Posted tagged ‘401(k)’

Complimentary Online Estate Plan Review

May 15, 2020

Does the pandemic have you worried about whether your existing estate plan works for you now?

Or maybe you are simply using the enforced quarantine time to catch up on important things that you keep putting off.

Either way, Chipman Mazzucco Emerson has an easy way to guide you through what you need to know to make sure your estate plan is updated and meets your current needs.

Our complimentary updated Online Estate Plan Review asks a series of specific questions that will alert you to issues you should address to make certain your plan still works. The latest version of this program covers a number of recent law changes, including:

  • The Tax Cuts and Job Act of 2017
  • SECURE Act of 2019
  • Numerous changes in State and federal estate tax exemptions

You can complete the process in ten to fifteen minutes. When you are finished, you’ll receive a detailed personalized report that identifies issues that require your attention.   Here is our new video explaining how the review works and how to register for your personalized report.

To access our complimentary Online Estate Plan Review, please click on the link or image below:

Complimentary Online Estate Review Plan

We hope our online estate plan review helps you.  If you have questions about the review, please call.

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Posted by Richard S. Land, Attorney, Chipman Mazzucco  Emerson LLC, Attorneys at Law, Danbury, CT, 06810, 203-744-1929 x29, rsl@danburylaw.com.

Tax Increases on Retirement Plan Accounts: A Simple Change Adds to Complexity

May 12, 2020

Washington has been salivating over the potential that retirement accounts represent for increasing tax revenues. If only such accounts (IRAs, 401(k) plans, 403(b) plans and similar retirement accounts) could be subjected to tax now….

The SECURE Act (effective January 1, 2020) is a step toward increasing taxes on your retirement accounts. Ironically, the acronym SECURE stands for “Setting Every Community Up for Retirement Enhancement.”

On January 20, 2020, we posted an update of Part 8 of our Basic Estate Planning Video Series (called Basic Estate Planning after TCJA). In updated Part 8 we cover the new rules under the SECURE Act that affect your estate planning. Please click here,or on the video link below, to watch Part 8 (15 minutes).

Help others find our informative videos. If you find the video helpful, please “like” it and share it with your friends.

In theory, the most significant new rule appears simple: with limited exceptions, most inherited retirement accounts must be withdrawn within ten calendar years after the year in which the account owner passes away. The simplicity of this change masks the complexity of the calculations that may be needed when you are making estate planning decisions regarding your retirement accounts. 

If you know the new rules, you will begin to understand why it may make sense

  • to consider converting to Roth IRAs before you pass away;
  • for a surviving spouse to consider converting part of the spouse’s regular or rollover IRA to a Roth IRA;
  • to consider leaving some of your IRA directly to your children instead of to your surviving spouse while also leaving a large part of your IRA to your surviving spouse;
  • in some cases, for the beneficiary to take no distributions from the IRA until the tenth year after the owner’s death and in other cases to take much earlier distributions; and
  • in some cases to use trusts as beneficiaries of retirement accounts when, in the past, you would have been more inclined to name individuals.

The conclusion is the same as always. More complexity means more need to consult with your accountants and financial advisers (and maybe with your lawyers).

We hope these materials add to your understanding. Please let us know if you have questions.

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Posted by Richard S. Land, Attorney, Chipman Mazzucco Emerson LLC, Attorneys at Law, Danbury, CT, 06810, 203-744-1929 x29, rsl@danburylaw.com.

Lump Sum Rollover of Retirement Account Not as Simple as Expected

December 26, 2011

At our seminar held on December 8, 2011 (Planning Your Whole Estate—Coordinating Life Insurance, Employee Benefits and Other Nonprobate Property with the Rest of Your Estate Plan), a question was asked about distributions from a qualified retirement plan account which contained both after-tax and pre-tax contributions.

You can see a podcast/slideshow of the seminar here: Planning Your Whole Estate—Coordinating Life Insurance, Employee Benefits and Other Nonprobate Property with the Rest of Your Estate Plan.

The question related to distributions that might occur at the time of retirement when the participant would roll the account into a rollover IRA.

I answered that the participant should be able to receive the after-tax portion without the imposition of income tax and should be able to rollover the pre-tax portion to the rollover IRA.

I’ve been thinking about how complicated the applicable rules are so I thought I should offer some clarification. I plan to prepare a more complete post to this blog in the future and we will notify you when it is posted.  For now, I offer this.  I hope it is helpful.

The general rule relating to distributions from a qualified retirement plan account is that the distribution will be part after-tax and part pre-tax. There is an exception to the general rule which allows the participant to take a distribution from the plan; rollover an amount equal to the pre-tax portion to a rollover IRA within 60 days of the distribution; and retain the balance as the after-tax distribution. Although the after-tax distribution would not be subject to income tax, the pre-tax portion of the distribution would be subject to mandatory 20% tax withholding.

As an example, suppose the value of the account as of retirement is $150,000 and that $50,000 is after-tax and $100,000 is pre-tax. If the participant were to take a lump sum distribution, it would be subject to mandatory withholding of 20% ($20,000 of the $100,000 pre-tax portion of the distribution). In that case, if, within 60 days, the participant were to roll over $100,000 to an IRA, the participant would defer income tax on that portion.

That would leave the participant with $30,000 of cash out of the $50,000 after-tax portion (the $50,000 after-tax portion would have been reduced by the tax withholding of $20,000).  In addition, the participant would have a tax credit of $20,000.

In effect, therefore, the participant would have accomplished the goal of receiving the after-tax portion free of tax and rolling over the entire pre-tax portion to an IRA.

Although the tax withholding would have been an inconvenience, it represents an asset which the participant would receive as a refund assuming all other tax obligations were satisfied.

This is a narrow exception to the general rule that applies to distributions from qualified retirement plans. Accordingly, it should not be generalized to other situations. There are other exceptions to the general rule.  We plan to cover some of the other exceptions in future posts.

The IRS has published a number of positions on the subject, some of which appear to contradict each other. Plan administrators have developed their own ways of dealing with the uncertainty.

Posted on 12/26/2011 by Richard S. Land, Member, Chipman, Mazzucco, Land & Pennarola, LLC.

Notice: To comply with U.S. Treasury Department rules and regulations, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction, tax strategy or other activity.

We frequently post articles relating to estate planning, estate settlement and elder law issues to this blog. We also post notices about our client seminars here. When we do, we send out notices to clients and friends of the firm. If you would like to get our notices, please join our mailing list by clicking below.

     
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