0

Beneficiaries…What Are Those?

Kids in grass"When was the last time you updated, or even thought about, the beneficiary designations listed on your retirement accounts, life insurance, or annuity contracts?"

If you don't remember when you last checked your beneficiaries, it's definitely time to review!

Beneficiary designations allow certain assets owned by an individual to transfer efficiently at her or his passing. These include retirement accounts like IRAs, Roth IRAs, 401(k)s, 403(b)s, 457(b)s, and pensions, as well as life insurance death benefits and the residual value of annuities.

These types of assets with designated beneficiaries will transfer automatically, despite anything written to the contrary in a person's will or trust. These assets with designated beneficiaries are also excluded from the decedent's probate estate unless the "estate" is the designated beneficiary.

Owners can designate both primary and contingent beneficiaries. The primary beneficiary inherits the asset, but if he or she dies before the owner, then the contingent beneficiary will be the new owner. If you don't name a contingent beneficiary, the asset will go into your general estate for distribution, which is what you're trying to avoid in the first place by naming beneficiaries.

There are no restrictions on how many beneficiaries can be designated to inherit an asset. You can split your 401(k) 50-50 if you have two children, or 60-40 or 90-10. You can also name a charity as your beneficiary, which can be a nice way to transfer assets to a special organization at your passing. Charities don't pay income tax, so they would get 100% of the value of the asset. If an individual inherits this asset, he or she will be liable for income tax right away or as funds are distributed.

A trust can also be designated as beneficiary to provide control over the asset to someone other than the inheritors. Many times it's used when minor children or individuals with disabilities are to be the ultimate beneficiaries. You should work with an estate planning attorney if you go this route, as the tax and distribution rules are complex.

Review your current beneficiary designations now to be sure they reflect your desires. You also should look at them whenever life circumstances change, like a marriage, birth, divorce, or death. You can change a beneficiary designation at any time.

Since assets with beneficiary designations transfer automatically, make sure that beneficiary designations complement your estate documents. A qualified estate attorney can assist you with how beneficiary designations should be stated to mesh with your overall estate plan.

Reference: Inside Indiana Business (February 29, 2016) "Who Are Your Beneficiaries?"

0

Get the Retirement Planning Rocking in the New Year!

Bigstock-Retirement-fund-34712696"Grow your nest egg faster!"

Contributing to a retirement account qualifies you for tax breaks and employer contributions, both of which will grow your retirement much more quickly.

US News explains how to take full advantage of the 401(k) and individual retirement account perks you're eligible for in 2016 in "How to Maximize Your Retirement Accounts in 2016."

Max out your 401(k). You can contribute up to $18,000 to your 401(k) plan in 2016, which means saving $1,500 per month. Income tax isn't due on this money until it is withdrawn from the account.

Make catch-up contributions. Workers age 50 and older can contribute an additional $6,000 to a 401(k) plan in 2016, for a total contribution of $24,000. Hitting this 401(k) limit means you need to save $2,000 per month. If you do that, you'll reduce your tax bill by $6,000 if you are in the 25% tax bracket, and $8,400 if you pay a 35% federal income tax rate.

The employer match. If your company provides a 401(k) match up to 6% of pay, set up withholding for that amount. If you get a raise next year, increase your savings rate now so your take home pay is identical. Place the extra money in your company retirement plan. You won't even notice the difference!

Take advantage of IRAs. In addition to saving in a 401(k), you can defer income tax on another $5,500 that you contribute to an IRA next year. Remember that if you're 50 or older, you can contribute an extra $1,000 for a total of $6,500.

Consider a Roth. Roth IRAs have the same contribution limits as traditional IRAs, but they are treated differently for taxes, as there's no tax deduction for Roth IRA contributions. Investment earnings in the account aren't taxed, and withdrawals after age 59 1/2 are tax-free.

Claim the Saver's Credit. If you save in a retirement account and your adjusted gross income is less than $30,750 for individuals, $46,125 for heads of household, or $61,500 for married couples, you may be able to claim the saver's credit. Contributions of up to $2,000 ($4,000 for couples) could earn you a tax credit worth between 10% and 50% of your retirement account deposit.

For more information about estate planning, please visit my estate planning website.

Reference: US News (November 23, 2015) "How to Maximize Your Retirement Accounts in 2016"

0

Business Owners and Rising Taxes / York, PA

Wills-trust-estates-bank-beneficiary-trust-trusteesAs changes to the American Taxpayer Relief Act and the Affordable Care Act of 2012 become effective, business owners are facing escalating tax rates. Insightful enterprises are employing wealth management strategies to counteract the cost. Continual planning is essential for finding opportunities that will reduce the financial burden. Several options exist to help corporations retain wealth and reduce taxes legally.

A recent article on theInsurance West website, titled Important Tax-Planning Tips for Business Owners In 2014,” states that retirement packages can decrease tax liabilities by deferring income. At the end of the business year, companies will be examining data to see if there are any tax savings available on defined contribution, benefit, cash balance and 401(k) plans.

The original article notes that gathering this data will allow business owners to make informed decisions about potentially accelerating deductions and deferring income into the next quarter. Compiling financial projections and reports is extremely important for proper tax planning.

The original article also reminds us that integrating personal tax planning into the company tax planning allows state income, real estate and mortgage taxes to offset business revenue. Your business planning and estate planning attorney will be able to suggest solutions such as legitimate tax shifting by employing children, who can start a Roth IRA, along with the tax benefits of continuing education.

There have also been two pieces of tax extender legislation passed by the Senate and the House which would extend provisions for businesses—bonus depreciation, generous donations for S corporations, smooth transitioning from C to S companies, and a $25,000 reduction on Section 179 expenses.

Next year the Affordable Care Act's employer mandate will go into effect for companies with more than 49 full-time employees. Appropriate health insurance for employees must be documented for compliance, and with this companies are looking into various tax options.

According to the original article, you need to integrate your estate planning into your corporate structure to reduce the size of your estate, and business owners may also consider giving shares to family members who are in a lower tax bracket.

An attorney experienced in business and estate planning can help you make the right strategic moves as the year comes to a close.

For more information about estate planning, please visit my estate planning website.

Reference: Insurance West (November 8, 2014) Important Tax-Planning Tips for Business Owners In 2014

  • Fill in the form below to download your e-book


    Download your free Avoid These Five Common Estate Planning Myths e-book
  • This field is for validation purposes and should be left unchanged.