 |
|
|
|
|
|
 |
|
|
· Retirement Income Planning Strategies
Income Planning During Retirement
Retirement income planning is the process of planning withdrawals from IRAs and other tax-qualified plans in order to maximize the after-tax benefits while complying with tax rules and regulations. Retirement income planning can dramatically increase the real benefits of tax-qualified plans. It enables the owner to take full advantage of the tax-deferred opportunities that exist under the IRS rules, while also preserving the flexibility to take whatever distributions are needed. Without proper planning, the rules can force taxable distributions or even termination of the IRA plan long before those funds are actually needed or the law would otherwise require. That could result in a significant loss of after-tax benefits.
Three factors to consider during retirement income planning:
- Retirement Income Needs - How much money will you need in retirement? How best to withdraw assets out of a plan? You may want to consider: Will these assets support me and my spouse over our life expectancies? Do we need the money over the course of our lifetime? Do we want to pass on some or all of these assets to children or grandchildren?
- Taxes - How assets are withdrawn may accelerate or decelerate the taxes paid on them.
- Estate Planning - Accumulations in retirement plans are considered part of the estate and are subject to possible estate taxes. How you plan for these assets over your lifetime can have an impact on the amount of retirement plan assets that are passed on to heirs.
Retirement income planning covers a range of issues that can arise when an owner takes income distributions from an IRA. Some of the key elements include planning for:
- Voluntary lifetime distributions. How and when, if ever, should an owner take voluntary lifetime distributions from the IRA?
- The required minimum distributions. How to avoid large penalties for failure to satisfy the minimum distribution rules and how various elections can dramatically affect how quickly the IRA must be distributed, both during the owner's lifetime and after the owner's death.
- The death of the IRA owner. The owner's choice of a beneficiary of the IRA can dramatically affect how and when the IRA must be distributed after the owner's death.
Retirement income planning begins with the selection of a beneficiary for the IRA and should be an ongoing part of the owner's overall retirement and estate planning. Planning becomes even more critical as the owner approaches age 70¸ and faces irrevocable elections surrounding the commencement of required lifetime minimum distributions
Retirement Income Planning Strategies
Retirement Income Strategy
This retirement distribution strategy helps to maximize the retirement income from the IRA and to ensure that funds are available throughout the lifetimes of the owner and spouse. Clients may want to consider the potential advantages of using a single life or joint and survivor annuity as a way to provide an income stream that achieves this objective.
Multi-Generational or Stretch-Out IRA Strategy
This is a retirement distribution strategy to help maximize tax-deferred growth by minimizing required distributions from the IRA. As the name implies, this strategy can result in stretching IRA distributions over more than one generation of beneficiaries, children, grandchildren, or great grandchildren and even beyond.
Because the IRA assets may be subject to estate taxes at the death of either the owner's or surviving spouse's death, it is important to ensure that the estate taxes can be paid with other assets without having to take distributions from the IRA. If additional liquidity is needed to pay estate taxes, a plan can be developed that uses life insurance to meet that need.
Wealth Preservation Strategy
This retirement distribution strategy helps to minimize the potential "double-tax" burden of both estate taxes and income taxes on IRA funds. The emphasis is to reduce the IRA balance by the time of the owner's or spouse's death and replace the IRA assets with less heavily taxed assets. This is usually done by taking the distributions from the IRA, often before they are required to be taken at age 70¸, and using the after-tax portion of those distributions to purchase life insurance in an irrevocable trust. In many cases, this strategy can produce income and estate tax-free death benefits at the IRA owner's or spouse's death that surpasses what would have been left in the IRA after estate and income taxes have been paid.
|
|
|
|
