 "Last year, four out of 10 U.S. households had IRA accounts that's up from 17
percent two decades ago," says CPA Jim Kohles, chairman of
RINA accountancy
corporation, citing an ICI Research survey. "But they can be bad
for beneficiaries if you have a very large account."Investments in annuities,
touted as offering a potential guaranteed income stream, also continue to grow,
with sales up 10 percent in the second quarter of this year.
"Annuities have several dark sides, both during your lifetime and for your
beneficiaries," says wealth management adviser Haitham "Hutch" Ashoo, CEO of
Pillar Wealth Management. "My business partner, Chris
Snyder, and I wouldn't recommend investing in them."
Putting large amounts of money in either annuities or IRAs can have serious
tax consequences for your heirs, say Kohles, Ashoo and attorney John Hartog of
Hartog & Baer Trust and Estate Law.
"If you want to ensure your beneficiaries get what you've saved, you need to
take some precautions," Hartog says.
The three offer these suggestions:
Take stock of your assets. You could be worth more than you think.
If
your estate is worth more than $5.25 million or, for couples, $10.5
million your beneficiaries face a 40 percent estate tax and federal and
state income taxes, says Kohles, the CPA. "It can substantially deplete the
IRA," he says.
To avoid that, take stock of your assets now. You may have more than you
realize when you take into account such variables as inflation and rising
property values. Be aware of how close to that $5 million or $10 million
benchmark you are now, and how close you'll be a few years from now.
"Consider vacation and rental properties, vehicles, potential inheritances,"
Kohles says.
Also, take advantage of the lower tax rates you enjoy today, particularly if
they're going to skyrocket after your death. "A lot of people want to pay zero
taxes now, and that's not necessarily a good idea," he says. For instance, if
you're at that upper level, consider converting your traditional IRA to a Roth
IRA and paying the taxes on the money now so your beneficiaries won't have to
later.
No matter what your estate's value, avoid investing in annuities.
Wealth
management adviser Ashoo warns that annuities, offered by insurance companies,
can cost investors an inordinate amount of money during their lifetime and
afterward.
"Insurance companies try to sell customers on the potential for guaranteed
income, a death benefit paid to beneficiaries or a can't lose' minimum return,
but none of those compensates for what you have to give up," he says.
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 That includes being locked into the annuity for five to seven years with
hefty penalties for pulling out early; returns that fall far short of market
investments on indexed annuities; high management fees for variable annuities;
declining returns on fixed-rate annuities in their latter years; and giving up
your principle in return for guaranteed income.
"If you own annuities and have a substantial estate, there are smart ways to
unwind them to minimize damage," Ashoo says.
Consider spending down your tax-deferred IRA early.
If you're in the
group of individuals with $5 million in assets or couples with $10 million in
assets, it pays to go against everything you've been taught and spend the IRA
before other assets, says attorney Hartog.
"It's a good vehicle for charitable gifts if you're so inclined. And if
you're 70½ or older, this year you can direct up to $100,000 of your
IRA-required minimum distribution to charity and it won't show up as taxable
income," Hartog says. That provision is set to expire next year.
You might also postpone taking Social Security benefits until you're 70½ and
withdraw from your IRA instead. "That will maximize your Social Security benefit you'll get 8 percent more."
Finally, anyone who has accumulated some wealth will do best coordinating
their financial planning with a team of specialists, the three say.
As a CPA, Kohles is focused on minimizing taxes; wealth management adviser
Ashoo's concern is the client's goals and lifestyle; and lawyer Hartog minimizes
estate taxes.
"We get the best results managing tax consequences and maintaining our
clients' lifestyles by working together," Hartog says.
___
Jim Kohles is chairman of the board of RINA accountancy corporation of Walnut
Creek, Calif. He is a certified public accountant specializing in business
consulting, succession and retirement planning, and insurance. Haitham "Hutch"
Ashoo is the CEO of Pillar Wealth Management LLC in Walnut Creek, Calif.,
specializing in client-centered wealth management. John Hartog is a partner at
Hartog & Baer Trust and Estate Law in Orinda, Calif. He is a certified
specialist in estate planning, trust and probate law, and taxation law. All
three advise ultra-affluent families.
[Text from file received from
News and Experts] |
