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Happy Veterans' Day! For those of you who are Vets, enjoy your day...you deserve it. For those of you who aren't take a look at your family tree. I bet there is a Vet in there somewhere. Let him/her know you are thinking of them.
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Financial Strategies Planning Techniques, Procedures and Guidance for Military Professionals |
Greetings!
As you read this, I'm finishing up a Tax Conference and heading to a 363rd TFW DESERT STORM reunion. To be honest, the juxtaposition of those two events troubles me a bit. Oh well...
I did learn quite a bit at this conference about what to do when the "IRS Comes Knocking". The first article covers what I think are a few of the big "take aways".
The second article helps you set up your retirement accounts to maximize what goes to your heirs if something happens to you.
The last two articles are financial articles about investments. Some good ideas about managing a portfolio.
I'd like to write more, but I have to go drink beers with a bunch of guys who are a whole lot older than they were the last time I had a beer with them (sure glad that didn't happen to me).
One other thing...as I mentioned in my last newsletter, one of my clients is trying to go to market with a new kitchen tool called the Trivae. You can help them make it happen by pre-ordering a Trivae or making a donation. You can do so here. There is only about one day left!
Oh, and by the way...Happy Veteran's Day!
Curt Curtis L. Sheldon, CFP®, EA, AIF® C.L. Sheldon & Company, LLC (703)542-4000 or (800) 928-1820 |
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What I Learned At School Today
As I mentioned above, I'm attending a Tax Course. I've been here for a couple of days. This particular course talks about "Representation" or helping a client deal with the IRS during an audit or collection action (paying your "overdue" bill). I've learned a couple of important things.
You have the right to representation. At any point when you are dealing with the IRS during an audit or collection process you have the right to "stop" and request representation. Now, unlike the criminal justice system, you won't get a "public defender" but you can get a professional to help you. You can choose to be represented by an Enrolled Agent (EA); Certified Public Accountant (CPA) or Tax Attorney. No matter which professional you choose, make sure they have expertise in "representation".
Watch out if Two IRS representatives show up at your door. The Criminal Investigation Division of the IRS "deploys" in twos. If you are under Criminal Investigation you will be visited/contacted by two Special Agents. If two agents show up, you have two things to do.
- Say nothing
- Contact an attorney
Privilege Exists. While it is limited, when you consult with a licensed representative (EA, CPA or tax attorney), assuming the representative is acting on your behalf and has a Power of Attorney most things you say to your representative are covered by privilege and need not be disclosed to the IRS by your representative. As this is not always the case, confirm with your representative. For example privilege does not apply to the preparation of your tax return and during a criminal proceeding privilege only applies when dealing with an attorney.
I know that a lot of you who get this newsletter like to do things yourself. DON'T...when it comes to dealing with the IRS the stakes are just too high.
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Do you deduct business mileage on your tax return? Do you keep a contemporaneous account of your mileage? Of course you do...because the IRS says you need to have a log if you deduct mileage. If you don't have one, start one now. There are several phone apps that can help you do that. Oh, and if you get audited for a year when you "forgot" to keep a log you have the opportunity to support your claims based on other documents like maintenance records and insurance policies....The IRS may or may not accept the alternate records.
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Tips for Minimizing the Tax Bite on Retirement Assets
For many investors, a large percentage of their assets are held in tax-advantaged accounts such as 401(k)s and IRAs. While these accounts can be ideal for sheltering retirement savings from taxes pre- and post-retirement, because these assets are included in the account holder's gross estate, they can be highly exposed to tax issues in an estate if managed improperly. In short, the combined estate and income taxes owed by beneficiaries could potentially erode the lion's share of the value of these assets.
Proper Naming of Beneficiaries
Many problems that arise when transferring retirement plan assets occur around the naming of beneficiaries. Consider these tips to help avoid problems in this area:
- Be sure to have a named beneficiary. Naming the account holder's estate as the beneficiary will trigger the "five-year rule," which states that retirement plan assets must be paid out immediately or by the end of the five years following the account holder's death.
- Review and update beneficiary designations. Life situations change frequently and those changes can affect your beneficiary designations. For example, many times after a divorce, participants forget to update their beneficiary designations.
- Make sure one or more contingent beneficiaries are named. Without contingent beneficiaries you may face the same consequence as not naming a beneficiary at all -- particularly when a primary beneficiary is no longer living.
Spousal vs. Non-Spousal Beneficiaries
Retirement plan assets that pass to a surviving spouse may qualify for the unlimited estate tax marital deduction, whereas retirement plan assets that a non-spouse beneficiary inherits may be subject to estate tax upon the account holder's death.
In addition, after the account holder's death, the surviving spouse may roll over retirement plan assets to an IRA in his or her own name or elect to treat the retirement plan as his or her own. If the spouse chooses the latter option, he or she may defer taking required minimum distributions (RMDs) until he or she turns age 70½ -- a distinct advantage from an asset accumulation and taxation perspective.
A surviving spouse may also "disclaim" -- or refuse -- his or her interest in an IRA. Once disclaimed, the spouse will not receive any interest in the retirement plan and it will pass to contingent beneficiaries (typically children or grandchildren). Distributions to the contingent beneficiaries must then be made under the RMD rules that apply to non-spouse beneficiaries.
Tips for Non-Spouse Beneficiaries
- Unlike a surviving spouse rollover, an IRA inherited by a non-spousal beneficiary must remain in the name of the deceased account holder.
- Any distribution to a non-spouse beneficiary is a taxable event. Therefore, any check delivered by the deceased's retirement plan trustee should be made payable directly to the inherited IRA custodian or trustee.
- A non-spouse beneficiary must begin taking RMDs from the inherited IRA by December 31 of the year following the year of the account holder's death.
Other Considerations
Other strategies to help make qualified retirement plan assets more tax efficient include:
The Stretch IRA -- A distribution strategy that can extend the tax-deferred status of IRA assets across multiple generations. The strategy aims to avoid large distributions and allows only RMDs to occur for as long as possible.
Retirement Plan Trust or IRA Trust -- These instruments allow for the stretching out of distributions combined with the benefits and protections of trusts.
Charitable Remainder Trust -- This type of trust may be named as beneficiary of a retirement plan in order to obtain an estate tax deduction. The trust will provide income to the non-charitable beneficiary -- usually the surviving spouse -- during his or her lifetime, and will distribute remaining assets to the charity at the spouse's death.
An Irrevocable Life Insurance Trust -- If the retirement assets are not needed, using after-tax withdrawals from the retirement plan to purchase life insurance owned by the life insurance trust can be a strategy that transforms a twice-taxed asset into a tax-free one.
This article offers only an outline; it is not a definitive guide to all possible consequences and tax implications of any strategy. For this reason, be sure to seek advice from knowledgeable legal, tax, and financial professionals.
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Because of the possibility of human or mechanical error by S&P Capital IQ Financial Communications or its sources, neither S&P Capital IQ Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall S&P Capital IQ Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.
© 2012 S&P Capital IQ Financial Communications. All rights reserved.
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The Standard & Poor's 500 stock index is the benchmark against which most investors measure the performance of their portfolios, but that's not such a good thing. For, although the widely-cited index represents the value of America's 500 largest publicly-held companies, it does not represent the performance you should expect from a retirement portfolio....Read More Here
5 Traits Investors Can Pick Up From Derek Jeter
Derek Jeter, the iconic star of the New York Yankees, retired this season after 20 years in the major leagues. Many attributes displayed by Jeter during his baseball career translate to the investment arena. More Here |
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Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC 's current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.
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