Dear ,
Flying Under the Radar
Many of you may recall that as far back as late 2007 we started warning that because of the governments coming massive need for money you could expect the government to do everything that they could to raise tax revenue. Take a look at these slides from our presentation back in late 2007.
The question was "How much of my retirement could I lose to taxes?" The concern was that the national debt was getting out of control. Take a look at the numbers we were concerned about back then.
The numbers seem almost quaint today. $8 Trillion debt in 2006 and not projected to hit $11 Trillion until 2017. Heck, we crossed $11 Trillion back in the first quarter of 2009.
Thanks for the history lesson but is there a point here?
Yep, there sure is so let me get to the point. I've often written about the need to read between the lines and sometimes connect the dots between different articles. Well here is an article that caught my eye recently.
| (Click to read article) |
This article took me by surprise. It was flying under the radar so to speak. I keep a pretty close eye on this stuff and this was news to me, so I started digging. Here is what I came up with.
| (Click to read article) |
OK, So?
All right, here is why I think this is a big deal. For most Americans, their retirement accounts are usually either the largest or their second largest asset that they have. You've worked hard, you've saved, and now when you pass away you would like the money that you didn't need in retirement to go to your family. Seems reasonable, right?
When your spouse inherits your retirement account he/she gets to continue the tax deferred status of that account for the rest of his/her life if they chose to do so. But what about when it goes to the kids or even the grandkids? That is where the Stretch IRA came in. It gave the child (who is an adult by this time usually) the opportunity to take a Required Minimum Distribution each year while letting the rest of the Inherited IRA accumulate tax deferred instead of having to pay the taxes all at once which is the way it was in the old days.
Sen. Baucus' proposal seeks to eliminate the Stretch IRA option as well as the option to disclaim the inheritance. Now this isn't an issue just for the super-rich. This is one of the great estate planning opportunities that the average American has and the government is now proposing that it be taken away.
Let's take a look at this example from Investopedia.com. You can read the full article by clicking on the example.
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As you can see from the example, the younger the age of the person who inherits the account, the less they have to take out per year which leaves more of the money growing tax deferred, which potentially leads to a larger overall inheritance for the person because of the longer life expectancy.
Now let me give you an example of how this strategy can be used. Let's say you pass away in your early 70's. No surviving spouse, one child in his/her 50's, and three grandchildren in their late 20's to early 30's. Let's say you have $100,000 in your IRA when you die. Your only child has done well in life and doesn't really need the money. Instead of leaving the IRA to the only child, why not leave it to the three grandchildren? They would be able to draw an income off of that money for the next 50 years or so based on their life expectancy while the rest of the money continues to grow tax deferred.
Now why is the government looking to take away this option? Because they need the tax revenue now!, not over the next 40-50 years. Folks, if you think this is a benefit worth saving then please contact your elected representative and let them know how you feel. Unlike our spouses, they're not mind readers; we have to let them know how we feel. And if you haven't reviewed your estate plan in a while, now might be a good time to do so. If you'd like some help with that then please give us a call!
Sincerely,
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