Massachusetts Estate Planning & Asset Protection Blog

Massachusetts Estate Planning Attorney | Naming the Right Beneficiary of Your Retirement Plan

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, Feb 13, 2013

IRA, Retirment, Estate PlanningIRAs and other tax-deferred retirement accounts allow your savings to grow tax-free until you retire. At that point, typically the year after you become age 70 ½, you must begin taking required minimum distributions, on which you pay ordinary income taxes. The rest of the money in your account continues to grow tax-free until it is distributed to you. If you die before depleting your account, the balance of your account will go to the beneficiary you have named.

Naming the right beneficiary is critical. Most people want to continue the tax-deferred growth for as long as possible, paying the least amount in income taxes. This is called “stretching out” the account. Distributions after you die will be based on the new beneficiary’s age and life expectancy, so the younger the beneficiary (like a child or grandchild), the longer the stretch out potential.

However, naming a beneficiary outright has several disadvantages:

  • If the beneficiary is a minor, distributions will need to be paid to a guardian; if no guardian exists, one will have to be appointed by the court.

  • An older beneficiary can do whatever he/she wants with this money, including taking larger distributions or even cashing out the entire account and destroying your carefully made plans for long-term, tax-deferred growth

  • This money could be lost to the beneficiary’s creditors, spouse and ex-spouse(s).

  • There is the risk of court interference if your beneficiary becomes incapacitated.

  • Outright distributions could cause a beneficiary with special needs to lose valuable government benefits.

  • If your beneficiary is your spouse, he/she will be able to name a new beneficiary and is under no obligation to follow your wishes. This may not be what you want, especially if you have children from a previous marriage or you feel that your spouse may be too easily influenced by others after you are gone.

    •  Substantial amount of income taxes that would be due on a lump sum distribution.

Increased Control & Protection

Naming a trust as beneficiary will give you more control over, and protection for, these tax-deferred accounts. It should be a separate trust designed specifically for this purpose; because of the rules governing naming trusts as a beneficiary it should not be part of your revocable living trust or other trust. For this reason, these trusts are often called “stand-alone retirement trusts.”

Instead of required minimum distributions being paid directly to your beneficiary, they will be paid into the trust for the benefit of your beneficiary. The trust can either be mandated to pay these distributions directly to the beneficiary (called a conduit trust) or it can accumulate these distributions (called an accumulation trust) and pay out trust assets according to your instructions (for example, for higher education expenses, down payment on a home, etc.)

Specific benefits include:

  • No guardian is needed for minor children and there is no risk of court interference at the beneficiary’s incapacity. That’s because a trust, not the individual, is the named beneficiary.

  • Your beneficiary is prevented from cashing out or taking larger distributions, assuring the continuation of tax-deferred growth.

  • The account itself is protected from creditors and predators, even from divorce claims. However, if a conduit trust is used and distributions are required to be paid to the beneficiary, those distributions would be at risk. For maximum creditor protection, an accumulation trust is preferable.

  • You can name successor beneficiaries in the trust document and keep control over who will receive the proceeds if your initial beneficiary should die before the account is fully paid out.

  • An accumulation trust is typically used to provide for a beneficiary with special needs. Instead of the beneficiary receiving the required distributions as income (which could affect his/her ability to receive government benefits), the trustee can use discretion and provide for certain needs of the beneficiary as they arise, without jeopardizing their benefits.

In order to be accepted by the IRS, the trust must meet very specific requirements, and should be designed and written by an attorney who has experience in this area.

You’ve worked years to accumulate your tax-deferred plans. Naming the right beneficiary can preserve and continue the tax-deferred growth long after you’re gone, protect the assets from creditors and the courts, and provide for your loved ones the way you want.  

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique education and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops. Call 800-964-4295 to learn more about what you can do to enhance the security of your family and legacy.

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Tags: Retirement, Estate Planning, family, 401(k), 529 plans, IRA, retirement plans

Massachusetts Elder Law Lawyer | Considering Retirement or Retired?

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, Jan 30, 2013

Now Is the Time to Review Your Investments

In conducting research for our upcoming book, the Senior & Boomer’s Guide to Health Care Reform & Avoiding Nursing Home Poverty we learned that many people who are still working are giving retirement a second thought.

This is because they have to make big decisions about things such as Social Security and taxes - in advance. The world as we knew it has been turned upside-down in recent years, and this decision will affect the rest of your life.  Many are not sure they are ready - emotionally and financially - to retire.

If you're considering making the break, ask yourself these questions:


Because of the loss of our financial security-blankets in recent years, people are working longer. If you enjoy your job, maybe you should keep working.

Working will allow you more time to build up your savings for the day when you really do want to play golf instead of office politics, and more time to pay down your mortgage. Keep in mind, once you retire, it can be difficult to un-retire.


If you think it was hard staying on a budget during your working life, you ain't seen nuthin' yet! In fact, it often gets more expensive to live after you retire. You've got less coming in. But you'll probably be spending money on things you never had the time to spend it on before.

You'll probably be traveling more. Seeing more movies or ballgames. Playing more golf. Going out with friends more. And perhaps buying more "toys."

The Web can be a resource.  Retirement and financial planning websites like can help you figure out expenses that may end with retirement, and those that may begin.

Some experts encourage a trial run, by living on a projected "retirement budget" while you're still working. It's not a totally accurate method. But it might give you time to develop coping strategies.


There's a natural instinct to sign up when you turn 62. But "full-retirement age" isn't until 66...and, if you start early, your benefits will be reduced. So, if you've got a bit of a nest egg, consider waiting a while. And if you can wait until 70, your benefits will be even higher.

For those eligible at age 66, waiting just one year will result in monthly benefits equaling 108% of the previous amount. And waiting until 70 would generate 132% of the regular monthly benefit!  In fact, you can nearly double the amount you'll get at 62 if you can wait until 70.


Most of us speak with our accountant just once a year - at tax time. But don't consider retirement without discussing your finances with your accountant or asking us about how we can help you with retirement and tax planning.

Consider a financial planner, too. A big chunk of your IRA is going to Uncle Sam when you withdraw it.  Together, we can help you develop a strategy for your taxable and tax-sheltered accounts. And we can help you decide whether to convert to a Roth IRA, where withdrawals are tax-free, but conversions are not.


Many people especially those considering retirement or in retirement should review their portfolio with an eye towards age and risk tolerance, making sure they are in line with one and other.  Many people are sick of banks not only dropping their CD rates but their money market rates as well.  Many professionals are concerned that interest rates may be at a turning point and with the debt ceiling conversation being revisited, now may be a good time to review your investment options.  If you would like some information on safe investing for seniors, please let us know.

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique education and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops. Call 800-964-4295 to learn more about what you can do to enhance the security of your family and legacy.

elder law, massachusetts, estate planning, medicaid, alzheimer's

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Tags: Retirement, Estate Planning, Baby Boomers, Elder Law, Attorney, roth conversions, 401(k), income, senior, retirement plans

7 Major Errors In Estate Planning

Posted by Wellesley Estate Planning Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, May 16, 2012

As estate planning and asset protection professional we often times help people and their family by reviewing existing planning.   As discussed in a recent Forbes article, the following is a list of major estate omissions and poor choices we see on a consistent basis.  Estate Planning, Asset Protection, Tax Changes, Estate Tax, Gift TaxIt is crucial to have your planning reviewed and updated consistently.  As a result of changes in the law, in health and in personal circumstance an old estate plan may not be working to accomplish your goals.  To learn more about how the Estate Planning & Asset Protection Law Center of Dennis Sullivan & Associates can help you and your family visit or call (800) 964-4295 (24/7). 

1. Not having a plan

In a sense, everyone does have an estate plan; state law makes this point a certainty.  It simply may not be the plan that you had in mind, or that your family would have preferred.  Not having a will means that at your death the distribution of your assets will be dictated by the inheritance laws of the state where you were domiciled when you died.  These “intestacy laws” vary from state to state but, typically, leave percentages of your assets to various family members.  There is always a remote chance that these laws will accomplish what you would have intended – but not likely. It is highly improbable that, by chance, your dispositive intentions as to who gets what, when and in what form will be fulfilled.  This is true even if your estate is below the tax threshold.  Your will applies to the disposition of your “probate assets” – those assets NOT otherwise following a beneficiary designation or the titling of the asset. Non-probate assets will pass by operation of law or contract. For example, whoever the beneficiary designation may have been when you originally began your 401(k) or IRA at the start of your work life will override either your will or the laws of intestacy.  Even a simple plan that is well thought out and results from the identification of your personal objectives will be much more successful than nothing at all.

2. Online or DIY rather than professionals

There has been a noticeable uptick in the number of people who will look to the Internet to prepare their own wills and trusts. There are dozens upon dozens of websites that will profess to offer you just the right discounted estate planning documents.  Even wealthy clients who stand to benefit the most from expert planning advice have been impacted. Unfortunately, relying on web-based, do it yourself solutions is a recipe for disaster.  Estate planning documents should represent the culmination of a well thought out financial and estate plan. An amalgam of stand-alone documents does not a plan make.  Furthermore, those pesky nuanced requirements (i.e. the “formalities”) for a validly written and executed document will vary from state to state.  Internet sites can provide you with documents but no actual advice that fits you in the context of your specific financial and personal life.  What happens when the laws change? Does the document create an unnecessary tax if the state and federal tax laws diverge substantially?  Also, use an experienced estate attorney.  All wills are perfect documents while they are in your desk drawer.  Only when examined post-mortem are the inadequacies revealed.

3. Failure to Review Beneficiary Designations and Titling of Assets

One of the most basic and most overlooked items on every estate-planning checklist is the review of beneficiary designations and the proper titling of accounts. Unwittingly, many people will often let beneficiary designations and asset titling determine their estate plans for them, contrary to their intentions. Why? Regardless of what your well developed wills and trusts say, your beneficiary designations and the title of your assets will control the ultimate distribution of those assets. Most investment accounts allow for the designation of a beneficiary (IRAs, 401(k)s, company plans, etc.).  More recently, many states have enacted legislation to convert even otherwise ordinary brokerage accounts into accounts with beneficiary designations via Payable/Transfer Upon Death Registrations. All of these beneficiary designations absolutely control who gets the asset at your death.  The titling of assets is a property law concept with estate implications. An account that is held jointly with right of survivorship will pass automatically to the survivor of the joint owners.  Why does this matter?  Assets can flow to the wrong people due to old, wrong and/or out-of-date designations, often with unintended estate and income tax implications.

4. Failure to Consider the Estate and Gift Tax Consequences of Life Insurance

Life insurance proceeds are included in the estate when owned by the insured at death. However, the insured may choose to transfer all incidence of ownership during his/her lifetime thereby avoiding any potential estate tax inclusion. Notwithstanding this accessible planning fix (usually via trust), relinquishing ownership and control is not necessarily an automatic decision. In some instances, large sums of available, tax-advantaged and asset-protected cash has accumulated in permanent life insurance policies (i.e. whole life).  Accordingly, the decision as to how an insurance policy should be owned and, as importantly, controlled, can be complex and is highly individualized. In the right fact patterns, especially when tax is not the only important consideration, credible arguments can be made for both trust ownership and direct ownership. As in most estate planning, it is very much dependent on individual circumstances: family dynamics, net worth, financial / liquidity position, personal preferences and, even, your philosophy on the transfer of assets to future generations.

5. Maximizing annual gifts

Gifting is, probably, the oldest and best way to minimize future estate taxes. The entire universe of exemptions and deductions available for the reduction of estate taxes consist of:  the lifetime exemption ($5.12 million in 2012), the marital deduction (for gifts to citizen spouses during life or at death), the gift and estate tax charitable deduction, annual exclusion gifts ($13,000 in 2012) and direct transfers (not to be treated as gifts) for education (tuition) and medical care (both theoretically unlimited). For the wealthy, maximizing all of these is smart planning. Making annual exclusion gifts every year to as many family members (this includes anyone close to you) as is financially prudent (given your financial situation) is good planning. Over the long run, you can transfer significant sums of money out of your estate along with any appreciation, thereby reducing the tax. Even better planning would be to use your annual exclusion gifts, strategically,  so that each annual gift can be leveraged into larger sums being transferred out of your estate. Strategies such as sales/gifts to defective grantor trusts, the use of LLCs/FLPs in the case of hard to value assets and life insurance are just a few ways to leverage the annual exclusion gifts. In the case of gifting, leverage is a very good thing and strategies that allow you to leverage this scarce resource – tax-free gifts – are crucial to successful estate planning.

6. Failure to Take Advantage of the Estate Tax Exemption in 2012

As every estate and financial planning practitioner will tell you (and probably already has told you), making lifetime gifts is a simple and effective estate tax minimization strategy.  Simply giving away assets at no gift tax cost will allow both the corpus and its appreciation to escape the Federal estate tax on the passing of the donor.  Using the exemption equivalent amount during your life is better than leaving it for use at death.  The urgency is to act now to take advantage of the current estate tax regime that it is set to expire at the end of 2012.  Above and beyond the annual exclusion gift limit of $13,000, the federal applicable exemption amount for transfers during life (gifts) and death (estates) has increased (by indexing) to $5,120,000 per person for 2012 — by far the highest it has ever been since the establishment of the estate tax. Wealthy individuals who have both the means and desire to do so, should plan on making these gifts during 2012.

7. Leaving assets outright to Adult Children

In recent years, there has been a growing opinion among advisors for wealthy families that assets should remain in trust, even for adult children, for as long as possible for the asset protection and other benefits that a trust can offer. For a wealthy couple with adult children, the question may no longer be a one of legal capacity or maturity (although those issues may still remain). The bigger questions may, more accurately, become: who should really benefit from the fruits of my labor and how do I protect those assets from creditors, potential creditors and ex-spouses.  Depending on your perspective, dictating from the grave may or may not be a pejorative expression. For as long as trusts have been in existence (800+ years), the idea of controlling assets for as long as allowed with a set of instructions has been considered acceptable and often sought after planning.  In fact, centuries ago, keeping assets in trust forever was, more likely than not, the goal; hence the genesis of the “rule against perpetuities.” This rule was law in all 50 states to prevent perpetual or “dynasty” trusts. Over the last several years, many states have been modifying this rule to allow for longer trusts or have outright abolished the rule. Whether or not to leave assets in trust for adult children depends on many factors; not the least of which is personal preference. However, in our litigious society of high divorce rates, leaving some assets in trust with fairly liberal access is certainly worth consideration.

For more information on how you can avoid major errors in your estate planning register to attend an educational workshop hosted by our team of estate planning professionals by going to or by calling (800) 964-4295 (24/7).  You can also access several free guides and reports on our website by clicking HERE

We look forward to helping you and your family.


Tags: asset protection, Estate Planning, Estate Planning, GST tax, gift tax, estate tax, estate tax savings, Massacusetts Estate Tax, 401(k), Massachusetts estate tax, Estate Planning Tip, estate, gifts

Common Myths of Medicaid Qualification

Posted by Wellesley Estate Planning Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Fri, May 11, 2012

Is it true you can give $10,000 to each child without penalty? Can't you just put your kids' names on your accounts? Is it true there's an annuity that allows you to "flip the switch" and solve all your payment problems?

The answers? NO! NO! NO! The $10,000 is now $13,000... and it's an IRS rule, not a Medicaid rule. Putting your children's names on your accounts protects none of the money. Annuities? The laws have changed - and there is no magic switch.

Medicaid Qualification, Massachusetts, MA Estate Planning

Often, out of sheer frustration, retirees tell us they're going to solve the problem of qualifying for MassHealth by just giving it all to their kids. But that opens up the possibility of your kids' problems - with their spouses, for example - impacting your money.  In addition, most retirees have no idea about the tax implications. For instance, transferring a house to a child changes the property tax classification to non-owner-occupied - and property taxes will go up.

To qualify for MassHealth, you do have to “spend down” your assets. Each state has different rules; but, generally, you're allowed to keep around $2,000 if you are single and $113,640 if you are married.

The only exempt assets are:

  • Home equity up to $750,000

  • Personal belongings, household goods

  • One car or truck

  • Burial spaces and certain related items for applicant and spouse

  • Irrevocable pre-paid funeral contract

  • Up to $1,500 of face value life insurance; if the face value exceeds $1,500, the cash value is considered a means of payment

All other assets are generally non-exempt - any item that can be turned into cash is a countable asset.  Non-exempt items would include:

  • Cash, savings and checking accounts

  • Credit union share and draft accounts

  • Certificates of deposit

  • U.S. Savings Bonds

  • IRAs, 401(k)s, Keogh plans, 403(b) and all other defined compensation plans

  • Pre-paid funeral contracts that can be canceled

  • Trusts (depending on the terms and conditions of the trust)

  • Real Estate (other than primary residence)

  • More than one car

  • Boat or recreational vehicles

  • Stocks, bonds and mutual funds

  • Land contracts or mortgages held on real estate sold

Sound confusing? It is!  The Elder Law Journey can be very complex and no one should try to navigate this road alone. It's too easy to crash and burn. The Estate Planning & Asset Protection Law Center can help. We practice Elder Law, and we've walked a number of families through the Elder Care Journey by providing them with comprehensive estate planning, wills, trusts, powers of attorney, long-term care planning, asset protection programs, and assistance acquiring Veteran’s Benefits.

To learn more about how the Estate Planning & Asset Protection Law Center can help you register online to attend one of our upcoming Trust, Estate, and Asset Protection Workshops or register by calling (800) 964-4295 (24/7).  You will discover why traditional estate planning may not work and the life-care planning steps you should be taking instead so you will not outlive your savings, the asset protection language that most people don't have in their power of attorney documents which can help protect their life savings, how to qualify for the hidden Veteran's benefits that most people know nothing about, and How Medicaid works...and the steps you need to take now to protect yourself and your family under the new rules.

Tags: Alzheimer's Disease, Medicare, Medicaid, MassHealth, Estate Planning, Estate Planning, Elder Law, HIPAA, elder care journey, health care proxy, elder care, family, power of attorney, 401(k)

Families Need to Plan for Future Tax Liabilities

Posted by Dennis Sullivan & Associates on Wed, Aug 03, 2011

The beneficiaries of tax-protected retirement accounts like 401k)s, IRAs, annuities, savings bonds, etc. should keep in mind the future tax liablity for those accounts.  In some cases it can be substantial.

Many estate tax payment vehicles like irrevocable life insurance trusts (ILITs) are used to help clients pay the taxes due on retirement accounts.  Another option that helps with this future tax bill is converting a traditional 401(k) to a Roth so you pay the taxes now so your heirs won't have to.

Currently, the federal exemption for estate taxes is $5 million, and it will stay that way through 2012.  But many states have their own estate taxes as well, and some money in qualified retirement accounts that are left in an estate can be subject to double taxation because of them.  This makes planning even more important.

Heirs who receive retirement accounts often pay far more tax on IRD, income in respect of a decedent, than they have to, collecting payments from the plan but failing to take an annual deduction that is available to them. Sometimes that can occur because although the the tax attorney who planned the estate knew about the deduction, the accountant who prepares the heir’s taxes did not.

“That could go on for 20 years,” says Don Williamson, Executive Director of the Kogod Tax Center at American University. “People will just forget to pick up the deduction.”

For more information on estate planning, visit our website and watch Dennis Sullivan, Esq., CPA, LLM on the National talk show, "Ask the Lawyer," discuss strategies relative to estate & tax planning.  To learn more about this complex tax and estate planning area, register online to attend one of our Trust, Estate & Asset Protection workshops.

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Tags: estate tax, 401(k), Roth IRA, IRD

Are You Better Off With A Roth?

Posted by Dennis Sullivan & Associates on Mon, Jul 18, 2011

According to Andrea Coombes of MarketWatch, many investors are worried about turning their assets into retirement income. According to her, one of the best ways to optimize retirement savings may be, at least partly, due to your retirement tax situation.

Enter, the Roth IRA or Roth 401(k) which help you control the tax liability you'll face when you start taking money out of any tax-deferred plans like a traditional 401(k). 

These days, many employers are offering workers the opportunity to grow their retirement savings in a Roth 401(k). So now employees must decide whether a Roth is the right choice, and then, whether they should choose a Roth IRA or Roth 401(k).

Roth 401(k)s are similar to Roth IRAs, but they're managed in your employer plan. Just like a Roth IRA, you contribute money that has already been taxed so withdrawals, including any earnings, are tax-free.  To decide whether a Roth is right for you, the main consideration is whether your taxes will be higher or lower in retirement?

If your tax rate stays the same or increases when you retire, you're be better off with a Roth.  The question is, who knows what the tax rates will be in the future?  Today, the current tax high rate is 35% whereas it was 50% in 1986.  Popular opinion believes that taxes will increase over time as a way to pay of the U.S. debt.  However, some still believe that taxes will decrease to increase consumer spending.

Some experts have suggested focusing first on getting an employer match in their 401(k) and then consider contributing to both the regular 401(k) and a Roth IRA or Roth 401(k).

In addition to the tax rate, it's also important to consider what your own situation will be at retirement.  Will you have as many deductions then as you do now?  What will your tax bracket be?  If taking money out of an IRA will put you in a higher tax bracket, a Roth might be the right way for you to go.

For younger workers who are probably at the lowest tax rate they’ll ever pay, paying taxes on Roth contributions now makes sense.

However, if Social Security ends up providing the lion share of your retirement income, your tax rate will probably drop, in which case, a Roth would not be the best vehicle for you.

For more information on tax planning, check out the Tax Planning Strategies of our website, and watch our video on Avoiding a 70% tax on IRAs and Retirement Plans.  To learn more about your options call us at 781-237-2815, or register online (or call 800-964-4285 24/7) to attend a Trust, Estate & Asset Protection workshop. 

Tags: Retirement, 401(k), Roth IRA, tax liability

The Roth 401(k), Tax Advantages over the Roth IRA

Posted by Dennis Sullivan & Associates on Thu, May 26, 2011


In today’s tax environment – namely, a relatively low tax rate today with the perhaps-inevitable prospect of higher tax rates in the future – many people are looking to the Roth IRA as a way to hedge their tax bets. With the Roth IRA, you pay your tax upfront on contributions to the account, and withdraw them tax-free during retirement.

You may want to investigate another lesser-known option available in many 401(k) plans called the Roth 401(k). Stuart Robertson of Forbes describes the Roth 401(k) as a Big Brother to the Roth IRA, saying the 401(k) version of the Roth is bigger and stronger in many ways than the IRA version. You can choose to put some, none or all of your contributions after-tax into your Roth 401(k) savings up to $16,500 a year in 2011, or $22,000 if you are 50 years of age or older. The Roth IRA maximum amounts are much lower: $5,000 and $6,000 if 50 or over respectively.

Additionally, the Roth 401(k) has no income limits. Unlike the Roth IRA, anyone can have a Roth 401(k), if their employer offers it. To invest in a Roth IRA and make the maximum contribution, your modified adjusted gross income must be below $107,000 if you are single, $169,000 if you are married filing jointly.

If your company does not offer a Roth option in your 401(k) plan, Robertson says you should request it. Typically, this requires an amendment to the plan, and only a minor cost to the business owner.

It’s anyone’s guess what tax rates will look like in the future, but if you believe they are only headed upward, then a Roth 401(k) may be a good way to hedge your tax bet.

For more information on tax planning, check out the Tax Planning Section of our website, and watch our video on Avoiding a 70% tax on IRAs and Retirement Plans.


Tags: Retirement, 401(k), Roth IRA, Tax on IRAs, IRA

Using your Retirement Nest Egg as Startup Capital

Posted by Dennis Sullivan & Associates on Thu, Apr 14, 2011

If you’re over age 50, have substantial assets in your qualified retirement plan, and always dreamed of being your own boss, you are not alone. In fact, you may decide to join the growing number of baby boomers who are tapping their retirement savings for start-up capital on a new business.

The Wall Street Journal, along with SmartMoney, recently discussed the trend, the possibilities, and the potentially dangerous risks involved. Here is the strategy, which the IRS called a Roll Over as Business Startup (ROBS). First, you create a legal corporation with its own 401(k) plan into which you can transfer all of your funds from a previous employer-held plan. With those funds, you can then invest the 401(k) into your new corporation in exchange for shares. What once was simply retirement money has thus become start-up capital.

The problems with this approach are probably obvious: most start-ups fail, but if you fund your start-up with your retirement money then your retirement also goes down the drain. That is probably the biggest risk, but don’t discount the IRS. While this move is legal (if done properly), it does invite IRS scrutiny.

This financing move has become popular enough to draw the attention o f the IRS, which has suggested that these kinds of rollovers “seek to exploit the generous tax benefits enjoyed by qualified retirement plans.” The agency has called for added scrutiny on firms that use them. 

Still, some financing firms like Guidant Financial have seen increases in this method (a 30% increase in the case of Guidant Financial, for example). David Nilssen, co-founder of Guidant Financial Group, Inc., says the IRS has never called thse kinds of rollovers non-compliant, only that it would watch firms funded by 401(k) rollovers more closely.

To be sure, there are risks involved. But the profile of an entrepreneur is one of a risk-taker. And then there are other risks at play. Many baby boomers facing retirement simply are not prepared to stop working. That retirement nest egg may not be enough to finance a comfortable retirement, but it just might be enough to finance a second career as an entrepreneur, providing income that could make an eventual retirement that much happier.

There are certainly rewards to a start up, but do not forget to safeguard your home, family and lifesavings.  To learn more about how you can protect your home, family and assets at a free Trust, Estate & Asset Protection workshop.

Tags: Retirement, Baby Boomers, 401(k), retirement plans

Top Three Retirement Plans for Small Business

Posted by Dennis Sullivan & Associates on Wed, Apr 06, 2011

There are many different retirement plan options for small businesses (25 or fewer employees).  Before you decide which one would be best for your business, consider the following questions:

1. Can I afford a match for my employees?

2. Do I want to allow employees to contribute to the plan?

3. If so, will some want to save more than $11,500 a year?

4. Do I need flexibility to access the funds prior to retirement for emergencies?

5. How important are managing future taxes (a Roth option) versus my tax needs today?

Your answers to these questions will help you choose between the top three options: the 401(k), the SEP IRA, and the SIMPLE IRA.

The 401(k), which is probably the most well known, is also the most versatile because you can choose to match employee contributions or not and provide a vesting schedule. It’s also versatile for employees in that you can enable penalty-free access to the funds (by way of loans) and offer “catch-up” contribution opportunities to employees over age 50.  You could also elect for Roth 401(k)s that switch taxation to contribution rather than distribution, if you or your employees fear higher taxes in the future.

The SEP IRA, or “Simplified Employee Pensions” is the modern equivalent of a pension. It means that only the employer contributes to the fund, and must do so for all employees, rather than the employee contributing and the employer matching or not. The penalties are generally smaller, and it’s fairly easy to start, but this is because it is fairly stripped down in comparison to the 401(k) as there is no Roth, no catch-up contributing, no profit-sharing, and no loan option.

The SIMPLE IRA or the Savings Incentive Match PLan for Employees, offers the third option and is somewhat of a combination of the previous two. It is affordable, like the SEP IRA, but it operates by employer matching of employee contributions and offers catch-up options. Nonetheless, it is not quite as expansive as the 401(k), offering fewer options and having smaller contributions allowances. These of course, are just outlines.  Learn more by having your questions answered in person by attending one of our free Trust, Estate and Asset Protection Workshops.

Tags: Retirement, roth conversions, roth conversions, 401(k), Roth IRA, IRA, retirement plans

Consider the Future Taxrate on Your 401(k)

Posted by Dennis Sullivan & Associates on Fri, Apr 01, 2011

If you’ve been a diligent saver and keeping an eye on your 401(k) for all these years, it’s important to remember that the tax-man also has been looking on with interest and waiting for his cut. It’s simply too easy to forget, but a traditional IRA is tax-deferred until withdrawal, so that balance is deceiving. What is more, it means that the tax you will owe has yet to be decided. A recent MarketWatch article points out the strong possibility of higher tax rates for 401(k) savers once they reach retirement.

The value of delaying a tax hit into retirement, one of the principal benefits of a traditional IRA, has always been to avoid heftier taxes and secure what are expected to be lower tax rates whilst in retirement. Unfortunately, those expectations may not pan out for diligent savers with large IRAs. If your account is robust enough to keep you at or near your present income, then it’s also enough to keep you at or near your current tax bracket. If you are far from retirement then this may not be too distressing. After all, while you may be paying similar taxes upon withdrawal, your retirement investments are working for you with tax-free appreciation in the meantime.

Given the tax-rate outlook, savers should assess ways to diversify their tax situation in retirement. That means at least considering putting a portion of the amount you save for retirement into a Roth IRA – or a Roth 401(k) if one is offered by your employer.

“If you think taxes are going up, it makes sense to pay your taxes when rates are low, put the after tax amount into the Roth and take out your money tax-free when tax rates are high,” said Alicia Munnell, director of Boston college’s Center for Retirement Research and a professor at the school’s Carroll School of Management.

As summed up by Marcia Wagner of Wagner Law Group, “For the longest time, it seemed like almost a no-brainer that people, when they were in their income-earning stage, would be in a higher tax bracket … That may or may not be true in the future.”

For more on preserving your retirement savings, reserve your seat for an upcoming Trust, Estate and Asset Protection workshop, or check out the Planning with Retirement Accounts on our website.

Tags: Baby Boomers, 401(k), Roth IRA, Tax on IRAs, Tax Savings, IRS, IRA

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