The Discerning Investor

It's time to do some estate planning research together. A great place to start is the American College of Trust and Estate Counsel (ACTEC), which is an "organization of trust and estate lawyers and law professors in the United States and around the world," according to the ACTEC website (tinyurl.com/mtptvbc2).

The ACTEC website is robust (tinyurl.com/y48v8ukd). There are more than 80 videos and transcripts, so take your time to find ones that might be relevant to the questions you have.

Some topics are basic ("Estate Planning Checklist for After Someone Dies"; "Living Trusts and the Impact on Taxes"). Others are novel. For example, "Digital Asset Management in Life and Death": This involves online accounts (including photos), travel points and cryptocurrency. Do you want a "digital death" for some accounts that you don't want your family to have access to once you are gone?

If you are an AI fan, you'll enjoy watching "Use of Artificial Intelligence (AI) in Creating an Estate Plan," which discusses the limitations of AI and why it might not be ideal to use AI instead of hiring an attorney.

There are also videos that cover unique situations. "Understanding Special Needs Trusts" deals with trusts that "contain provisions that are designed to protect the assets in that trust in a way that continues to preserve public benefits that a person with a disability who is the beneficiary of that trust may be entitled to."

And more: "Estate Planning for a College Student or Young Adult" focuses on when your college-bound child turns 18 and becomes an adult. Do you need power of attorney and an advanced medical directive so you can continue to talk to doctors in case your child has an accident while at school?

"Motivating Heirs with an Incentive Trust": An incentive trust is set up with benchmarks "that trigger the trustee to make greater or fewer trust distributions when a particular conduct or behavior of a beneficiary can be observed." Those "behaviors" could include something like getting good grades.

"Can I Do a Will for Myself?": While this video notes that you can do one, each state has different requirements about what a will has to say in order to be valid (for example, some states accept a handwritten will, while others do not).

Law firm websites are also good resources for research. As an example, Connecticut law firm Cummings & Lockwood LLC offers a white paper titled "Relocating to Florida," which addresses, among other topics, wills and estate planning (tinyurl.com/y6a8ykxj).

Quoting the white paper: "A person relocating to Florida should review the peculiarities of Florida law with a qualified estate planner in order to determine the appropriateness of his or her current estate plan. Although you may not need to rewrite your will, there may be good reasons for considering a revision."

Another example: Law firm website Wollman, Gehrke & Associates of Naples, Florida, features an article on wills and trusts by attorney Edward E. Wollman (tinyurl.com/wkfcfr78). He points out that "Probate can be lengthy and costly in Florida. A well-drafted trust allows your estate to bypass the probate process, ultimately saving time and facilitating a seamless transfer to your beneficiaries."

In short, there is a lot of information to gather and consider -- even how to hire a lawyer.

ACTEC offers a search engine that allows you to find ACTEC "Fellows" (an ACTEC Fellow must have "more than 10 years of experience in the active practice of probate and trust law or estate planning" -- tinyurl.com/55zckbjz). You can also contact your state bar association for more information about estate planners in your area.

Doing some of your own research can help prepare for a meeting with an estate planning attorney. The resources are plentiful and well worth your time.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

If you inherited an IRA within the last few years, you've been dealing with dramatically new beneficiary rules adopted under SECURE Acts 1.0 and 2.0.

Here is something to think about: What happens when you, the beneficiary, pass away? What rules apply to a "successor beneficiary," someone who inherits the IRA from you?

To set the stage, we need to go back to the pre-SECURE rules for deaths that occurred before 2020, which are still in play for some taxpayers.

Take a reader I'll call Tom, who in 2018 at age 56 inherited his mom's IRA when she passed away at the age of 89. Her year-of-death RMD (required minimum distribution) was $16,667 based on her Dec. 31, 2017, IRA value of $200,000 and her divisor of 12.0 (Uniform Lifetime Table III, tinyurl.com/bnfwnebj).

When Tom inherited his mother's IRA, before the SECURE Act's changes took effect, he benefitted from a "stretch." Tom's divisor for his first RMD (2019) at age 56 was 28.7. Assuming a balance of $190,667 for Dec. 31, 2018, his 2019 RMD of $6,643 was quite a bit lower than his mother's last RMD of $16,667, based on her divisor. (I'm using Brentmark Inc.'s financial software for these calculations.)

SECURE Act changes did not affect his RMDs. He continues to take them under the old rules during his lifetime.

Tom wants to know: "If I pass away and my wife inherits the IRA from me, does she continue the stretch since it was originally pre-2020 and she is a spouse, or does she do the new 10-year payout scheme?" I asked Mark Luscombe, principal analyst at Wolters Kluwer Tax and Accounting, to share his expertise.

Tom's wife ("May") is a successor beneficiary. She will be "required to do a 10-year payout" under SECURE Act rules, according to Luscombe. Since the original IRA owner (Tom's mother) was already taking RMDs when she died, Tom's successor beneficiary (May) would be required to make RMDs each year over the 10-year period (2036) measured by Tom's date of death (let's assume he dies in 2026), instead of being able to wait until 2036 to empty the IRA.

Here is another wrinkle: You might think that a spouse can treat her inherited IRA as her own, but that is not the case if the spouse is a successor beneficiary. "The special rule for spouses of an IRA owner does not apply to spouses of an inherited IRA owner," explained Luscombe.

Those "special rules," as detailed in IRS Publication 590-B (tinyurl.com/47h9utkb), include treating the deceased spouse's IRA as your own by designating yourself as the account owner or by rolling it over into your own IRA.

One final question about the new rules: When does the yearly RMD rule not apply to a successor beneficiary?

Take this example: "June" dies in 2022 at age 50, well before her RMD age (73). "Andy," her beneficiary, dies in 2023. "Cindy" is the successor beneficiary.

When an IRA owner's death occurs before RMD age, the 10-year rule starts a countdown based on the IRA owner's death, and the entire IRA balance must be withdrawn by the end of the 10-year period, explained Luscombe.

Since June died in 2022, Cindy would have to empty the inherited IRA by the end of 2032. For Cindy, there is no requirement that money be withdrawn each year, although that's always an option.

As you can see, RMD answers depend on the precise set of circumstances. You'll need expert tax advice that applies to your situation. Wolters Kluwer's expert insights are subscription-based. See tinyurl.com/mt2m84vp.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

My regular readers know that I think of everyone I meet as a "retiree" or a "future retiree," no matter their age. And yes, in case you're wondering, I don't exclude 5- and 10-year-olds from the future retiree definition. Even they will want to retire someday.

Given that perspective, I always like to share ideas that may be missed when trying to maximize retirement savings -- and right now, the mailbox is full of tax reports for 2024 taxes. This is the perfect time to think about a 2025 action plan to boost retirement savings.

You can contribute to both a company 401(k) and an IRA (individual retirement account) at the same time. The IRS website page for IRA FAQs, in answer to the question "Can I contribute to a traditional or Roth IRA if I'm covered by a retirement plan at work?" states: "Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan)" (tinyurl.com/2hfmwt2m).

Contribution limits are not reduced to a Roth or traditional IRA based on 401(k) participation. High earners will want to maximize their traditional IRAs, since they may not be eligible to contribute to a Roth due to income limits -- let's come back to those limits shortly. Importantly, limits are not reduced for traditional IRAs for anyone, even if they are participating in a company plan, such as a 401(k). They are reduced, however, for Roth IRAs (not traditional IRAs) based on earnings (not 401(k) participation).

The maximum amount someone can contribute to an IRA in 2025 is $7,000; it's $8,000 for those age 50 and up. The extra $1,000 for those age 50 and older is called a "catch-up" contribution.

Again, while there are no income caps on contributions to traditional tax-deferred IRAs, there are limits on Roth IRAs. Roth IRAs have phaseouts due to income caps.

The most someone can contribute to a Roth IRA depends on modified adjusted gross income (MAGI). A single filer under 50 can contribute up to the limit for a Roth IRA ($7,000) if the person's MAGI is less than $150,000 in 2025. If the MAGI is higher, but less than $165,000, the person can still contribute, but the amount is reduced.

When MAGI is $165,000 and above, no Roth IRA contribution is permissible. However, there is no comparable MAGI limit for traditional IRAs. That is, someone who cannot contribute to a Roth IRA due to earnings limits can contribute to a traditional IRA. Further, there is no MAGI limit on who can convert a traditional IRA to a Roth IRA. If you decide to contribute to a traditional IRA and convert to a Roth IRA, be sure to review your plan with your tax adviser before taking action.

The maximum amount that a person can contribute to a company plan is $23,500 in 2025. Someone who is 50 or older can kick in an additional $7,500 as a "catch-up" contribution. And, starting this year, if you turn 60, 61, 62 or 63 in 2025, your catch-up contribution is $11,250 instead of $7,500. That means your total employee contribution maxes out at $34,750.

When someone turns 64, the limit returns to the regular catch-up contribution (currently $7,500). A yearly cost-of-living adjustment to the catch-up limit will take effect after 2025.

There is no reduction in 401(k) contribution limits based on whether someone contributes to a traditional or Roth IRA.

The IRS has a Roth Comparison Chart (tinyurl.com/bdf9jsr5) that breaks down the differences between a Roth IRA, a designated Roth 401(k) and a pre-tax 401(k). IRS Publication 590-A covers contributing to an IRA (tinyurl.com/sacam2tx).

Here is an important reminder: Again, be sure to consult with a tax adviser about the approach you should take given your situation, as taxes are unique to the individual. What better time than January to get going with additional contributions to retirement plans?

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION