoming book and make the most out of what you’ve got for your retirement and your family’s future security.

Jim LangeA nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train ad educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

More information to come on the next blog post. Stay tuned!

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One Key to Financial Planning… a Roth IRA Conversion

Roth IRA Conversion, James Lange, Lange Financial Group, LLCIf you’re approaching retirement, you might want to consider a Roth IRA conversion. A recent change to tax laws allows for the conversion to Roth IRAs, 401(k)s, and 403(b)s to gain enhanced benefits. For one, the changes made in 2010 have no income cap for Roth IRA accounts. Previously, only incomes of $100,000 were eligible for conversion.

If you’re still not sure, consider these factors that can help lead your family to financial stability.

For the most part, Roth IRAs grow incometax free. Additionally, owners are not required to take distributions at age 70 ½. Roth IRAs grow continuously as long as you or your grandchildren own it; whereas, regular IRAs are tax-deferred. The growth and investment are both taxed when money is withdrawn.

With the income cap of $100,000 gone, the Roth IRA becomes all the more appealing for retirees. At least a partial conversion is recommended, though the converted amount will require tax payment. However, as long as the conversion is strategic, your family can reap the long-term benefits. For example, converting $100,000 today can put you over $51,000 ahead in the next
20 years.

If tax rates increase, the conversion to Roth IRA sees the benefits, because conversion at a lower tax can help cut back taxable income as rates increase. While you’re planning a financial future for your loved ones, keep in mind that your living will and trust don’t necessarily establish who will inherit your IRAs, Roth IRAs, and retirement plans. Specify your IRA and retirement plan beneficiaries. For those still unconvinced, Lange Financial Group makes a limited number of free consultations available to Western PA residents. Because each case is different, it’s important to run the numbers on a case-by-case basis to find a solution that best fits you. If you want to further discuss the benefits of Roth IRA conversions, call Alice Davis, our Client Services Coordinator, at 412-521-2732 to schedule an appointment.

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