SmartIRA planning may save you money in the long run
Posted on 25. Nov, 2009 by Cindy in Blog, Retirement Planning
If you own an IRA or have another retirement account, the words that follow may ring a bell, especially if you’ve been contributing to a retirement account for a long period of time.
Think back to when you first started investing in the account. Remember what you were told? See if this sounds familiar:
1- Put money away today in a retirement account and you’ll be able to use your contribution as a tax deduction against your other income.
2- Invest the contribution that you made to the retirement account wherever you want and the growth on that contribution will grow tax deferred.
3- When you retire, and begin to take withdrawals from your retirement account, you’ll be in a lower tax bracket since you’ll be retired which means that you’ll be able to put money away on a tax deductible basis when you’re in a higher tax bracket and take money out during retirement when you’re in a lower tax bracket.
Assuming that you were told all three of these things when you started to contribute to a retirement plan, my question for you is this: Were all three things true?
My experience working with clients tells me that in many cases only 2 of these 3 things were proven true – number 3 above, for many clients, was not.
Don’t get me wrong, IRAs and retirement accounts are useful products, but many folks who put money away in one tax bracket while they were working are now retired and drawing money from these retirement accounts only to find that they’re actually in a higher tax bracket now than they were when they were putting the money away.
Why did that happen?
It could be a number of reasons, but in many cases the culprit is the fact that the Internal Revenue Code, the rules that the tax ‘game’ is played by, changed.
In fact, under today’s tax code, if your estate is large enough, up to 67% of your IRA could be lost to tax at death, unless you do the appropriate planning.
That’s where the SmartIRA planning strategy may come in. The SmartIRA planning process is designed to reduce, or in some cases, even eliminate taxes on a client’s IRA. However, the outcome of the strategy is dependent upon the circumstances of your individual situation, so results will vary.
If you have an IRA, you may want to get more information about the SmartIRA planning process. Please contact our offices for more information.
Special Note: With Traditional IRAs early withdrawals may be subject to a surrender charge. In addition, distributions prior to age 59 ½ may be subject to a 10% tax penalty.
* Assumes maximum federal estate and income tax and no state income tax. If your state has income tax, your tax may be higher. Eg. $500,000 IRA @ 45% Estate Tax. Remaining taxed at 35% Federal Income Tax Rate. Total tax of $322,500 which is approximately 65% of $500,000.
Investment advisory services offered through
Absolute Return Solutions, a Registered Investment Advisor.
What will happen to my pension and health benefit if…?
Posted on 01. Sep, 2009 by admin in Absolute Returns, Blog, Retirement Planning
For those of us who are lucky enough to have a pension…
For those of us who are lucky enough to have a pension, here are some things to think about! In today’s tough economic climate, companies are cutting benefits and closing their doors!
If your former employer goes bankrupt what happens to your pension? The Pension Benefit Guarantee Corporation (PBGC) picks it up!
What is the PBGC?
The PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974 (ERISA). It currently protects the pensions of nearly 44 million American workers and retirees in 30,000 private single-employer and multiemployer defined benefit pension plans. The PBGC only becomes involved if a terminated pension plan does not have sufficient assets to cover all vested benefits.
What does the PBGC guarantee?
Generally, the PBGC guarantees most vested normal retirement benefits, early retirement benefits and certain survivors’ benefits at the level in effect on the date of a pension plan’s termination. However, the PBGC does not guarantee all types of benefits under covered plans. Also, the amount of benefit protection is subject to certain limitations so you might receive a monthly payment that is less than what you’re currently receiving.
If your former employer goes bankrupt what happens to your health benefit?
Your retiree health benefits may be terminated! ERISA law protects pensions, but not retiree health benefits. If your retiree health benefits are terminated, you need to find out what other health coverage is available to you as soon as possible.
If you are 65 or over, you are covered by Medicare
You should consider purchasing Medicare supplemental insurance to help you pay for prescriptions and expenses not covered under Medicare. (If you are under age 65, you are not yet covered by Medicare.)
Action Items
• Check if you are eligible for coverage under a spouse’s plan.
• Check out other health insurance options. Because group insurance plans usually cost less, see if any other group you belong to – such as a fraternal or professional organization– offers a group health plan.
• Check out Medicaid. If you are under 65 and disabled, with low income and few resources, you may be eligible for Medicaid. (Source AARP)