It is becoming more and more evident that in order to have an adequate income in retirement, at least some of your income is going to have to come from your savings. Don’t overlook the ability to make IRA contributions to supplement other retirement savings you might have. You have until April 17, 2012 to make a contribution for 2011.

Below are some frequently asked questions and our answers.

Can I make a contribution? As long as you have earned income and, for IRA contributions, you are under age 70 ½ for the entire year, you can contribute up to a maximum of $5,000 to your IRA or Roth IRA but no more than $5,000 to all IRAs and Roth IRAs combined. If your earned income is less than $5,000, you can contribute up to the amount of your earned income. Participation in an employer plan, including SEP and SIMPLE plans, has NO impact on your ability to make an IRA contribution. There are income limits for making a Roth IRA contribution but you can contribute after age 70 ½. If you are age 50 or older during the year, you can contribution an additional $1,000 to your IRA or Roth IRA for a total contribution amount of $6,000 for 2012.

Can I make a contribution for my non-working (or lower wage earning) spouse? As long as you and your spouse meet the requirements listed above, a full or partial contribution can be made for a non-working spouse.

Can I deduct my contribution? Deductibility depends on several factors. These include whether or not you or your spouse is considered covered (not contributing) by an employer plan, your income, and your tax filing status. You can never deduct a Roth IRA contribution.

You can find more information on earned income, deductibility, and Roth income limits in IRS Publication 590. It is available on the IRS website at www.irs.gov. On the left hand side of the screen, click on Forms and Publications. Best of all, it is free.

Editor’s Note: Or, because we are all about making it easier for you, click here to find IRS Publication 590.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler

Life insurance is not only the single biggest benefit in the tax code, but it is also the most cost effective way to protect a large-balance IRA. Many owners of large-balance IRAs are concerned about protecting those assets during volatile markets. Life insurance proceeds can do just that with its incredible leverage.

Life insurance proceeds are, with few exceptions, free of all income tax. Life insurance can also be exempt from federal estate tax when structured properly. If the insured has any rights or powers over the policy (so called, “incidents of ownership”), the proceeds will be included in his or her estate and be subject to federal estate tax and potentially state estate tax as well. In order to avoid estate tax on the proceeds, many individuals have their life insurance policies owned by a spouse, children, or others. In these cases, the policy proceeds are paid to the owner’s beneficiaries free of federal and state estate tax.

However, problems can arise when another person owns your life insurance policy. With full ownership rights, this person could make whatever changes he or she desired to the policy, such as changing the beneficiary or canceling it prematurely. To avoid these problems, the policy can be purchased by, or transferred to, an irrevocable life insurance trust (ILIIT) so that it will not be included in your estate. Of course, in order for this to work you cannot be a trustee or beneficiary of the trust because being either would represent an incident of ownership on your part.

If finding the money to pay the premiums will cause you a financial hardship, consider withdrawing funds from the IRA to make those premium payments. After age 70 ½, mandatory withdrawals from a traditional IRA must begin anyway. Since the money will have to be withdrawn, it may as well be leveraged to pay the life insurance premiums. This works even better with a Roth IRA as you probably won’t have to worry about paying any income tax on the distributions.

As far as the actual payment of the policy premiums is concerned, it should be done by the beneficiaries or by the trustee of an ILIT so that the life insurance proceeds will be estate tax free. The premium payment money may come from you making tax-free gifts either to the beneficiaries or to the trust. You should not make the payments directly to the insurance company.

After the IRA owner’s death, the life insurance proceeds will be available to pay the estate tax or provide other liquidity so that the IRA assets won’t have to be used. The idea behind all of this is to keep as much of the IRA money intact as possible at the IRA owner’s death so that the maximum amount is available to be stretched by the beneficiaries. And what if there is no estate tax to be paid? Your beneficiaries receive an income tax- and estate tax-free payout. I don’t think they will complain about that.

By Marvin Rotenberg and Jared Trexler

You have just inherited an IRA or employer plan from someone other than your spouse. What now?

The first thing we tell beneficiaries is, “Touch nothing.” At least not until you talk to someone who knows the rules for inherited accounts.

The number one rule for an inherited IRA is never, never, NEVER put the inherited funds into an IRA in your own name. Don’t request a check payable to you either. Both of those actions create a taxable distribution to you, the beneficiary, and you no longer have a tax deferred account.

Of course, maybe you have big plans and you are going to spend all of the money right away so the taxes aren’t a big issue for you. Consider, though, what you are giving up. Let’s say you inherit a $100,000 IRA at age 30. If it earns 6% a year and you take only required distributions each year, the IRA will eventually pay you over $650,000 over the next 54 years. In the first 10 years you will only get a check for $2,000 – $3,000 a year, but you can then write a check in that amount to fund your own IRA or Roth IRA, if you qualify.

The trick is in the titling of the inherited IRA account. You must leave the name of the original account owner in the account title.

For example, John Smith, deceased, IRA for the benefit of (fbo) James Smith.

This does not create a taxable distribution and you can then “stretch” the distributions over your life expectancy.

So, do yourself a favor and touch nothing. Then talk to someone who understands these rules and can show you the potential of the inherited retirement account. Then make an informed decision. If you choose to stretch your inherited account, you can sit back and collect easy money each year. Oh, and be sure to name your own beneficiary on the inherited account. They can continue to collect your payments if anything happens to you before the inherited account is emptied.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler

Savy Social Security Planning 2/7/2012 at 6:30pm
The Quadrant Building
Bighorn Conference Room
Garden Level
5445 DTC PKWY,
Greenwood Village, CO 80111
&
America’s Retirement Store
The Promenade Shops at Centerra
5943 Sky Pond Dr. Building E Unit E-118
Loveland Co. 80538
- Will Social Security be there for me?
- How much can I expect to receive?
- When should I apply for Social Security?
- How can I maximize my benefits?
- Will Social Security be enough to live on in retirement?
This informative seminar covers the basics of Social Security and reveals strategies for maximizing your benefits.
Presidential Brokerage is passionate about helping main street on important retirement issues such as Social Security
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This question comes up ever January. Can I still do a Roth conversion for last year? After all, I have until April 15th to make a contribution to my IRA or Roth IRA for last year, so can I still do a conversion for last year?

The answer is no. While there may be an exception for contributions, there is no corresponding exception for conversions (or distributions). In order to have a 2011 Roth conversion, the funds must leave the IRA or employer plan by December 31, 2011.

The funds do not have to be in the Roth IRA by that date, but they must be out of the IRA by the end of the year. You can do a 60-day rollover where the funds leave the IRA on December 10, 2011 and are deposited in the Roth IRA on February 8, 2012. This is a 2011 conversion since the funds left the IRA in 2011.

If you missed the 2011 deadline and still want to do a Roth conversion, make sure you do not miss the deadline for 2012. You still have those low income tax rates in effect for 2012 so be sure to take advantage of them.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler

We have written many times on the subject of annually funding retirement vehicles such as 401(k) plans and IRAs so you will have enough money to enjoy a financially secure retirement. The earlier you start contributing to your retirement accounts, the more you will have when you actually reach retirement age.

A big impediment to all the best laid plans for funding a secure retirement is inflation, which has a way of eroding your savings over time. The fact that inflation has been relatively low during the recent economic malaise has masked how inflation can seriously reduce an investor’s long-term purchasing power. Also, fewer financial columnists have addressed this issue over the last few years as other matters have grabbed the headlines. However, regardless of the official rate reported by the government, inflation remains a terrible threat to everyone’s financial health, particularly retirees.

Unlike mutual funds or stock and bond prices, inflation’s daily fluctuations are not tracked in the media. Inflation is an invisible, silent killer – the high blood pressure of the financial world. Just as you can have high blood pressure for years and not know it until you suffer from its consequences, inflation can quietly shrink the purchasing power of your dollars without you ever realizing that you are at risk.

Although it may be easy to understand what inflation is, it is often difficult to grasp what it will do to you. Simply stated, inflation erodes your money’s value. It makes the same products or services you buy today cost more in the future, possibly double or triple the price, whether it be a haircut, a house or a loaf of bread.

It is easy to take inflation too lightly because it seems so benign. When you hear that the inflation rate for a particular year was 3%, you might think, that’s three cents on the dollar, what’s the big deal? However, the impact of a few pennies, continually compounded over decades, can significantly undermine your chances of achieving the investment and retirement goals you have carefully established. Need some affirmation on that? Just ask those who have already retired and have seen the purchasing power of their fixed incomes slowly erode over 10, 20 or 30 years.

Saving consistently, and adding to your savings rate incrementally as your income increases, is a good one-two punch to beating inflation. Being a frequent saver and prudent investor for retirement really does matter.

By Marvin Rotenberg and Jared Trexler

Thursday, November 17, 2011 @ 6:30 pm
Saturday, November 19, 2011 @ 10:00 am
Thursday, December 1, 2011@ 6:30 pm
The Quadrant Building
Bighorn Conference Room
Garden Level
5445 DTC PKWY,
Greenwood Village, CO 80111
&
Loveland Embassy Suites
Hammons Conference Center
4705 Clydesdale Parkway
Loveland, CO 80538

-Will Social Security be there for me?
- How much can I expect to receive?
- When should I apply for Social Security?
- How can I maximize my benefits?
- Will Social Security be enough to live on
in retirement?
Presidential Brokerage is passionate about helping main street on important retirement issues such as Social Security.

Last week we talked about the ability for certain airline employees to roll over certain payments to a Roth IRA – a planning strategy that can make a huge difference in retirement preparation, but only for a relatively small percentage of retirement account owners. Today, we switch gears entirely to something that applies to every retirement account owner… the beneficiary form.

If you’ve spent any time reading through the various articles posted here at The Slott Report, reading any of our books or watching any of our Public Television specials, then you are probably aware that the beneficiary form is the single most important document when it comes to IRAs and other retirement accounts. Despite its importance though, few people take the time to actually check the form and make the necessary updates. Remember, knowing and doing are two very different things.

We’re now coming into the holiday season, a time when we are most likely to be surrounded by our family members and those near and dear to our hearts. So when you sit down to your big Thanksgiving feast, to Christmas dinner or to whatever holiday you happen to be celebrating, take a good look around. Think about it, don’t you want these people to benefit as much as possible from your hard work and sacrifice when you are no longer here? I thought so.

So how can you be sure that’s the case? It’s really not that difficult. First and foremost, check your beneficiary forms. ALL of them. Look at your IRAs, Roth IRAs 401(k)s, 403(b)s, non-qualified annuities, life insurance policies… anything and everything that has a beneficiary form. Remember, when an asset passes by way of beneficiary form, that form will trump (supersede) your will. If you actually undertake this exercise, you might be surprised at what you see.

You might find yourself repeating Haley Joel Osment’s famous line from The Sixth Sense, “I see dead people.” Other common “bad” beneficiaries include ex-spouses and parents that were named as beneficiaries on accounts before marriage. Not that you can’t name an ex-spouse as a beneficiary after a split or continue to keep a parent as your beneficiary after getting married – it’s just that more often than not, when these types of beneficiaries inherit retirement accounts, it’s because the owner neglected to update their beneficiary form rather than stemming from a current desire on the owner’s part.

Thankfully though, if you do need to change your beneficiaries (or if you can’t find the form to figure out who they are), the fix is easy. Just contact your financial advisor or account custodian and request a blank beneficiary form. Then simply fill it out, send it back, and follow-up to make sure it was received and processed properly. Voila! Problem solved. If you really want to be extra secure, you can take it one step further. About a week or two after submitting your beneficiary forms, send a letter to your custodian asking them to notify you of the current beneficiaries on file. Then, once you receive a response, you’ll have confirmation of your current beneficiaries on their letterhead – and that’s as good as it gets.

By Jeffrey Levine and Jared Trexler

Everyone has probably heard the terms “will” and “trust” but do you know the difference? Both are very useful in estate planning, however they serve different purposes.

One main difference is that a will takes effect only after you die, whereas a trust can take effect as soon as you create it. A will is a document that directs who will receive your property at your death and is where a legal representative is appointed to carry out your wishes. A trust can be used to distribute property both before and after your death.

A trust is a legal arrangement through which an individual or institution, called a “trustee,” holds title to property for the benefit of another person called a “beneficiary.” A trust can have two types of beneficiaries: Those that receive payments from the trust during their lives, and those that receive whatever is left over after the first beneficiary dies. The latter are generally referred to as “remaindermen.”

Additionally, a trust can be structured so that a beneficiary receives only income, only principal, or both.

A will covers any property that is in your name at the time you die that is not provided for through any other means. For instance, it does not cover property held in joint tenancy or in a trust.

Also, a life insurance policy, annuity contract or a retirement plan for which you have completed a designated beneficiary form, or which provides default beneficiary language, will not pass under your will. A trust, on the other hand, covers only property that has been transferred to it, either during your lifetime or upon your death.

You can name a trust as beneficiary of your IRA, but if IRA assets are actually transferred into the trust, either during your lifetime or at your death, a distribution subject to income taxation will be deemed to have occurred.

Another error we see frequently is one that is made by an individual who intends to name a trust as beneficiary of an IRA, but doesn’t quite get the job fully completed. The trust gets established, but the designation of beneficiary form for the IRA is never changed or filled out correctly to name the trust as beneficiary. Doing one without the other accomplishes nothing.

Both a will and a trust are useful estate planning devices that serve different purposes, and can work together to create a complete estate plan. An experienced financial advisor can help insure they are used to the best advantage of you and your family.

By Marvin Rotenberg and Jared Trexler