Category: Retirement

What Are the Advantages of A Retirement Trust?

Saving for retirement is often a delicate topic for many people. Whether they are worried about when to save, how much to save, or how to save, this is one topic that often has many people perplexed about their future. However, today, more and more people are turning to individual retirement trusts as a way to plan for their future. It has specific tax advantages, and long-term control benefits than many other retirement options, which can help you and your financial future.

How Does it Work?

Simply put, a trust is an estate planning tool that lets you set aside funds for certain beneficiaries to receive in the future. They can be managed by a third party, known as a trustee both during your lifetime and after your death.

An IRA, which is the most common retirement saving plan, prepare you for retirement and provide tax advantages until you are 70 ½ and need to start taking distributions from the account.

When these two come together in an individual retirement trust, you can enjoy the tax advantages with an IRA and the long-term control that comes with a trust. It allows you to bypass many of the complex IRS requirements and helps protect your legacy from asset seizure in the future.

How Do I Set Up a Retirement Trust?

The best way to set up a retirement trust is by meeting with an attorney that specializes in estate planning. While many individuals are able to take advantage of the unique benefits of retirement trusts, they aren’t necessarily for everyone. In most situations, individuals who have significant retirement assets, are tax-sensitive, have been divorced and remarried and those with blended families all find unique perks of retirement trusts.

An attorney will be able to go through your individual situation and make sure you have a trust put in place that not only benefits you but any trustees you may have as well. Since every situation and every individual is different, the insight from an estate-planning attorney is necessary if you want to make sure you are making the right decision for you and your family.

When planning for your future, the best thing you can do is rely on the expertise of estate planning to make certain that you are not only making smart financial decisions for your present situation but that you are setting up your beneficiaries even after you pass. Since trusts can be manipulated to fit your individual needs, together with an estate planning attorney, you can set up specific trusts that meet your requirements for today and your plans for the future.

Proper estate planning can ensure you will stay financially sound well into your retirement while you still maintain some control over how your heirs are receiving their inheritance, even after you are gone.

If you have questions about individual retirement trusts, you need to consult a professional attorney for more advice. Call the experts at Hegwood Law Group a call at (218) 218-0880, for all of your estate planning needs.

Smart Strategies for Social Security Benefits Taxes

The issue of whether your Social Security benefits are taxed is based on your "provisional income." This is your adjusted gross income—not counting Social Security benefits—plus nontaxable interest and half of your Social Security benefits. 10-31-16

Kiplinger’s recent article, “5 Ways to Avoid Taxes on Your Social Security Benefits,” explains that if it's below $25,000 and you file taxes as single or head of household (or less than $32,000 if you file a joint return), you won't owe taxes on your benefits. So if your provisional income is between $25,000 and $34,000 and you're single, or between $32,000 and $44,000 if you file jointly, it means that up to 50% of your benefits may be taxable. If your provisional income is more than $34,000 for a single or more than $44,000 if married filing jointly, up to 85% of your Social Security benefits may be taxable.

Here are a few strategies that can help you keep your income below the thresholds and decrease the part of your benefits subject to tax.

Donate your RMD to charity. Those who are 70½ or older can give up to $100,000 annually to charity from their IRAs tax-free. This gift counts as the required minimum distribution (RMD) but isn’t included in adjusted gross income.

Purchase a QLAC. You can invest up to $125,000 from your IRA or 401(k) in a special version of a deferred-income annuity known as a Qualified Longevity Annuity Contract (QLAC). Money in a QLAC isn’t considered in calculating your RMD. As a result, you can reduce the size of your RMD, lower your income and decrease your tax bill. Payouts don’t start for several years. It can be as late as age 85 when they’ll be included in your taxable income.

Withdraw money from tax-free Roth IRAs. Tax-free withdrawals from a Roth IRA or Roth 401(k) aren’t calculated as part of your AGI. If you roll over money from a traditional IRA or 401(k) to a Roth prior to receiving Social Security benefits, you can avoid taxes later in retirement. You are required to pay income taxes in the year of the conversion, but you can use the funds tax-free after that.

Review income investments. Structure your portfolio to minimize the income it generates when that income is being reinvested because you're recognizing income you don't need. This means taxes you don't want to pay! Consider a growth-oriented portfolio and remember that nontaxable interest, like interest on municipal bonds, is included when calculating the taxes on your Social Security benefits.

Examine your tax moves. If your income is well over the $44,000 threshold, there is probably not much you can do to get below that level. But don't focus only on Social Security taxes—look at overall tax-efficiency.

Reference: Kiplinger (July 2016) “5 Ways to Avoid Taxes on Your Social Security Benefits”

Bonehead Mistakes Retirees Need to Avoid

With the excitement of retirement, money can be the last thing you would have on your mind. However, if you have a careless approach to your money, you can be headed for financial pain. 10-25-16

Starts at 60 recently published an article, “Three silly money mistakes retirees can make,” that identifies three big mistakes you could be making with your money as a retiree.

  1. Spending too much, too soon. It can be difficult to fight the urge to spend money when you’ve retired, but spending too much early on in your retirement has severe consequences. Not only does it make your wallet lighter, it also means you don’t get the returns the money could have made for you in the next five, ten or twenty years.

If you’re planning on retiring, plan well in advance. Review your superannuation, pension and savings to create a budget for your retirement. If you’re already retired and spending too much in the early days, see a professional and modify your budget and investments.

  1. Heeding the investment advice of family and friends. While they may only be trying to help, these folks may not be the best people to ask for financial and investment advice. Seek advice from a financial planner or investment advisor.
  2. Failing to plan your estate. Who wants to think about and plan for their death when they are busy enjoying retired life? However, failing to plan your estate could have consequences for your loved ones after you pass away. Without an estate plan, you might not be able to transfer your wealth to your family when you die. Plus, it can create a huge tax bill, meaning less for your spouse and family. Talk with an experienced estate planning attorney and take care of this ASAP.

Reference: Starts at 60 (September 6, 2016) “Three silly money mistakes retirees can make”

Some Surprising Expenses in Retirement

After working hard and saving your money wisely, you’re ready for a successful retirement. Unfortunately, there can be bumps and hiccups with the plans. Nobody wants to be caught off-guard when it comes to saving for the future, so Forbes has published info on four retirement expenses that may catch you by surprise—and steps you can take to still come out ahead—in “Four Retirement Expenses That May Catch You By Surprise.” 10-21-16

1: Medical Co-Pays and Long-Term Care Expenses. The co-pays for doctors and treatment surprise many folks. They don’t realize that insurance premiums and even co-pays can change over time, and they typically don’t plan for those changes. Some people, in years where they have a large income, will often be victims of the “donut hole” of Medicare insurance premiums. These can increase to $200 per month. Anticipate that these costs will increase and budget additional savings to cover the changes. As far as long-term care, it’s a major issue. You should speak with an elder or estate planning attorney about the best way to cover long-term care expenses. Keep this in mind when planning for the future and save extra money for this expense.

2: Financial Support for Children and Grandchildren. This is more and more common. Grandparents don’t feel like their kids had it like they did when jobs were easier to find. Often grandparents want to take an active role in contributing. But if you do this, be sure that you’re not sacrificing your own lifestyle and retirement savings for their benefit. Helping out with family is terrific, but you don’t want to make a mistake that could end up costing you big time in the long run.

3: Inflation and Increases in Basic Costs of Living. The price of just about everything is rising, and we’re living longer on average. You need to think in terms of giving yourself “raises” and understand that retirement may cost double or triple what it does when you start to retire.

4: Home Expenses. We’re not talking about a new addition or a heated pool. Expenses could include the roof, the driveway, the furnace or the AC. All of these basics deteriorate over time and require money to repair or replace. One option may be to sell the home and move to a spot with less upkeep. If you decide to stay put, you need to save for basic house maintenance as the home ages.

Planning for a successful retirement is no small feat. Enjoy the retirement you deserve, but be aware of potential surprises that many arise as you near retirement. You will be in a better position to have the savings you need to address those surprises head-on and have the confidence you need to retire successfully.

Reference: Forbes (September 1, 2016) “Four Retirement Expenses That May Catch You By Surprise”