For decades my firm has helped retirees preserve and help protect their wealth and leave a legacy. In these tumultuous times, here are some potential retirement and estate planning strategies for you to learn more about:
Concerned about potentially higher taxes in the future?
Our government currently has over $29 trillion in debt, so you may be concerned about potentially higher income taxes in the future.
If you have a substantial IRA (individual retirement account), that could be a “ticking tax time bomb.” Someone is going to pay taxes on that money in the future, whether it’s you or your children after you’re gone. With provisions from the Secure Act, most children can no longer do a stretch IRA as funds must be withdrawn by the end of the 10-year period after the death of the IRA owner.
One potential strategy to help deal with this tax problem is to consider a partial Roth IRA conversion. As you probably know, while the money you put into a Roth IRA is taxed upfront, all of your gains and qualified withdrawals in retirement are free from taxes down the road. If you were a farmer, would you rather pay tax on the small seed or on the 8-foot-tall fully grown wheat? Clearly, you’d rather pay taxes on pennies not dollars, so that’s why partial Roth IRA conversions might make sense for you. You might be able to pay taxes now versus paying taxes if your Roth IRA grows in the future.
Of course, everyone’s situation is different and Roth conversions create a taxable event, therefore you should always work in conjunction with your accountant.
For more information, please read this article which I wrote for Kiplinger: The Elimination of the Stretch IRA: 7 Strategies to Consider.
How a donor advised fund works to potentially save taxes
Many people’s goal is to pay as little in taxes as possible, and each year everyone has to decide whether it’s better to take the standard deduction or the itemized deduction. The standard deduction in 2021 for married couples filing jointly is $25,100, or $27,800 if both spouses are over age 65.
If someone’s actual deductions, such as mortgage interest on a primary residence, real estate taxes up to $10,000, medical expenses (if more than 7.5% of your adjusted gross income) and charitable donations combine to be higher than the standard deduction it might make sense for them to itemize.
However, for many retirees the standard deduction is higher than itemized deductions.
So what if someone is charitably inclined? Let’s assume that normally a person donates $10,000 to charity each year. If taking the …….