IRA Changes and Strategies You Must Know Bob Carlson AAII D.C. - - PowerPoint PPT Presentation

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IRA Changes and Strategies You Must Know Bob Carlson AAII D.C. - - PowerPoint PPT Presentation

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IRA Changes and Strategies You Must Know Bob Carlson AAII D.C. Metro Editor, Retirement Watch June 18, 2016 800-552-1152 www.RetirementWatch.com 1 Retirement Has Changed, and Will Change Again Changes in laws Reduced benefits from

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IRA Changes and Strategies You Must Know

Bob Carlson Editor, Retirement Watch AAII D.C. Metro June 18, 2016 800-552-1152 www.RetirementWatch.com

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Retirement Has Changed, and Will Change Again

  • Changes in laws
  • Reduced benefits from government,

employers

  • Life expectancy
  • Baby Boomers retiring
  • Economic and market upheavals
  • More support for planning

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Threats to Lifetime Income Security

  • The foundations are crumbling
  • On your own for saving, medical care
  • Mis-estimating spending, including

inflation

  • Old investment rules don’t work
  • Longevity
  • Taxes and tax rates not likely to fall

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Additional Hurdles

  • Zero interest rates
  • Lower long-term returns
  • Planning for deflation and inflation
  • Mental financial mistakes
  • Scars and lessons of the last 16 years

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Goals Changed for Many

  • Lifetime income security:
  • Keep my principal secure
  • Pay me income
  • Protect me from inflation
  • Focus more on reducing risk than

increasing return

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Keys to Successful Retirement

  • Start with spending
  • Secure basic expenses
  • Develop a nest egg spending

strategy

  • The wildcards of medical expenses

and long-term care

  • Estate planning is more than taxes

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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IRAs: Not So Simple Anymore

  • IRAs among most valuable assets
  • Paying the mortgage on your IRA
  • Stealth taxes
  • Required minimum distributions
  • Making it last for you and heirs
  • Tricks for investments, distributions

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Beware the New IRS Focus

  • Required minimum distributions (RMDs)
  • Contributions
  • Investments, combining with business
  • Aggressive Roth IRA strategies

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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The Retiree Tax Attack

  • Taxes on Social Security benefits
  • Bracket creep
  • Medicare premium surtax
  • Alternative minimum tax
  • Exemption and itemization reductions
  • Retirement Tax Attack

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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The Long-Term Effect of RMDs

  • Take distributions − needed or not
  • Percentage increases each year:
  • 3.65% at age 70.5
  • 4.55% at 76
  • 5.59% at 81
  • 8.77% at 90

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Tax Diversification & Tax Bracket Management

  • Increased post-career tax planning
  • ptions
  • Can stay in 20% bracket
  • Avoid the stealth taxes
  • Reduce required minimum distributions
  • Be positioned for tax law changes

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Tax Bracket Management

  • Tax deferral now can be the enemy
  • Likely have a base of inflexible income
  • Be sure have different types of accounts
  • Tap tax-advantaged assets/accounts as

necessary to keep AGI low

  • Manage tax bracket annually

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Required Distributions

  • Take first RMD by 12/31, not April 1
  • Use previous 12/31 values and Pub 590
  • One RMD value for all IRAs
  • Withdraw in any IRA combination
  • Doesn’t have to be cash
  • Any schedule: late vs. early
  • Different rules for 401(k)s

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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IRA Charitable Exclusion

  • Made permanent by PATH Act of 2015
  • Rules:
  • Must be age 70½ or older
  • $100,000 annual limit per taxpayer
  • Direct from trustee to charity
  • Counts as RMD
  • Best deal for many givers

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Convert or Reduce Traditional IRAS

 Avoid the RMD waterfall and stealth

taxes it triggers  Taxes now to avoid higher taxes later  Roths not only for the young  Can do in stages; can reverse  Can give heirs greater after-tax wealth

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Conversion Factors to Consider

 Future tax rate vs. current rate

 Rate of return  Accumulation period post conversion  Funding for taxes  All taxes in year of conversion

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Add Longevity Annuities (QLACs)

 New IRS rule reduces RMDs

 Lesser of 25% of account or $125,000  Aggregate IRAs to determine limits  No variable annuities

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Create a Family Bank

 Take out cash value life insurance

 Use IRA to pay lump sum premium

  • r RMDs to pay annual premiums

 Have access to cash value for life  Heirs receive policy benefit

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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IRAs & Charity Strategy #1

  • Take large IRA distribution or convert

to a Roth IRA

  • Donate to charitable remainder trust

from part of IRA distribution or other assets

  • Receive tax deduction for contribution
  • Receive lifetime income from trust

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

IRAs & Charity Strategy #2

  • Name spouse as primary beneficiary,

charity as contingent beneficiary

  • Take out life insurance policy, put in
  • trust. Children are beneficiaries.
  • Take lifetime distributions/RMDs; give

to trust for premiums

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After-Tax 401(k)

 Use recent IRS rule

 Make additional, after-tax deferrals  Rollover directly to Roth IRA  Rollover rest of 401(k) at same time  Plan must allow

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Backdoor Roth IRAs

 Make after-tax contribution to

traditional IRA  Convert to Roth IRA  No tax on conversion if don’t have

  • ther traditional IRAs

 Now have Roth IRA  Can do annually

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Review Beneficiaries

  • Avoid the ultimate disaster scenario
  • Goals:
  • Maximize after-tax amount for

you and loved ones

  • Put in hands of those you want to

have it

  • Make it last several generations

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Traditional IRAs & Charitable Gifts

 Best way to make post-mortem

charitable gifts

  • Charity won’t owe taxes on

distributions

  • Heirs receive higher basis, full value

if inherit other assets

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Tips for a Stretch IRA

  • Don’t name estate or fail to name

individual beneficiaries

  • Avoid trusts?
  • Primary and contingent beneficiaries
  • Consider naming charity as last

contingent beneficiary

  • Consider custom beneficiary

designation form

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Beneficiaries Should Know the Rules

  • Can’t roll over to existing personal IRA
  • IRA must be retitled properly
  • Special rules for rollovers to new custodian
  • Designated Beneficiary must be named by
  • Sept. 30 of year following owner’s passing
  • RMDs must begin by Dec. 31 of year

following owner’s passing

  • IRA with multiple beneficiaries can be split

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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More Rules for Beneficiaries

  • RMDs differ for IRAs and 401(k)s
  • Rules are different when spouse inherits
  • Rollovers must be trustee-to-trustee
  • What about the next generation?

Note: None of this matters if beneficiaries just want to spend the IRA.

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Trusts as IRA Beneficiaries

  • Trusts have many benefits
  • Were discouraged for IRAs: Small

missteps are very expensive

  • Supreme Court decision on protection

for inherited IRAs changes things

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Trusts as IRA Beneficiaries

  • Must be a “see-through” or conduit trust:
  • All actual & potential beneficiaries of

trust must be individuals

  • No trusts, partnerships, charity, etc.
  • Other details
  • Highest tax rates on accumulations
  • Need experienced estate planner

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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IRA Investing: Non-Traditional Assets

  • Avoid prohibited assets
  • Caution with MLPs
  • Real estate is possible with caution
  • Consider forming an LLC and investing

through it

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com

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Tax-Wise Investing

  • Aim for right assets in right accounts
  • IRA converts tax-advantaged income to
  • rdinary income
  • For IRAs: REITs, bonds, short-term

capital gains

  • Possible exception: long-term capital

gains with very high returns

Bob Carlson’s RETIREMENT WATCH www.RetirementWatch.com