Estate Planning With 401(k), SEP, and 401(B) Plans

Many of you have retirement plans. If you are reading this article and don’t have a beneficiary designated, stop reading and go designate a proper beneficiary right now! This designation trumps your estate planning documents.

Who Can be Named as a Beneficiary?

  • Individual- 

    Naming an individual as beneficiary of a retirement plan helps protect the account from divorce, creditors and, in some states, bankruptcy and benefits from being subject to favorable tax treatment.

  • Estate-

    Retirement plans payable to an estate are subject to probate which can:

         delay the receipt of such funds

         potentially expose them to creditor claims,

         and necessitate the listing of such assets on the probate inventory

  • Charity-

    Benefits can be distributed to a charitable organization,

    In this plan, the charity receives the benefits free of income tax, as opposed to an individual beneficiary who must pay income tax on the benefits that he receives from a traditional requirement plan.

    Further, any benefits left to charity qualify for an estate tax deduction in a decedent’s estate. This is a win-win.

  • Trusts-

    A trust may be named as the beneficiary of a retirement plan, but it cannot be a Designated Beneficiary.

    However, the beneficiaries of a trust may be treated as Designated Beneficiaries if the trust meets certain criteria.

    The criteria are as follows:

    (i) the trust must be valid under state law;

    (ii) the trust must be irrevocable (either upon creation or upon the death of the owner);

    (iii) the beneficiaries must be identifiable from the trust instrument (essentially, the Internal Revenue Service needs to be able to identify the beneficiary with the shortest life expectancy); and

    (iv) proper documentation (a list of all of the beneficiaries of the trust or a copy of the trust instrument itself) must be provided to the plan custodian by October 31 of the calendar year immediately following the calendar year in which the plan owner died

    If you need help designating a beneficiary or drafting Wills and Trusts, please contact us today! Proper beneficiary designation can save you thousands in inheritance related investment losses.


5 Retiree Tax Updates from New Tax Laws

As a retiree, you deserve an easy-going, good life. Managing your retirement income  and understanding how the $1.2 trillion tax overhaul signed into law by President Trump may affect your retirement funds is important.  To save us all from boredom, we’ll stick to the five most important items of note (in our opinion).

These changes would be for next year’s taxes, to be filed in 2019. Tax returns for 2017 tax returns are due on April 17 . . .unless you extend.

5 Retiree Tax Updates Resulting From New Tax Law

Retirees will have to be more strategic about their IRA conversions

The new tax bill would stop what’s called “recharacterizations” of IRAs. Recharacterizations allow a person to undo their decision to rollover or convert accounts to Roth IRAs. Therefore, retirement savers who have already made these conversions this year should consider before the new year if they want to reverse them.

Check out this calculator to see if you’ll owe more or less next year: The Trump calculator — will you pay more or less?

And contribute to charity twice every two years

Retirees likely won’t be itemizing since they don’t have many deductions, except for charitable contributions, property taxes and perhaps state income taxes.

Some retirees may want to take advantage of Qualified Charitable Distributions, which allow them to donate directly to charity from their individual retirement accounts without having to itemize those donations (after 70 ½ years old). Because of the increase in the standard deduction, retirees may benefit from making more charitable donations, but less frequently — for example, donate twice as much, but every other year — which would help taxpayers by having more to write off than the standard deduction limit.

Personal income tax rates are changing, but still important

Personal income taxes would be lowered for most households — to 10%, 12%, 22%, 24%, 32%, 35% and 37%. Retirees will have to watch their income to avoid ending up in a higher tax bracket. Income includes withdrawals from retirement accounts, required minimum distributions and ordinary income. For example, people with large balances might want to begin distributions before turning 70 ½ years old, when they’ll be required to take distributions in some accounts — that way, when they get there, they won’t be forced into a higher tax bracket.

It takes a little calculating, and predicting what income will look like in the future versus now, but it could save retirees money down the road.

Small businesses may not offer retirement accounts

Most 401(k) plans and similar defined contribution benefits are offered by large employers because they’re too expensive for small businesses to administer. Under tax reform, it may become even less advantageous for small businesses to host these accounts.

The bill reduces the income tax rate for small businesses but does not address offering or contributing to retirement plans, which are incentives to establish these accounts, according to the American Retirement Association.

Some retirees may want to move

Deductions for mortgage interest rates were left untouched, and $10,000 in local property taxes will be deductible on a federal level. That means income tax-free states will be best for retirees. Retirees are more easily able to move from state to state because they have no job tying them down, he said, which also means they can be more sensitive to the various income tax rates in various states. There are a few states that soar above the rest for tax-friendly states best for retirees, such as Nevada, New Mexico and Wyoming.

The new bill also reduces the maximum amount of mortgage debt a person can acquire for their first or second residence, to $750,000 for married couples filing joint tax returns (or $375,000) for those married filing separately, down from $1 million. This won’t affect home purchases before Dec. 16, 2017 so long as the home closed before April 1, 2018.

If you have questions about the tax plan or about estate planning in general, give us a call at 817.638.9016.

Highlights of the New Republican Tax Plan

If you’re like me, you probably spent your Thursday night pouring over the new Republican tax plan . . . right? At 429 pages, you’d be crazy not to take the chance to read some good ol’ fashioned tax law. I for one really enjoyed the pictures they included around page 275.

Ok Ok . . . you got me. I watched my Spurs get beat up by the Warriors on TV until switching over to the delightful new crime drama, “S.W.A.T.” on CBS. I sometimes like to think of myself like the Shemar Moore of Estate Planning Attorneys, but I digress.

Here are the things you need to know about the GOP tax plan thanks to a wonderful summary from Caitlin Owens on AXIOS:

  • the 39.6% tax rate for couples with over 1 million in income remains the same
  • the tax plan caps the mortgage interest deduction for newly purchased homes at $500,000 (down from $1 million)
  • the plan also allows only $10,000 of property tax to be deducted
  • the plan increases the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.

Worried about individual tax brackets? Here they are:

  • Individual tax rate brackets:
    • 25 percent rate starting at $90,000 for married couples, $45,000 for individuals (everyone below that pays a 12 percent rate).
    • 35 percent rate starting at $260,000 for married couples, $200,000 for individuals.
    • 39.6 percent rate starting at $1 million for married couples, $500,000 for individuals.

Of not for those expecting or soon to be expecting:

  • The plan expands the Child Tax Credit from $1,000 to $1,600 and provides a credit of $300 for each parent and non-child dependent.
  • Makes no changes to deductions for charitable contributions.

Have student debt? Might want to read up on this next part:

  • The plan eliminates student loan and medical expense deductions and the adoption tax credit.

Haven’t contributed to your 401(k)? Shame! It’s ok, almost two-thirds (2/3) of Americans haven’t either. Start NOW!

  • The plan doesn’t change contribution rules for 401(k)s.

Now to the juicy part for Estate Planners:

  • The new plan doubles the estate tax exemption immediately (11 million per person) and repeals the tax in six years. Goodbye credit shelter trusts.

Feeling bold? Read the whole text of the Bill here.

As a caveat, none of this is set in stone, so expect major changes to these provisions in the next few months.

If you have questions about the plan and how the proposed changes might affect you and your family, give us a call at the Weaver Firm. 817.638.9016


Make 401(k) Plans Great Again

If you don’t already have a 401(k), do I have some great news for you! The new limits for 2018 contributions just came out and as of January 1, 2018, you can contribute $18,500.00 to your 401(k). 

For a quick reminder, a 401(k) account is a retirement savings account through your employer (SEP IRAs are for self employed individuals and those have slightly different rules) which allows you to contribute money to your retirement before taxes are taken out. Yes, taxes are taken out once you retire, but 401(k) plans allow you to lower your taxable income right now.

Over 1.1 million dollars saved for retirement

With modest returns, a forty year old could max out his or her 401(k) account for the next twenty-seven years and have over 1.1 million dollars saved for retirement above and beyond social security. That’s a lot of vacations.

Weaver Firm PC 817.638.9016 or