Traditional IRAs

Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The annual deductible contribution limit for an IRA for 2010 is $5,000. For 2010, a $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $6,000 for these individuals. For 2010, the AGI phase-out range for deductibility of IRA contributions is between $56,000 and $66,000 of modified AGI for single persons (including heads of households), and between $89,000 and $109,000 of modified AGI for married filing jointly. Above these ranges, no deduction is allowed.

Spousal IRA

If an individual files a joint return and has less compensation than his or her spouse, the IRA contribution is limited to the lesser of $5,000 for 2010 plus age 50 catch-up contributions, or the total compensation of both spouses reduced by the other spouse’s IRA contributions (traditional and Roth).

Roth IRA

This type of IRA permits nondeductible contributions of up to $5,000 a year. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 59¹/₂. Distributions may be made earlier on account of the individual’s disability or death. The maximum contribution is phased out in 2010 for persons with an AGI above certain amounts–$167,000 to $177,000 for married filing jointly.

Roth IRA Conversion Rule

If you have funds in a traditional IRA (including SEPs and SIMPLE IRAs), §401(a) qualified retirement plan, §403(b) tax-sheltered annuity or §457 government plan, it may be advantageous to consider rolling a portion of such into a Roth IRA this year.  A rollover is treated as a taxable distribution, hence, you will pay tax on the amount converted.  However, depending on your current age and projected AGI for 2010, a Roth conversion may provide you significant tax savings.

Beginning in 2010, taxpayers are able to make Roth IRA conversions without regard to their AGI. If you convert to a Roth IRA in 2010, you have the option of spreading the income ratably over two taxable years (2011 and 2012). This opportunity is available only for conversions in 2010. For conversions in 2011, the tax will have to be paid in the year of conversion.

401(k) Contribution

The §401(k) elective deferral limit is $16,500 for 2010. If your §401(k) plan has been amended to allow for catch-up contributions for 2010 and you will be 50 years old by December 31, 2010, you may contribute an additional $5,500 to your §401(k) account, for a total maximum contribution of $22,000 ($16,500 in regular contributions plus $5,500 in catch-up contributions).

SIMPLE Plan Contribution

The SIMPLE plan deferral limit is $11,500 for 2010. If your SIMPLE plan has been amended to allow for catch-up contributions for 2010 and you will be 50 years old by December 31, 2010, you may contribute an additional $2,500.

Catch-Up Contributions for Other Plans

If you will be 50 years old by December 31, 2010, you may contribute an additional $5,500 to your §403(b) plan, SEP or eligible §457 government plan.

Maximize Retirement Savings

In many cases, you are required to set your 2011 retirement contribution levels before January 2011. You may want to increase your contribution to lower your AGI in order to take advantage of some of the tax breaks described above or to avoid future tax rate increases. Maximizing your contribution is generally a good investment move and can provide an array of tax saving opportunities.

Need Help?

If you have further questions or concerns as you make plans to maximize your retirement investment, give our office a call.  We are currently offering complimentary phone consultations for issues concerning retirement investments.

However, I found the article below interesting not only because it challenges the typical arguments against the estate tax, but because it was written by someone whose inheritance was actually diminished by the estate tax.

Tax Mickey's Estate...but don't take away his Magic Kingdom!

USA Today op-ed, Mickey Mouse, the Estate Tax and Me, by Abigail Disney:

[T]he estate tax will automatically be reinstated after a year’s hiatus — in its 2001 form. … In a far stricter tax environment, my grandfather still managed to accumulate and pass on ample funds to make three subsequent generations very comfortable indeed. And as an inheritor I am here to tell you, the estate tax is not as much of a bogeyman as you’ve been led to believe. Let’s start with the facts:

• First, the estate tax is not a double tax. … People like me, who inherit assets such as Disney stock, can spend our lives watching those assets grow, and when we pass them along to our children, they have not been touched or diminished at all by the tax system. The only thing I have paid taxes on is the interest from these assets, not their increased value.
• Second, opponents of the estate tax claim family farms will have to be broken up to pay the tax, but good luck finding an example of this. …
• Third, the estate tax incentivizes people like me to do good with our wealth because there is no estate tax on donations to charity. My filmmaking and foundations rely on a tax code that supports a vigorous non-profit sector, a vital part of our society that is bigger and stronger because of the many millions of dollars that flow into it as a result of the estate tax and other tax provisions.

To those who believe the estate tax is unfair, I say that there is no tax more fair than this one. I recently signed the Call to Preserve the Estate Tax organized by United for a Fair Economy because the estate tax is an expression of our deepest American values: that we live in a meritocracy, not an aristocracy; that every generation is a fresh start; and that we choose to build a society in which wealth and opportunity do not accrue to people simply for being born wealthy. …

The estate tax is the cornerstone of a progressive system that leaves wealthy heirs with ample funds while providing the government with the resources it needs to build an environment for the common good. By preserving it, we not only restore billions in revenue to the national treasury — we also restore our most cherished collective ideals as a nation.

“Tax me” may be the least popular sentence in America, but it’s what I am asking, and I hope that our leaders are listening.

Give Momma one more year of jet-setting!

New York Times columnist Paul Krugman famously  dubbed the Bush 2001 tax cuts the “Throw Momma From The Train Act”, because the estate tax was eliminated for just one year—2010. But as 2010 grinds on without a federal estate levy, it’s becoming clear that Krugman got it wrong.  Any Momma who would ride the rails (even the pricey Acela) probably isn’t worth shoving to a grisly demise.  It’s the Mommas flying on their private jets who need to pack parachutes or watch their backs. Without a doubt, the one- year lapse in the federal estate is a boon to heirs of the superrich. (At  least four billionaires, including George Steinbrenner have died so far this year.)  But for ordinary families, it is creating all sorts of grief and unintended consequences and might even cost some of them extra federal tax, to say nothing of lawyers’ bills.

One set of problems relates to wills that were written assuming there would be a tax; provisions  in such documents could inadvertently disinherit children or a spouse, or could subject an estate to unnecessary state estate tax.  (For more on these issues, click here. For a map showing 2010 state estate taxes, click here.)

Another set of problems relates to a trade-off Congress made in the 2001 law: In return for eliminating the estate tax in 2010, it also did away with the full “step-up” in basis for capital assets for 2010. In other years,  the basis cost of a  decedent’s capital assets–stocks, bonds, jewelry, real estate, artwork and so on– gets adjusted to its market value at his death, or six months afterward.  (The executor gets a choice.) Conveniently, that allows heirs  to sell all the property immediately with no capital gains income taxes due. But for those dying in 2010, the step-up in assets going to non-spousal heirs is limited to $1.3 million, with another $3 million in step-up allowed for assets left to a spouse.   This means some heirs of estates worth several million could end up paying more in total federal tax than they would have had their benefactor died in 2009, when all assets got a step-up in basis and the first $3.5 million of an estate going to non-spousal heirs was exempt from estate tax. (Amounts left to a citizen-spouse aren’t subject to estate tax, since Uncle Sam figures to get his when the second spouse dies.)  These moderately well-to-do families get hit with extra capital gains taxes because their benefactor died in 2010 instead of 2009, but they don’t save much or any estate tax, compared to 2009

While an unknown number of families may pay more, a greater number of them are having to shoulder a big paperwork and administrative burden.  Assuming capital assets (including a home and stocks) total more than $1.3 million, family members and executors must locate old records showing what assets were purchased for (if such records even exist) and deal with all sorts of complicated and potentially divisive issues such as which assets, going to which heirs,  get allocated the limited basis step-ups…

Considering the complicated nuances, it might be wise to keep Momma – and her private jet – around for another year.

August 19th marked the “Cost of Government Day” for 2010.  This is the day the average American has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed by government at the federal, state, and local levels.

Sadly, working Americans toiled 231 days this year just to satisfy government imposed – 8 days later than 2009 and a full 32 days longer than 2008.

We are likely to see one of the following scenarios (or a combination thereof):

1. Congress does nothing and allows the Bush tax cuts to expire (the tax laws from 2001 will reactivate on Jan. 1, 2011);
2. Congress passes legislation to extend ALL of the Bush tax cuts (Congressional Republican’s Position);
3. Congress passes legislation extending SOME of Bush’s tax cuts (Obama’s Plan- extend some of the stimulus measures, place new limitations on itemized deductions and allow the tax cuts benefiting taxpayers making $250,000+ to expire); or
4. Congress passes the legislation recently proposed by Congressional Democrats (similar to Obama’s plan but without extending stimulus measures and with no additional limitations on itemized deductions).

Despite the legislative unpredictability, taxpayers can still stay a step ahead by putting together a game plan for each of the possible tax scenarios above.

So check www.MyTaxBurden.org to see where you stand…however Congress decides to act (or not act).

And if that wasn’t enough, you then must decide who is worthy of receiving these precious items that seemingly reflect your indention upon this planet.   After agonizing whether or not leaving a drug-addict daughter a portion of the estate would be more detrimental than gratuitous, we throw in the towel and rationalize that we will worry about it later.

Unfortunately, none of us can cheat death.  We can pretend that it doesn’t exist, but it will be at the expense of our loved ones.  Leaving your loved ones to duke it out is never a good option–absent a twisted sense of humor.

Although daunting, the hassle, headache, and huge legal fees associated with estate planning can be avoided by following a few simple words of advice.

1. Make a list of your assets, dividing them up by category (real property, liquid accounts, family heirlooms, etc.)
2. Make a list of the people you would like to leave something from your estate
3. If there are specific things you want to give a particular person, put that item next to the person’s name
4. Think about how you envision spending your retirement days–do you want to live it up traveling the world or find a modest, comfortable retirement community

Once you have sketched out your big picture objectives, it becomes much easier to ensure that you are getting an estate plan that can carry out your wishes while eliminating unnecessary estate planning documents.

Last, shop around.  When talking to an estate planning attorney, be specific about what you need.  Get a price quote and for good measure, get another opinion.

Although many “estate plans” merely include a will, I encourage my clients to incorporate a life and wealth plan into their estate plan.  Because estate planning already requires an intensive analysis of your financial bottom-line, it creates a unique occasion to address life and wealth issues without incurring a significant amount of additional cost.  Life planning will assist you in making concessions for both your current and future current and future needs, responsibilities, and health related     directives.    By introducing a wealth plan into your current savings objective, you can maximize your present and future net worth while avoiding commonly faced investment risks.  Often, wealth planning will incorporate advantageous tax planning to reduce—or even eliminate—present and future state and federal tax liability.  Your wealth plan will ultimately provide for the disposition of your assets in a final will and testament.  This will allow you to maximize your current enjoyment from your assets while augmenting the legacy you pass to your loved ones–all while relieving them of the burden of any probate proceedings.

Flexible Options to Fit Your Budget and Planning Objectives

Although sophisticated estate and tax planning is often expensive, it does not have to be.  Because I understand the importance of such planning and the implications associated without, I strive to provide exceptional planning services – at an affordable, more accessible price.

I think it’s important to educate the client on the legal and practical implications associated with their life and wealth planning decisions.  I will not try to sell you services you do not need.  However, I will provide you candid advice so we can work towards tailoring a plan that accomplishes your needs and objectives—nothing more, nothing less.

Out-of-Date and Out-of-State

I realize how important it is to stay up to date with the constantly changing tax laws so I can keep my clients informed and help them plan accordingly.   This is particularly important considering a significant portion of the Federal tax laws relating to estate and gift taxes are set to expire in the next year.  As a result, there’s a good chance that new tax legislation will be implemented which could hinder the effectiveness of your current estate plan.

An out-of-state estate plan can also present a problem.  In Florida, a person is presumed to have died a resident if they “lived” in FL, 12 consecutive months within the 48 months prior to death.  The 12 month rule even applies to those absent from FL for a portion of this time and to those with citizenship privileges—or obligations—in another state (i.e. voting rights, paid taxes).  Even if you are not classified as a citizen, FL will likely still have jurisdiction to tax your property remaining in state at death.

An incentive to citizenship includes the legal protections FL provides to its residents.  For example, FL offers a generous homestead benefit, protecting you and your family’s interest in certain real property.   The lack of proper planning may lead to excessive taxes, unneeded waste and diminishing of resources—something we would all like to avoid!

Many clients may offset the expense of life and wealth planning through a federal tax deduction allowed for such planning.

To help you become acquainted with some of the Although a variety of planning techniques exist, they typically include a final will and   testament, inter vivos gifts and testamentary trusts, life insurance policies, and health care documents (a durable power of attorney, health care surrogate designation, and a living will).