Creditor Protection for Inherited IRAs

retirement savingsIn June 2013, North Carolina’s Governor signed Senate Bill 279 into law, which made changes to statutes related to estates, trusts, and guardianships. One change provides additional creditor protection on retirement accounts in North Carolina.

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Finding Elder Care in North Carolina

healthcareChoosing an assisted living center, nursing home, or home healthcare provider in North Carolina should not be a quick decision.

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What if Stretch IRAs are Lost?

stretch iraStretch IRAs have been a popular tool for preserving wealth for future generations as distributions are tax-deferred. However, the Obama Administration has proposed disallowing stretch IRAs.

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2013 Changes to NC Medicaid Law

north carolina medicaid lawLast week House Bill 399 was ratified, creating changes to laws pertaining to Medicaid in North Carolina. The new legislation grants the NC Department of Health and Human Services “all rights available to estate creditors, including the right to qualify as personal representative or collector of an estate.” Here are three other changes included in the bill:

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Preparing for Early Retirement

early retirementThose who plan an early retirement need to take steps to preserve their assets in the face of shrinking resources and ever-increasing costs. Our North Carolina estate planning lawyers reviewed the consequences of drawing too soon on IRAs, but now changes in our nation’s health care system will affect health care costs.

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3 Things to Consider for Retirement Planning

retirement planningWithout a retirement plan, an individual may diligently contribute to a savings account, but fail to be prepared for the true cost of their senior years. Several tax laws in North Carolina may change soon, and retirees and younger generations planning to retire in North Carolina may be affected. Schedule a review with your financial planner to address these top three issues:
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3 Steps to a Better Retirement Plan

retirement planningWhat is your ideal retirement? Everyone takes their own strategy toward retirement, but generally individuals try to create a retirement plan that will provide enough money to care for themselves while affording them the means to do the things they enjoy. Retirement planning mistakes may prevent retirees from enjoying their senior years the way they envisioned, and these mistakes are not always simple to fix. Some mistakes in retirement planning are only resolved if they are caught early, otherwise years or decades of saving strategies may be limiting financial resources later on.

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Estate Planning Tips for Second Homes

north carolina retirementNorth Carolina coastal properties from Corolla down to Sunset Beach are attractive investment homes that can be rented out during the summer season, used as a winter escape, and eventually a primary retirement home. Western North Carolina’s mountain communities are also growing with vacation properties and second home purchases for migrating retirees.

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Estate Planning for Unmarried Couples in North Carolina

north carolina estate planningThere are thousands of couples living together in North Carolina who are not married. Relationships may be just a year old or spanning a few decades. How can unmarried couples protect their rights in the event their partner becomes incapacitated or passes away? Long-term relationships, regardless of marital status, likely involve purchasing real property, joint assets, debt, illnesses, and other major life events. Outside of marriage, how can cohabiting adults plan their estate?

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What is an Heir Search Firm?

heir searchWhen an individual dies without a surviving spouse, siblings, parents, descendants, or named beneficiaries, their estate still needs to be distributed. In cases when this happens in North Carolina, how will the estate be settled?

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Drawing Too Soon on IRAs

early retirementAmericans between the ages of 61 and 70 are withdrawing money from their IRA accounts earlier than necessary. Required Minimum Distributions (RMDs) are enforced starting at age 70 ½, however research completed in May 2013 shows individuals are withdrawing on average over $16,000 before RMDs begin.

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National Elder Law Month: 3 Factors When Considering Long-Term Care Insurance

As part of National Elder Law Month our North Carolina elder law attorneys are providing a series of posts to help educate senior citizens and their caregivers. Learn about why an elderly person may want to disclaim an inheritance, how senior citizens’ voting rights may be compromised in North Carolina, and what Medicare covers in nursing homes in our previous posts.

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Retirement Savings Change Based on Income Projections

north carolina retirementThe Boston College Center for Retirement Research released a study that involved over 15,000 employees who were offered projections of their retirement income based on potential voluntary contributions. The projections changed the way individuals decided to contribute to their savings.

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Distribution Advantages for Spouse IRA Beneficiaries

Designating a spouse as a beneficiary of an IRA not only ensures they will have access to retirement accounts in the event their partner passes away, but it offers them unique advantages to which non-spouse beneficiaries are not entitled.

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$3M Limit on IRAs in Obama's Proposal

ira limitsIndividual Retirement Accounts are a top retirement choice for individuals who want to enjoy tax-deferred savings. However, Obama’s new budget plan includes caps on IRA accounts. Retirement account holders would no longer be able to maintain an IRA balance in excess of $3M.

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Can I Inherit Debt in North Carolina?

dying with debt in north carolinaNorth Carolina estate planning discussions usually put an individual’s assets under the microscope. What trusts would avoid taxes best? How much should be designated for charitable contributions? Are my advance directives up-to-date? Most people are concerned about preserving inheritances for beneficiaries instead of understanding how inherited debt may affect their loved ones. 

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Traditional IRAs: 3 Penalty-Free Withdrawals are Allowed Before Retirement

Making withdrawals from retirement accounts before actual retirement is usually a last resort. Individuals fear penalties and taxes—expenses they were not anticipating when they took the financially responsible step to contribute to their retirement. In addition to potential penalties, withdrawing funds early means they may not be accessible when intended: Retirement.

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More Estate Planning Opportunities Forecasted for Roth 401(k)s

north carolina estate planningA new study reveals more employers will offer Roth 401(k)s to their employees in 2013. About a third of all employers surveyed by Aon, a human resource services provider, have plans to add a Roth contribution option. Since there are no income restrictions for Roth 401(k)s, the rising trend will catch the eye of many employees. 

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Serving Estate Planning to the Sandwich Generation

north carolina elder law attorneyThe “Sandwich Generation”—today’s 10 million baby boomers who care for both their own children or grandchildren and elderly parents or relatives—may need to take a different approach to estate planning. New research shows approximately 15% of baby boomers contribute financially to care and living expenses for their elderly family members. The average life expectancy is only going up and many seniors will outlive their savings. When caring for aging parents, particularly when it includes financial contributions, estate planning should include consideration of the parents’ eligibility for Medicaid long-term care coverage, Veterans benefits, the caregivers’ access to medical records, the caregivers’ authority to make medical and financial decisions for the parents, and possibly guardianship.

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Memory Loss, Retirement and Aging

Memory loss comes in many forms. From mild cognitive impairment and dementia, to the severe effects of advancing Alzheimer’s, the number of senior citizens affected by memory impairments is only going up. 1 in 5 Americans over the age of 70 are afflicted by some type of memory loss. Families often recognize the importance of advanced estate planning when thinking of retirement for aging Americans with a growing rate of memory impairment. However, seniors may avoid discussions about retirement planning because they are concerned about losing their independence – both financial and otherwise. By meeting with an estate planning attorney in advance, individuals can take the steps needed to help preserve the independence that most fear will be lost as they age.

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Get Your Social Security Statement Online

Remember those statements you used to get every year from the Social Security Administration with your earning history and estimated benefits at retirement?  Well, most of us will no longer receive them.  The has moved into the digital age and no you will need to create an account on the SSA website to check on your account.  Here's the link - My Social Security.

As a "young" baby boomer, I certainly hope that Social Security is still around when I want to start drawing benefits in 20 years!  For folks of any age, of course, it's best not to rely solely on social security  and save as much for retirement as possible.  With longer life spans and the high cost of long-term care, post-retirement living can take a lot of resources.

Annual SSA Earnings/Benefit Statements Ceased

In the past, each year the Social Security Administration (SSA) mailed a statement to all workers age 25 and older who were not receiving Social Security or Medicare benefits. The statement listed a worker's earnings record along with estimated benefit amounts at various retirement ages.

For budgetary reasons, the SSA will no longer send out these annual statements. It is not known when, or if, the automatic mailings will resume.

The SSA also will no longer accept Form SSA-7004, "Request for Social Security Statement."

Since Social Security benefits are based on one's lifetime earnings history, it is important to determine that all earnings are correctly listed on (SSA) records.

Those who need to verify earnings information can call the SSA directly at (800) 772-1213; TTY – (800) 325-0778, Monday through Friday, 7:00AM to 7:00PM.

Social Security benefits can also be estimated using the calculators on the SSA website.

2012 Retirement Account Contribution Limits

In IR-2011-103, the IRS announced the  pension and other retirement account contributions limit.  Certain limits are set for below:

Qualified Plans:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
  • The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.


  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $11,500.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $245,000 to $250,000.

 Traditional IRAs:

  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

Roth IRAs:

  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011.  For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000.  For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

The IRA  catch-up contribution limit for those aged 50 and over is $5,500.

No more "Do-Over" Strategy for Social Security Retirement Benefits


On December 8, 2010, the Social Security Administration published a new rule eliminating the “do-over” strategy some retirees were using to boost their retirement benefits. The new rule went into effect immediately.

The “do-over” strategy worked like this:  a senior retired early, before full retirement age; collected and invested the reduced benefits for several years; then withdrew the initial application, repaid the benefits (interest-free) and re-applied for the higher benefits awarded to those who wait a few more years to start claiming their benefits. It was a way to boost benefits for early retirees who could afford to pay back the benefits and who were willing to bet that they or their surviving spouse would live long enough to come out ahead.

It was a little-known strategy, or one that only a few people stumbled upon naturally, until it became publicized in the media in 2008. At the time, a Forbes article quoted a Social Security Administration spokesperson as saying, "We don't consider it naughty.'' Apparently, however, the use of this strategy has increased over the past couple of years to the point where the Social Security Administration now does consider it “naughty.”

The new rule sets a 12-month limit for withdrawing an application for benefits, and each person may only withdraw an application once per lifetime. Further, for those already receiving benefits, they may request a suspension of benefits, but it will only suspend benefits going forward. That is, they are not grandfathering in the ability to suspend and repay retroactive benefits to those who are already receiving benefits.

Although the new rule is effective immediately, there is a 60-day period for public comments, and the agency will be publishing another final rule responding to comments and incorporating any “appropriate” changes.

To read the full text of the rule:


Duke's OLLI Program to Offer Retirement Course

Local Financial Planner Janet Ramsey, MBA, CFP will be offering a course entitled Wealth Planning in the New Normal, Navigating Retirement Decisions in Rough Waters as part of Duke University's OLLI program.  The course will run from January 20 to March 31, 2011.  Greg Herman-Giddens will speak on non-tax reasons to do estate planning.

For more information and to register,  click Continue Reading.

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IRS Announces 2011Retirement Plan Contribution Limits

Below is text of IR-2010-108 (emphasis added):

IRS Announces Pension Plan Limitations for 2011 

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2011. In general, these limits will either remain unchanged, or the inflation adjustments for 2011 will be small. Highlights include:

  • The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan remains unchanged at $16,500.
  • The catch-up contribution limit under those plans for those aged 50 and over remains unchanged at $5,500.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in  an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750.



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Is Your 403(b) Account Safe from Creditors?

403(b) plans are employee-funded retirement savings plans offered by educational institutions and 501(c)(3) charitable organization.  While the plans of private schools are automatically covered by the Employer Retirement Income Security Act 0f 1974 (ERISA), public schools and universities are exempt.  While this exemption means less regulation to worry about, there is disadvantage to employees.

ERISA, which is a federal law, protects covered retirement plans from creditors of account owners.  Thus, this protection does not rely on state law.  For non-ERISA 403(b) plans, however, there is no federal protection.  We thus have to look to state law to see if the plans are protected from creditors.

North Carolina law protects traditional and Roth IRAs from the claims of creditors.  N.C.G.S. Section 1C-1601(9).  403(b) plans are not included in this protection.

Therefore, if you work for a public educational institution and have a 403(b) account, you should be aware that it may not be protected should you ever be sued.

Retirement Assets with no automatic creditor protection:

  • SEP IRAs
  • Inherited IRAs
  • 403(b) Plans (public school employees)

If you have any of these accounts with substantial funds, see an asset protection attorney about how you might be able to protect the account.


Social Security Payback Option May be Eliminated

The Social Security Administration may do away with a rarely used option to pay back earlier social security payments received in order to get increased payments in the future.  So, if you or someone you know thinks this technique might make sense, the time to act is now.

Check out this article from the Washington Post for more information.

10 Things to Know Before You Retire

I created a few of the these "10 Things" lists myself, and this list provides some basic information on what to think about before entering retirement. 

However, in Number 8, the article states that "it is helpful to speak with a qualified attorney or estate planner to determine how best to handle your estate." (Emphasis added.) This statement is misleading in that only an attorney can prepare an estate plan for someone.  Furthermore, it's not just helpful to speak with an attorney, but if you want to make sure that you have protected your family, preserved your assets, and maximized any tax savings, it is imperative.  Everyone should see any estate planning attorney, and way before one starts thinking about retirement.

A few weeks ago I had my 18 year old son, who just headed off to college, sign a Will, Durable Power of Attorney, Health Care Power of Attorney, Living Will and HIPAA Authorization. At his age, he may not care much about those documents, but I feel better knowing that if, for example, he is hospitalized and can't communicate, I will have the power to communicate with the doctors and make decisions for him.

Roth IRAs offer Tax and Estate Planning Advantages

Roth IRAs are a great tax saving vehicle. The reason: Investments held in a Roth IRA are allowed to build up federal-income-tax-free. Later on, you can take federal-income-tax-free withdrawals. Obviously, a zero tax rate is the best rate going.

In addition to being great tax saving tools for retirement, Roth IRAs also provide tremendous estate planning advantages - especially if you can get a large portion of your wealth into an account.

Unfortunately, getting lots of money into a Roth IRA is not so easy. It can take many years of annual contributions. However, there's also one very quick way - by converting an existing traditional IRA or SEP account into a Roth IRA. There are no limitations on the size or number of converted accounts. Naturally, under tax law, there is a price for allowing you to jump start your Roth IRA savings program with a conversion. Even so, it may be worth the price.

Roth Conversion Basics

A Roth conversion is treated as a taxable distribution from your traditional IRA. In other words, you're deemed to receive a taxable cash payout from your traditional IRA with the money going into the new Roth account. So the conversion triggers a current income tax bill. In most cases, however, this negative factor is outweighed by the following positive factors.

* You don't have to pay the 10 percent premature withdrawal penalty tax on the deemed distribution that results from the Roth conversion transaction. This is true even if you're under age 59 1/2 when the conversion takes place.

* Your conversion tax bill is significantly lower, thanks to the individual income tax rate cuts made in the 2003 tax law. Some people believe the tax rates we have today could be the lowest rates we'll see for the rest of our lives. No one knows, of course, but now could be a good time for a Roth conversion.

* The value of the traditional IRA (or IRAs) you want to convert may still be down because of poor investment performance in recent years. However, a lower account balance means a lower conversion tax bill, which is a good thing.

(See below for an important future change regarding an income limit for Roth conversions.)

Under prior law, an individual with modified adjusted gross income (MAGI) above $100,000 could not convert a traditional IRA into a Roth IRA. But the income limitation was eliminated beginning in 2010. For Roth conversions that occur in 2010 only, half of the taxable income triggered by the conversion generally can be reported in 2011 and the other half in 2012. For conversions in 2011 and beyond, all the income must be reported in the conversion year -- as under prior law.

There are only two requirements for tax-free withdrawals. You must:
1. Have a Roth account that's been open for more than five years.
2. Be age 59 1/2 or older.

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Take Advantage of Tax Deductions for CCRC Costs

You or someone you love may be ready for a retirement community living arrangement, which typically includes lifetime residential accommodations, meals, and some degree of medical services. These facilities can be quite expensive. The good news: Unexpected tax write-offs may help offset the cost.

The tax-saving idea is that you may be able to deduct part of the retirement community's one-time entrance fee and ongoing monthly fees as medical expenses on your Form 1040, regardless of your current health status. Since the fees we are talking about here can be quite large (see right-hand box), meaningful deductions may be possible despite the limitation on medical write-offs. (You can only deduct medical expenses to the extent they exceed 7.5 percent of your adjusted gross income.)

Court Decision Shows the Way

For recent proof that substantial deductions are possible, we can point to a 2004 Tax Court decision. Source: Delbert L. Baker v. Commissioner (122 TC 143 (2004). In 1989, Delbert Baker and his wife bought into a resort-style retirement community. It provided four living arrangement categories:

  • Independent living with minimal medical services,
  • Assisted living with more medical help,
  • Special care (for victims of Alzheimer's and dementia), and
  • Skilled nursing with maximum medical services.

The Bakers paid a one-time entrance fee of about $130,000 plus monthly fees of over $2,000 in exchange for lifetime residential and medical care privileges for both spouses. (This was back in 1989. Today's prices would be much higher in many areas.)


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Roth Conversions - Just Because You Can Doesn't Mean You Should

Some financial advisors are warning against a Rush to Roth.  The key to is to approach the idea cautiously and do a comprehensive analysis.  Whether a Roth conversion makes sense is a highly individual decision, to be made in consultation with your advisors.

I did a Roth conversion the last time the IRS allowed us to pay the taxes over a couple of years, which was about 10 years ago. This time around, however, I'm not so keen on the idea.

I have not completed an analysis of my own situation at this point, but I will probably decide against a conversion of my traditional IRA, as most of the additional income would likely be taxed at combined federal and state rates of over 40%.  Even with virtually certain future income tax rate increases, I expect that my taxable income will be lower in retirement.  That's particularly true if I head to sunny Florida, where there's no state income tax!  Plus, I'm not keen on giving Uncle Sam and the NC Department of Revenue $40,000 + of my savings - I may need it down the road (or even next year, as my son heads off to college)!

8 Reasons to Convert to a Roth IRA

As most people know by now, the $100,000 income limit on the ability to convert a traditional IRA to a tax-free Roth IRA will disappear next year.  In addition, a taxpayer who does a conversion in 2010 can pay the tax due from the conversion in 2011 and 2012 (by including 50% of the conversion income in each year).  There are innumerable articles about Roth conversions and the math involved, with many differing opinions about the advisability of converting.  Bottom line, make sure you hire the appropriate professionals to crunch the numbers and otherwise advise you before making a decision.  You really need to consult your financial advisor, CPA and estate planning attorney to ensure that you are fully informed.

Here's a quick list from tax guru Bob Keebler, CPA:

(1)  Taxpayers have special favorable tax attributes including charitable deduction carry-forwards, investment tax credits, high basis non-deductible traditional IRAs, etc.

(2)  Suspension of the minimum distribution rules at age 70½ provides a considerable advantage to the Roth IRA holder.

(3)  Taxpayers benefit from paying income tax before estate tax (when a Roth IRA election is made) compared to the income tax deduction obtained when a traditional IRA is subject to estate tax.

(4)  Taxpayers who can pay the income tax on the IRA from non-IRA funds benefit greatly from the Roth IRA because of the ability to enjoy greater tax-free yields.

(5)  Taxpayers who need to use IRA assets to fund their Unified Credit bypass trust are well advised to consider making a Roth IRA election for that portion of their overall IRA funds.

(6) Future distributions to beneficiaries are generally tax-free.

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When Should You Start on Social Security?

If you're close to age 62, it's probably weighing heavily on your mind.  Make sure you carefully consider your options.  Here's a guide from the Center for Retirement Research at Boston College that will help. 

The IRS Loves Retirement Accounts

Planning for tax-qualified plans, which includes IRAs, 401(k)s and qualified retirement plans, requires a careful examination of the potential taxes that impact these assets. Unlike most other assets that receive a “basis step up” to current fair market value upon the owner’s death, IRAs, 401(k)s and other qualified retirement plans do not step-up to the date-of-death value. Therefore, beneficiaries who receive these assets do so subject to income tax. If your estate is subject to estate tax, the value of these assets may be further reduced by the estate tax. And if you name grandchildren or younger generations as beneficiaries, these assets may additionally be reduced by the generation-skipping transfer tax. All tolled, these assets may be reduced by 70% or more.

There are several strategies available to help reduce the impact of these taxes:

  • Structure accounts to provide the longest term payout possible (stretch).
  • Name a Retirement Trust as Beneficiary
  • Take the money out during lifetime and pay the income tax, then gift the remaining cash either outright or through an irrevocable life insurance trust.  Or consider a Roth conversion.
  • Take the money out during lifetime and buy an immediate annuity to provide a guaranteed annual income, to pay the income tax, and to pay for insurance owned by a wealth replacement trust.
  • Name a Charitable Remainder Trust as beneficiary with a lifetime payout to your surviving spouse. The remaining assets would pass to charity at the death of your spouse.
  • Give the accounts to charity at death.



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Most of us will be too poor to retire at 65

According to the National Retirement Risk Index prepared by the Center for Retirement Research at Boston College, 51% of American will not be able to afford to retire at age 65.

That means that many of us need to save more, spend less, and plan on working past age 65.

IRS Publishes Retirement Plan Guide for Small Businesses

To help small business owners steer their way through all of the retirement plan options available, the IRS has come up with the IRS Retirement Plans Navigator.  The site contains a comparison of the various plans and other helpful information and links.

IRS Provides Guidance on 2009 RMD Waivers

From IR 2009-85:

WASHINGTON ― The Internal Revenue Service today provided guidance for retirement plan administrators, plan participants and retirees regarding recent legislation affecting required minimum distributions. The Worker, Retiree, and Employer Recovery Act of 2008 waives required minimum distributions for 2009 from certain retirement plans.

Generally, a required minimum distribution is the smallest annual amount that must be withdrawn from an IRA or an employer’s plan beginning with the year the account owner reaches age 70½. The 2008 law waives required minimum distributions for 2009 for IRAs and defined contribution plans (such as 401(k)s) and allows certain amounts distributed as 2009 required minimum distributions to be rolled over into an IRA or another retirement plan.
Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year.  Individuals generally have until the later of Nov. 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution.





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Obama's Budget Proposal - Automatic IRAs

From my CPA colleagues at Virchow, Krause & Company - a summary of the proposals to help expand retirement savings.

10 Ways to Wreck Your Retirement

Here's a great, to the point article on what NOT to do to ensure you have sufficient retirement savings - from the National Center for Policy Analysis.

Required Minimum Distributions to be Suspended?


This update is courtesy of Barry C. Picker, CPA:

It looks as if Congress has passed, and sent to Pres. Bush, H.R. 7327; Worker, Retiree, and Employer Recovery Act of 2008, which among other things, suspends the excise tax on the failure to take a minimum distribution.  In other words, it suspends the requirement to take a minimum distribution.

However, this provision is effective for 2009 RMDs; unfortunately for most retirees, the problem is that they have to take their 2008 minimum distribution that was computed on a higher asset value, and must take it now from a possibly depleted account.  So retirees who have not taken their 2008 minimum distribution will have to sell potential loss assets to meet the 2008 distribution requirement.  They could alternatively take a distribution in kind, but if asset values have decreased, they will have to take more shares in order to meet the distribution amount.

The Act states that it does not change the required beginning date for someone whose RBD would be in 2009, nor does it suspend (I think, someone can check me on this) the distribution requirement for someone whose RBD is 2008.  So if someone dies, the after death determination of death before or after RBD is not changed.  However, if someone is currently a beneficiary under the five year rule, 2009 does not exist, so if the fifth year is 2009, it’s now 2010.  If the fifth year would be 2012 it’s now 2013.


"Aging in America" Recording Available on NAELA Webiste

A recorded version of the National Academy of Elder Law Attorneys (NAELA)'s public webcast "Aging in America: How to Plan for it" is available for  through November 30 on the NAELA websiteDuring the one-hour program, AARP and NAELA officials discuss talking with one's parents about aging, family issues in elder care, healthcare decision making, long term care insurance, reverse mortgages and more.

NAELA Announces New Senior Housing Locator Website

The National Academy of Elder Law Attorneys  (NAELA) has unveiled its new Senior Housing Locator powered by SNAPforSeniors®, an online navigational tool designed to help easily find senior housing anywhere in the country.

Users can search a database of more than 60,000 senior housing communities, including listings for all licensed senior housing in the U.S. Searches can be conducted by city, county, ZIP code, community name, etc., and can be refined by criteria such as desired care services, payment options, and lifestyle amenities.

According to SNAPforSeniors, there are 247 different senior housing license types across the country and new license types are emerging each year. The NAELA Senior Housing Locator offers definitions for each type.

The site also provides users with a simple way to check how nursing home and rehab communities compare in inspection reports. The listings of all Medicare Certified facilities include a link which takes users directly to each facility’s Nursing Home Compare Report page on, bypassing 7-10 clicks through other pages to find the page desired.



Update Your Beneficiary Designations

Failure to update one's beneficiary designations for life insurance, annuities and retirement accounts is all too common.  One of the more common problems stems from not changing beneficiary designations after a divorce.  The law does not automatically cancel beneficiary designations in favor of a former spouse.  This can cause a major disruption of one's estate plan, have unintended tax consequences and create conflict among family members.

Earlier this month the United States Supreme Court heard oral arguments in the case of Kennedy v. Plan Administrator for DuPont Savings.  This case involves a deceased father who never changed his retirement plan beneficiary after his divorce, and has pitted daughter against mother (the ex-wife).

Here is an excerpt from the Legal Information Institute Bulletin at Cornell University Law School:

"[T]he Supreme Court will determine whether a divorcing spouse must obtain a Qualified Domestic Relations Order to waive the right to receive an ex-spouse's pension benefits under the federal Employee Retirement Income Security Act ("ERISA"). A decision upholding the Fifth Circuit will make Qualified Domestic Relations Orders ("QDRO") the only method by which an ex-spouse can waive rights to pension plan benefits, while a reversal would permit voluntary non-qualified waivers as well. In either case, the Supreme Court's decision will impact pension plans, their employee plan members, and beneficiaries. "


Other common problems are naming minor children as beneficiaries, or not naming a new spouse if such is desired.

So, please check all of your beneficiary designations, and update them if necessary.  If you have any questions about the best way to handle the designations, consult with an estate planning attorney.  And finally, make sure that your designations are acknowledged by the institution!


Free Webcast on Aging October 30, 2008

The National Academy of Elder Law Attorneys (NAELA) will be offering its first ever public Webcast on October 30, 2008.  Aging in America: How to Plan for it is a one-hour roundtable discussion program video recorded and broadcast "live" via the Internet.  Streamed at on October 30 at 1:00 pm ET, the free Webcast will be moderated by AARP's Wil Stoner and include NAELA panelists Bernie Krooks and Ron Fatoullah.

Click here for free registration.

IRS Announces Pension Plan Limits for 2009

IR-2008-118, Oct. 16, 2008

WASHINGTON — The Internal Revenue Service today announced cost‑of‑living adjustments applicable to dollar limitations for pension plans and other items for tax year 2009.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost‑of‑living increases.

Many of the pension plan limitations will change for 2009 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, for others, the limitation will remain unchanged. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,500 to $16,500. This limitation affects elective deferrals to Section 401(k) plans and to the federal government’s Thrift Savings Plan, among other plans.

Effective Jan. 1, 2009, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $185,000 to $195,000. For participants who separated from service before Jan. 1, 2009, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2008, by 1.0530.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $46,000 to $49,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

  • The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,500 to $16,500.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $230,000 to $245,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $150,000 to $160,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $935,000 to $985,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $185,000 to $195,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $105,000 to $110,000.
  • The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over is increased from $5,000 to $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.
  • The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $345,000 to $360,000.
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $500 to $550.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,500 to $11,500.
  • The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,500 to $16,500.
  • The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $90,000 to $95,000.  The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $185,000 to $195,000.
  • The limitation on wages under Section 45A regarding individuals eligible for the Indian employment credit is $40,000 for tax years beginning in 2008 and will increase to $45,000 for tax years beginning in 2009. The termination date of section 45A was recently extended from Dec. 31, 2007, to Dec. 31, 2009, by Section 314 of Division C of the Emergency Economic Stabilization Act of 2008, P.L. 110-343.

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Should You Roll Your 401(k) Over into an IRA?

Once you cease working for an employer, you have the option of rolling over to an Individual Retirement Account (IRA) any retirement plan (such as a 401(k)) established for you while employed.

In most cases, it is beneficial to do such a rollover because of the advantages offered by an IRA.  However, in certain cases it might make sense to leave the funds in the original account.  Read on:

Advantages of IRAs:

  • Early retirement choices - Unlike in a 401(k), penalty-free withdrawals may be had from an IRA before age 59 1/2 under the "substantially equal periodic payments" rule.  This rule allows an account owner to make withdrawals of a specific amount over the longer of a period of five years or until attaining age 59 1/2.
  • More favorable beneficiary options - Some employer sponsored plans require non-spouse beneficiaries to take withdrawals from the plan over a five year period, lessening the opportunity for tax-deferred growth and triggering more income tax.  With IRAs, non-spouse beneficiaries may "stretch" withdrawals over their lifetimes, creating tremendous growth potential for younger beneficiaries.
  • Penalty-free withdrawals - With IRAs, these are allowed for higher-education expenses and first-time home buying.  Not so with employer plans.
  • Greater investment choices - Some employer plans have limited investment options, and only one account is permitted.  IRAs offer much more freedom in choosing investments, and different accounts with different investment strategies (and/or beneficiaries) may be set up.
  • Fee payment options - IRA administrative fees may be deducted from the account, or may be paid from non-retirement funds.  The latter type of payments, which are not allowed in employer plans, are deductible as a miscellaneous itemized deduction.

Advantages of Employer Plans:

  • Reduction of capital gains in company stock - company stock moved out of a 401(k) into a non-retirement account is taxed based on the value of the stock when purchased, rather than the date of transfer.  If the stock is first moved to an IRA, this tax break is not available.
  • Penalty-free withdrawals at age 55 - employees who cease employment at 55 (or anytime before 59 1/2) can take penalty-free withdrawals starting immediately.  Except for the substantially equal periodic payments rule, IRA account owners must wait until 59 1/2.
  • Avoidance of North Carolina income taxes - Certain retired government workers can claim an exemption from state income for their retirement plan payments.  If the account was rolled over into an IRA, the exemption would not be available.


Durham, NC Tops for Retirement

Black Enterprise magazine has named Durham as the best place to retire.  Factors considered were quality on life, health care, taxes, leisure, arts and culture, and climate.  Asheville ranked 11th.

Good news for me - my office is less than a mile from the Durham City limits.

SSA Has New Retirement Calculator

The Social Security Administration has a new calculator on its website called the Retirement Estimator.  It allows one to estimate benefits based on different earnings estimates and expected retirement ages.  I tried it out and it's quick and easy.  I just hope I actually get those estimated benefits when I'm eligible in 20 years!

Separate Retirement Plan Trust is the Best Choice

I generally recommend that persons with IRA or qualified plan assets of at least $200,000 should consider a Standalone IRA/Retirement Plan Trust. 

There are many reasons that justify creation of a separate trust just to receive retirement plan assets. Though most attorneys think it can be done with only one master trust, there are various drafting problems and post-mortem administrative problems that are lessened by using a separate trust for retirement benefits alone. Many of the benefits of a separate trust(s) established to solely hold retirement plan or IRA assets after death are included below.

This posting is adapted from a presentation by Ed Morrow, J.D., LL.M.

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IRS Allows Roth Conversions for Inherited Retirement Plans

In an unexpected announcement (Notice 2008-30), the IRS has stated that it will allow non-spouse beneficiaries of qualified plans (such as a 401(k), 403(b) or employer pension plan) to convert those funds directly to a Roth IRA. 

However, at least for the time being, beneficiaries of an IRA do not have this option.  Another issue is that the employer's plan must allow rollovers to a Roth, since they are not required to do so.

In most cases I recommend that employer plans such as 401(k)s be rolled over to IRAs when eligible, since IRAs generally offer better investment options and more liberal distribution rules.  In North Carolina IRAs are protected from creditors, at least for the original account owner, but this may not be true in all states.  Also, some states (not NC) offer Medicaid eligibility protection for qualified plans but not for IRAs.

The $100,000 income limitation for Roth conversions will disappear in 2010, and the tax due for the conversion can be paid in 2011 and 2012 (by including 50% of the income for the conversion in taxable income for each year).

Retiring? This Study May Make You Think Twice!

A Greek study reported this month in the American Journal of Epidemiology found that retired persons had a greater death rate than employed persons of the same age. 

That's good news for me, since with four kids to put through college, I'll be working a good, long time!

It would be interesting to see if the same thing holds true for Americans.  Having spent a couple of months in Greece during Law School, my experience is that in general Greeks are not nearly as work-obsessed as we Americans.


Congress Fails to Make Post-Death Non-Spousal IRA Rollovers Mandatory

I previously blogged that employers would be required to allow post-death non-spousal rollovers of their retirement plans to IRAs starting in 2008.  However, that did not come to pass:

This information is courtesy of attorney Phil Kavesh in California:

The IRS had previously announced that it would accept as part of the Technical Correction Bill to the Pension Protection Act of 2006 a provision that would require all corporate retirement plans to offer non-spouse beneficiaries a trustee to trustee lump sum rollover to an Inherited IRA, thereby allowing non-spouse beneficiaries to take advantage of RMD stretchout and avoid the one-year and five-year rules under most corporate retirement plans.

The Technical Corrections Bill recently passed did NOT include this provision and the IRS has decided not to move from its previous position that permitted each corporate retirement plan to decide whether or not to offer this rollover.  This development means that those with corporate retirement plans who have reached normal retirement age and can take an in-service distribution or have retired and left their money in the plan should consider rolling it out to an IRA now, so that non-spouse beneficiaries may take full advantage of RMD stretchout.  You may want to check the individual plan first, to see if it has been amended to allow the non-spouse rollover, as I anticipate that many plans will start to make this change over time.  If the plan has already made the change, a current rollover would not be necessary.  

For creditor, divorce and other protections for an inherited IRA, while still allowing the stretch, a standalone IRA/Retirement Plan Trust makes sense for most persons with retirement account values in excess of $200,000.  See my posting on IRA Trusts.

Avoid Probate of Equity Refunds from Continuing Care Communities

The Problem: Continuing care retirement communities have been growing in popularity with seniors for years.  Such communities usually require a "buy-in" upon admittance and many provide for a refund of a portion of the fee upon death.  The contracts (often called Residence and Care Agreements or the like) generally provide that the refund will be paid to the estate of the resident.  The trouble with this is that the refund triggers probate even if there are no other probate assets.  Since the refunds are often hundreds of thousands of dollars, unnecessary probate fees of $1,000 or more often result.

The Solution:  For those residents with living trusts, this can be avoided by a simple amendment to the Residence and Care Agreement that provides that the refund will be paid to the resident's living trust rather than his or her estate.  The amendment (or addendum, as some facilities call it) must be signed by the resident and the management of the facility.

For those residents without living trusts, the cost of having a trust prepared will generally be at least equaled by the probate cost savings alone, not to mention time and trouble avoided by escaping probate.

IRS to Require Retirement Plans to Offer Non-Spousal Rollovers to IRAs

Beginning in 2008, retirement plans (such as 401(ks) must allow non-spouse beneficiaries to roll over to an IRA.  The following is from Ed Slott, CPA:

The Pension Protection Act of 2006 included a provision that would permit non-spouse plan beneficiaries to do direct transfers from the plan to a properly titled inherited IRA and take stretch distributions over their lifetimes instead of being subject to the harsh payout rules of most company plans. This provision became effective in 2007.

The purpose of the provision was to allow non-spouse plan beneficiaries the same ability to stretch post-death distributions over their lifetime as if they inherited from an IRA. That was the plan. But in January 2007, IRS issued Notice 2007-7 which stated that the provision was not mandatory for plans. This created confusion and controversy and took the wind out of sails of this provision. This was contrary to what Congress intended. Congress realized this and has proposed a technical correction to the law stating that the plans MUST allow the non-spouse direct rollover to an inherited IRA.

In light of the pending Congressional technical correction, IRS reversed its position and now says that the non-spouse rollover provision will be mandatory beginning in 2008. 

Click here for the posting on the IRS website.

Baby Boomers to Start Taking Social Security in 2008

The first of the baby boomers can begin taking early Social Security payments in January 2008 as they turn age 62.  More than half of those eligible are expected to take early retirement.  This article in USA today is full of facts and figures about Social Security, including the bleak predictions about the future of the program.  As one of the youngest baby boomers, I certainly hope it's around in 20 years for me!

2008 Pension Limits Announced by IRS

Maximum deferral limits for 401(k) and 457 plans remain at $15,500.  The limit for defined contribution plan increases to $46,000, while the SIMPLE limit is $10,500.  See IRS News Release IR-2007-171 for full details.

Retirement Accounts and Income Taxes vs. Estate Taxes

This posting provides a brief explanation of the advantages and disadvantages of funding a Family Trust (aka Bypass or Credit-Shelter Trust, or Trust B) with an IRA or other retirement accounts.

The Family Trust, as contained in a Will or Living trust, is designed to hold assets of the first spouse to die, up to the amount of the federal estate tax exemption (currently $2 million). It provides support to the surviving spouse, and when the surviving spouse dies, the value of the Family Trust is not included in his or her taxable estate. This plan can save $1 million or so in estate taxes for couples with estates of $4 million and up.

Because of the fact that income taxes have to be paid on distributions from a retirement plan, funding a Family trust with a retirement plan, while advantageous from an estate tax standpoint, can be disadvantageous from an income tax point of view.

If estate taxes are not an issue, the best way to handle a retirement plan is to leave it outright to a spouse, who can then roll it over into an IRA. The spouse can then name the children to received the account at his or her death, and the children can use their life expectancies to take distributions, allowing a "stretch" of the benefits. This allows more tax-deferred growth.

However, if estate taxes are an issue, it is often advisable to have the retirement account paid to the Family Trust, which will allow the account to escape estate tax at the surviving spouse's death. If the trust is designed properly, the survivor's life expectancy is used for purposes of taking distributions, and after the survivor dies, the children will receive the retirement benefits. However, since the trust owned the account rather than the surviving spouse, no further stretch is allowed, so the children must take out distributions over the deceased spouse's remaining life expectancy per IRS tables. (e.g., at age 80, 10 more years or so, as opposed to about 35 years for a 50 year old child.) This means that the income taxes must be paid over a much shorter time period and not as much tax-deferred growth can occur.

The loss of tax-deferred growth is generally worthwhile, however, since the estate tax rate is about 50%, when NC estate tax is added to the 45% federal rate.

 In addition to arranging the beneficiary designation correctly, the Family Trust must include special provisions to help ensure the best income tax treatment for retirement plans payable to the trust.

What I advise many clients to do is name the spouse as the first beneficiary, the Family Trust as the second beneficiary, and the children, or their trust shares, as the third beneficiary. At the time of the first spouse's death, the survivor can then decide which option makes the most sense at that time, based on the current value of the couple's assets and the tax laws then in effect. In the event of simultaneous death, the children will be able to avail themselves of the stretch based on their ages.


For large retirement accounts, over $200,000 or so, I generally recommend a Standalone IRA Trust, which can be used for IRAs and other retirement plans.

This is a very complicated area of the law, so you should always consult an estate planning attorney to determine the best way to structure your retirement account beneficiary designations.

Why Establish an IRA Trust?

In 2005 a Private Letter ruling was issued by the IRA approving a specially designed "IRA Trust" that offers maximum protection and flexibility while allowing the beneficiaries to "stretch" their shares of the IRA over their life expectancies.  The IRA Trust can also be used for employer provided retirement plans, such as 401(k)s, 403(b)s, 457 Plans, etc.

Having spent a great deal of time studying the IRA distribution rules and the advantages of using an IRA Trust, I am now recommending them to just about every client whose retirement account balance exceeds $200,000.


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IRA Expert Ed Slott Recommends Standalone IRA Trusts

I recently attended a two day seminar by nationally recognized IRA expert Ed Slott, CPA.  If the protection of a trust for IRA beneficiaries is desired, Slott says that the best way is to have the IRA paid to a Standalone IRA Trust.  He cautions that IRAs should not be mixed with non-IRA assets.

Slott also recommends that for married couples, spouses with large IRA balances should use the distributions to pay for life insurance to be held in trust for the other spouse, and then make the children (or a trust for their benefit) beneficiaries of the IRA.  This leverages funds that are subject to income and possibly estate tax into completely tax-free monies, and provides optimum "stretching" of the IRA, allowing maximum growth.  I think this strategy should be used for any couple with large IRA(s) and a total estate exceeding $2 million.

Young Boomers Prefer North Carolina for Retirement

Of baby boomers born between 1956 and 1964 who plan to move to another state after retirement, the top intended destination is North Carolina, according to a Harris Interactive Study (Polte Homes - Baby Boomer 2005).  14% of those surveyed said they planned to move to NC, beating out Florida, Arizona and California.

Based on my observations, the areas in North Carolina that seem to be most popular as retirement destinations are Chapel Hill and Pittsboro, Hendersonville, Wilmington, Brunswick County, and Moore County.