Massachusetts Estate Planning & Asset Protection Blog

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

Roth IRA Conversions as a Planning Tool

Posted by Dennis Sullivan & Associates on Wed, Apr 13, 2011

Roth IRAs have gained popularity over the past few years, and for good. However, one thing most media commentators fail to address is that sometimes the people who could benefit most from a Roth conversion are the ones for whom such a conversion could carry the highest tax liability. Peter McDougall takes stock of the issue in a recent Wall Street Journal posting, and offers the potentially powerful cocnept of a one-two punch with defined benefit plans and Roth conversions that can help take the sting out of such conversions.

If you are wealthy and planning your estate, a traditional IRA can become cumbersome because of the required minimum distributions (RMDs). RMDs are taxable income, and thereby become a tax liability, and they deplete the assets you may prefer to pass on to your family. A Roth IRA has the advantage of allowing you to escape RMDs by paying the tax upfront. But, if you’re wealthy enough to be saving your IRA for your family then you are also likely to be in a higher tax bracket and in the line for e a hefty tax hit if you don’t play your cards right. The one-two-punch wisdom comes into play if you also have a defined benefit plan to which you make regular contributions. Those contributions are also tax deductible and can be used to offset the tax-cost of the Roth conversion.

Indeed, there are a number of tricks in the article’s specific anecdote, but the essential wisdom lies in the one-two punch of recognizing a means of finding enough tax deductions to off-set the tax-hit of the Roth conversion.

You can read more about Roth Conversions in our past blogs.  Learn more about tax planning with retirement accounts on our website. To learn more about protecting your home, family and life savings, attend a free workshop on Trust, Estate & Asset Preservation.

Tags: 2011, roth conversions, roth conversions, Roth IRA, Tax on IRAs, Tax Savings

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

Roth Conversion?

Posted by Dennis Sullivan & Associates on Wed, Mar 23, 2011

If you made a Roth IRA conversion last year (when all the media were encouraging you to do so), you may be sorry now that it's tax time.  The good thing is that it’s not too late to undo your conversion decision. You can still “re-characterize” the conversion and put the money back in your traditional IRA, as if nothing had ever happened.

But why re-characterize?  Suppose you converted $100,000 to a Roth IRA in 2010, and you are ready to pay the tax on your 2010 return (you elected out of the spread to 2011 and 2012). Except that now, your investment in the Roth IRA has dropped in value to only $50,000 – and you still owe tax on the conversion of $100,000! Now that is just totally wrong! Re-characterization offers a do-over of the conversion itself, and yes, erases it as far as the IRS is concerned. Re-characterization will move the funds back into the original traditional IRA, and the IRS only sees it as the movement of the original amount minus losses, rather than as a separate interaction.

If you suffered a net loss on those assets, re-characterization will not reverse your losses, but you can out from under the heavy tax liability. There are some tricks to re-characterization not covered here so consult the IRA Owner's Manual and also to learn more about how to protect and take control of your assets and life savings call (800) 964 – 4295 for a free workshop or visit our 

Tags: roth conversions, roth conversions, Roth IRA, IRS, IRA

Some Do’s and Don’ts for Leaving IRA Assets to Your Loved Ones

Posted by Dennis Sullivan & Associates on Mon, Feb 28, 2011

If you have substantial assets in an IRA – whether a Roth or a traditional IRA – you’re wise to pay attention to how those assets might pass to your spouse or other heirs in the event of your death. Christine Benz of Morningstar Advisors last week wrote a small cache of common wisdom on the subject in the forms of “do’s and don’ts.”

What should you do with your IRA?

  • Check with your estate planning attorney before naming your beneficiaries. Remember, your beneficiary designation(s) trump whatever might be in your will, so make sure your estate planning documents and your beneficiary designations work together. An estate attorney also can advise you on the most tax-efficient uses of your IRA assets and warn you about ill-conceived designations, such as naming a minor child or your “estate” the beneficiary of an IRA.
  • Consider making a charity the beneficiary of your IRA. Depending upon your situation, this could be a tax-savvy way of supporting your favorite cause.
  • Consider whether you should convert a traditional IRA to a Roth account. Again, depending on your individual situation, this could make your retirement assets work even harder for your heirs.


 Morningstar’s top list of Don’ts:

  • Don’t fail to name beneficiaries for your IRA assets. What happens if an IRA has no beneficiary designation at all? It all depends. If that is not a good answer for you, then be sure you name a beneficiary.
  • Don’t neglect updating your beneficiary designations after life-changing events. Major life events, such as marriage, divorce, the birth of a child or the death of a loved one may require changes to your beneficiary designations. Plan to review those designations on a regular schedule.
  • Don’t name a minor child as the beneficiary of your IRA. Minor children cannot be named beneficiaries of life insurance policies, retirement plans, or annuities. If you’d like to leave IRA assets to a minor, check with an estate attorney about setting up a trust or a uniform transfers / gifts to minors (aka UTMA / UGMA) account.

For more information on estate planning strategies, sign up for a free, informative, estate planning and asset protection workshop

Tags: Estate Planning, 2011, Roth IRA, Tax on IRAs, IRA, retirement plans

Estate Planning and the Roth IRA

Posted by Dennis Sullivan & Associates on Mon, Feb 14, 2011

Roth IRAs have become the darling of the financial media recently. Of course much of the chatter has been about using a Roth as part of your retirement planning strategy, and the superb conditions for Roth conversions. But what about the Roth IRA and your estate planning, what happens if you leave your Roth IRA to your estate? Marketplace Money guru for American Public Media, Chris Farrell, recently fielded the question.

“When it comes to estate planning, the Roth ranks among the best of the retirement savings plans,” says Farrell. Why? Unlike a traditional IRA, a Roth does not have “required minimum distributions” that force you to take money out during your lifetime. This means the money can remain in the account longer, and compound longer.

Because you can leave your money in the account without taking distributions, your Roth can be a powerful estate planning tool. Here are some of the major points to keep in mind:

  1. The Roth has to have existed for at least five years before earnings can be withdrawn tax-free.
  2. When you die, your Roth is considered part of your estate. If your spouse is the beneficiary, then the account is simply treated as belonging to him or her.
  3. If your children are the beneficiaries, they will have to make some choices. They can elect to receive the entire sum by the end of the fifth year following your death – or they can receive distributions over their life expectancy (allowing the money to compound longer).

As you can see, there are some powerful estate planning strategies available, and some of your long-term goals could be met utilizing a Roth IRA. Attend a free seminar if you’d like to discuss how a Roth IRA could be used to help meet your estate planning goals.

Tags: Estate Planning, roth conversions, Roth IRA, IRA, Metro West Estate Plan

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