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IRA and Tax Planning Attorneys

Maryland IRA and Retirement Planning Attorneys Guide You to a Prosperous Future

Understanding your retirement options in a complex tax structure

Everyone looks forward to retirement, but many do not understand how to best prepare for a lifestyle without a regular paycheck. You deserve the ability to enjoy this money during your retirement, and maybe have something left over to pass on to your loved ones.  There are many questions surrounding retirement planning which the average person may not know the answers to. 

IRAs (“individual retirement accounts”) are often the most effective tax and estate planning financial tool you can utilize.

What is an IRA?

IRA stands for “individual retirement account.” This is an account you can establish with financial institutions for retirement. Because an IRA is specifically designed to hold assets and accumulate returns on earnings for retirement, IRAs receive unique tax treatment.  In a Traditional IRA, you can save money directly and defer taxes until you retire. In a Roth IRA, you can save income already taxed, with no additional taxes.

Depending on your retirement needs and preferences, an IRA can help you secure an enjoyable retirement. Because of their growing popularity, check to see whether your employer has a retirement plan in place which has many of the same features of a Traditional IRA or Roth IRA.  For some, this arrangement works better because the money is automatically taxed and set aside with no action.  Some employers will set aside money for your retirement.  For others, maximizing their return on investment through a Roth IRA is worth the time and attention it takes to determine whether contributing to a Roth IRA makes sense or whether it makes sense to convert a Traditional IRA to a Roth IRA.  There are many other details regarding IRAs and factors you should consider. But with the right guidance and assistance, IRAs are a fantastic retirement savings tool.

How much will an IRA reduce my taxes?

An individual retirement arrangement is a type of account you can open to save for retirement. One advantage of an IRA is the tax break that allows you to defer paying taxes on money you put into the IRA until you withdraw it, rather than paying taxes when you earn it. A special type of IRA called a Roth IRA allows you to pay taxes on the money as usual when you earn it but not pay tax on investment income from when the money is in the account.

How much you can save on taxes with an IRA depends on your tax brackets when you make deductible IRA contributions and make withdrawals, and how much you put into the account. If you withdraw money early from your IRA, you may owe a tax penalty that can limit your total earnings or even effectively erase those IRA tax benefits.

What is a 401k?

401(k) is an employer-sponsored defined contribution plan, so your employer contributes a set amount (if they contribute).  A 401(k) is a retirement savings plan sponsored by an employer.  It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes are not paid until the money is withdrawn from the account.

IRAs and Estate Planning

At some point, you will need to decide who will receive your IRA when you die.  This is a complex decision because of the income tax consequences of inheriting an IRA. Moreover, leaving an IRA to a minor child or grandchild requires careful planning to make sure that the IRA is not redeemed sooner than necessary and to ensure that the IRA is not controlled by a court on behalf of the minor child or grandchild.   Deciding the property beneficiary designation for your IRA must be part of your overall estate plan.

There are other important considerations to be given to the naming of your beneficiary for an IRA.  If you are married, there are many good reasons to name your spouse as your beneficiary and most people do.  However, this may not be appropriate if you are in a blended family relationship.  Some people are concerned that their spouses would roll over the money to their own IRA and name their own children as the beneficiaries. A solution to this concern could be to create a Standalone IRA Trust and name it as the beneficiary for your IRA.

Many people never update or change their beneficiary designations on their retirement plans.  Failure to do so can cause many an unintended consequence.  In addition, people name their minor children as the contingent beneficiaries only to see those children receiving benefits by age 18. Others name a trust as the beneficiary but have failed to make certain that the trust qualifies under the IRS regulations. 

Standalone IRA Trusts

If you engage in proper, responsible retirement and estate planning, then you should have considerable funds left in your IRA as you near the end of your life. This is one example of why retirement planning is closely tied to estate planning.   The most crucial question is determining who the beneficiary of the IRA should be.  Naming your estate or your Living Trust to be the beneficiary could cause the IRA being paid out over a relatively short while, rather than over the lifetime of the beneficiaries.  If this happens, it can cause a heavy income tax burden and possible significant penalties.  Standalone IRA Trusts, or Beneficiary/Inherited IRA Trusts, may be more appropriate.

Though Standalone IRAs have traditionally received much better tax treatment (by allowing the IRA to be out over the lifetime of the beneficiary of the Standalone IRA Trust), the U.S. Supreme Court has further strengthened the advantages of the Standalone IRA Trust by finding that an inherited IRA is not protected from the claims of the creditors of the beneficiary of the inherited IRA.  Instead, by making a Standalone IRA Trust to be the beneficiary of your IRA, the IRA is protected from the beneficiary’s creditors, while still allowing for the “stretch” of the IRA over the lifetime of the beneficiary of the Standalone IRA Trust.

The benefits of a Standalone IRA Trust include, probate avoidance, creditor protection and making sure that the IRA is paid to your desired beneficiaries, while still allowing the beneficiary of the Standalone IRA Trust to withdraw the IRA over his or her lifetime. 

How much will an IRA reduce my taxes?

An individual retirement arrangement is a type of account you can open to save for retirement. One advantage of an IRA is the tax break that allows you to defer paying taxes on money you put into the IRA until you withdraw it, rather than paying taxes when you earn it. A special type of IRA called a Roth IRA allows you to pay taxes on the money as usual when you earn it but not pay tax on investment income from when the money is in the account.

How much you can save on taxes with an IRA depends on your tax brackets when you make deductible IRA contributions and make withdrawals, and how much you put into the account. If you withdraw money early from your IRA, you may owe a tax penalty that can limit your total earnings or even effectively erase those IRA tax benefits.

What are CRUTs and CRATs?

There are a lot of strange acronyms flying around the IRA and tax planning fields these days. If you have a strong retirement portfolio of securities like stocks or mutual funds, or you would like to, you may have heard someone reference “CRUTs and CRATs,” or the even more exotic sounding ‘Flip CRUTs, NIMCRUTs, or NICRUTs.” No, the person communicating these sounds is not mimicking a Neanderthal. Instead, they are trying to explain a new retirement and tax planning focus triggered by an increase in capital gains tax.

Starting in 2013, the tax paid on long term capital gains rose significantly. This affected the potential sale and gain on valuable long-term assets such as stock and collectibles. Charitable remainder unitrusts (CRUTS) and charitable remainder annuity trusts (CRATs) have become popular again for those with significant income and assets.

For those who are blessed with significant income and assets, CRUTs and CRATs offer a way to have your valuable assets taxed less during your lifetime. These tools can provide you with a steady income stream and provide a means for charitable giving after you pass away. As a basic premise, the asset subject to regular capital gains tax is placed into the CRUT or CRAT.

The asset can then be sold, and the capital gains tax is avoided, provided that: (1) at least 10% of the original value of the asset is reserved for a charity, and (2) the remaining balance is paid out over the life of the beneficiary. This is an over-simplified explanation, but we can help you understand CRUTs, CRATs, other related trusts, and how traditional and Roth IRAs can work within these concepts.

Maryland IRA and tax planning attorneys help you understand complex planning concepts and regulations.

What should I do if I have a high value estate or might inherit a significant gift?

Tax planning considerations are most pressing for individuals involved with high value estates. For the year 2015, the lifetime individual and gift tax exclusions are up to $5,430,000. Therefore, not every estate plan involves significant tax planning. But there are many ways high-value estate can effectively use tax planning tools, both in life and death, whether an exact threshold is met. Many tax planning tools can offer preferential or deferred tax treatment, which may even be counted against tax exclusions sometimes. Such tools include:

  • Testamentary and Living Trusts
  • Life Insurance Trusts (ILITs)
  • Qualified Personal Residence Trusts (QPRTs)
  • Generation Skipping Trusts (GSTs)
  • Dynasty Trusts
  • Intentionally Defective Grantor Trusts (GRATs)
  • Grantor Retained Unitrusts and Charitable Remainder Annuity Trusts (CRUTs and CRATs)
  • Grantor Retained Income Trusts (GRITs)
  • Charitable Lead Trusts (CLTs)
  • Family Limited Partnerships (FLPs)
  • Family Limited Liability Companies

Tax planning tools are generally complex and only work in the right situation.

What if I am not a citizen of the United States?

If you are not a U.S. citizen, the federal government has different rules for how you are treated from a tax perspective. You must make very specific tax and estate planning decisions to ensure you receive optimal tax treatment if a gift occurs. Our attorneys have valuable insight into the maze of international estate planning. Our trusted professionals help you understand and plan for issues ranging from treaty protections to special trusts which qualify for the marital deduction (QDOT). As a firm that specializes in estate planning, we offer the far-ranging and comprehensive estate planning solutions that Maryland law firms can.

Maryland tax planning attorneys offer strategic advice you can trust

Let a gift make a lasting impact for you or your loved ones. Call the Maryland tax planning attorneys at Altman & Associates today. We have convenient office locations in Columbia and Rockville. Contact us by phone at (301) 468-3220 or contact us online to schedule a consultation. Contact knowledgeable Maryland retirement planning attorneys today for sound guidance It’s your future. With hard work and the right guidance, you can make your retirement a dream come true. The Maryland IRA and retirement planning attorneys at Altman & Associates understand the intricacies of planning for a successful retirement and building a legacy. Let us help you take the next step. We have convenient office locations in Columbia and Rockville. Contact us by phone at (301) 468-3220 or online to schedule a consultation.

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