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Changes Coming to IRA Planning

Thumbnail image for secure-act-impact-ira-stretch-ira-trust-planning.jpgHave you heard of the bill that is currently going through Congress called the "Setting Every Community Up For Retirement Enhancement" (also known as the SECURE Act). The SECURE Act is going to bring about major changes to IRA and retirement planning, more than we have seen in decades. Namely, it's effectively going to put an end to "stretch IRAs" as we know them. While the House approved the SECURE Act at the end of May, it has now been sent to the Senate for vote and they have some differences to the bill pending. If you have an IRA, chances are the beneficiary of your IRA is your spouse. However, if you have an IRA that you don't plan to use, then your beneficiary might be your youngest grandchild. The IRS currently requires that you withdraw a certain amount every year once you turn 70 ½ (also known as a required minimum distribution or "RMD"). The "stretch IRA" works because younger beneficiaries have a longer life expectancy, which allows for longer periods of time for the money to compound, smaller RMDs and taxed much less. Thus, a larger sum of money going to the beneficiaries. The House version of the bill changes the stretch period to a maximum of 10 years. The Senate version of the bill allows a stretch of the IRA on the first $400,000 of aggregated IRAs and the exceeding balance must be distributed within five years. Under the current rules, a younger beneficiary would take a distribution over their life expectancy using a chart while under the SECURE Act, the beneficiary would have to withdraw all the money within 10 years. Generally, these pending changes are intended to modernize and update aspects of retirement planning. Giving flexibility for individuals who work beyond the age of 70 ½, allowing for continued contributions as well as certain academic contributions to be made to IRAs. This enables people to start saving for their retirement at a much younger age. As noted, the House has voted and approved the SECURE Act and this pending legislation is currently awaiting on a vote from the Senate-with both sides hashing out their versions of the bill and the rules and regulations to be finalized. We, at the Law Firm of Kavesh, Minor & Otis, are keeping a close eye on this legislation. Once we have information about how this may impact IRA accounts and any IRA planning that you have done (or can do), we will definitely be reaching out to discuss this further with our clients.

IRS Changes Policy on Identity Theft

Identity thieves not only steal credit cards in victims' names, they often file fraudulent tax returns in hopes of receiving refunds. The IRS has changed its policy and it should become less difficult to learn the truth.

How to Support Charitable Goals Through Bequests and Donations

There are tax breaks to be had while you are living and those that can benefit your heirs after you have passed. Knowing which ones work at what time is key to help mitigate tax liability. While you are living, giving appreciated assets held in a taxable account is a good way to go. When you are making bequests, consider designating your IRA or tax-deferred retirement plans for the most impact. For example, if a person wants to give $10,000 to her favorite charity this year, she can donate $10,000 worth of stock that she bought for $2,000. As long as her holding period is one year or more, she'll get a full $10,000 charitable deduction, even if those shares are worth less than $10,000 on the open market. These kinds of strategies are big for retirement planning and estate planning benefits. Here's another example: a prosperous business owner has $1 million of securities: $500,000 in a taxable account and $500,000 in a traditional IRA. He wants to leave half to charity and half to a daughter who is already in a high income tax bracket because of her own successful business. If his daughter inherits the IRA, she will have to take distributions, which will be taxed highly. An alternative: leave the entire IRA to charity, which is tax exempt. The daughter inherits the $500,000 taxable account and won't owe income tax on any money she withdraws. She also won't owe any capital gains if she sells the securities in the accounts right away, before they gain more value because she gets a cost basis step-up to market value on those assets.

Retirement Savings Options for Self-Employed

Unlike people who work for an employer and can set automatic deductions for their IRA accounts, self-employed people need to set up and contribute to retirement accounts. Two of the most frequently used accounts are the Simplified Employee Pension (SEP-IRA) and the Solo 401(k). Contributions to both are tax-deductible, allowing the entrepreneur to obtain tax-deferred growth and cut taxes.

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