Do you plan to leave the funds in your IRA to multiple beneficiaries?  If so, consider dividing your IRA into a separate account for each beneficiary.   (Your IRA can be divided into separate accounts before your death, obviously, but also by the end of the year following your death.)

Here’s why: Say your husband is the sole beneficiary of an IRA.  When you pass away, he can roll over the IRA into his name, name his own beneficiaries, and put off taking distributions until he reaches age 70 ½.  But the only way to roll over an inherited IRA is if you are the sole beneficiary.

Or say you wish to leave your IRA to your two children.  When an inherited IRA has more than one non-spouse beneficiary, distributions must be taken based on the life expectancy of the oldest beneficiary.  Split the IRA into two separate accounts and each child can take distributions based on his or her life expectancy instead.

Think of it this way:  While it may be easier for you to keep up with one IRA account, it will be much easier for your beneficiaries to make smart choices regarding the funds you leave in an IRA after you pass away if you create separate accounts for each beneficiary.  Isn’t that your ultimate goal?

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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Retirement is an interesting word because it can sometimes take on a life of its own. The word can conjure images of leisure time and travel as you enjoy the period of your life that is often referred to as your “golden years.”

This is well and good, but in reality the word retirement simply describes the act of ceasing to work. To be able to do this you’re going to have to have the financial resources to pay your way without working, plain and simple. Retirement is not an entitlement that falls into your lap when you reach a certain age, even though we do have Social Security and Medicare.

The average Social Security check is about $1080 right now, and even if you are entitled to more than the average this income is relatively modest. To be able to truly enjoy your retirement years to the fullest you’re going to have to prepare well in advance in an intelligent and focused manner.

Statistics are indicating that a high percentage of the baby boomers who are now reaching retirement age are not prepared for retirement from a financial perspective. Over half of respondents to a recent poll that was conducted by the Associated Press in conjunction with LifeGoesStrong.com said that they are not confident that they will be able to retire in financial comfort. This is an increase over the 44% who expressed this sentiment in an earlier poll.

The bottom line is this: If you want to be up to speed by the time you reach your retirement age long-term planning is key. Should you be ready to get started, right now would be a good time to take action and arrange for a consultation with a good Long Island retirement planning lawyer.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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You’ve worked all your life and are now looking forward to your retirement years.  But now you are facing the panic that many Americans in their fifties and sixties are facing – do you have enough money to retire comfortably?  Certainly you have paid into the social security system through your mandatory withholdings – but many do not realize that these contributions do not offer much in the way of tax savings.

When you retire and reach the age of 65, Social Security income is taxable for most retirees–as is the income drawn from many retirement accounts, including IRA’s and 401k plans. So, unlike personal or employer provided retirement plans, Social Security is contributed to with already-taxed dollars, and when the retirement benefit is received, that money may be taxed again.

While you certainly cannot eliminate the FICA (which stands for Federal Insurance Contributions Act) and Social Security withholdings, you can make the most of your tax deductible contributions to your retirement plans.  You can also make the most of these accounts as estate planning tools to pass your family property to your heirs, and do so while avoiding probate.

An estate planning attorney can work with you to build a comprehensive plan that not only helps you plan for situations that can come up in your later years, but to develop a comprehensive plan that also works to provide the smooth distribution of your property, including your retirement accounts, after you pass.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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Estate planning documents naturally name beneficiaries:  Beneficiaries of Trusts, of Wills, of assets and other property, etc.  As you probably know, some beneficiary designations supersede the designations in your estate planning documents.  For example, if you designate a child as the beneficiary of a life insurance policy or 401(k) plan and not a Trust, the policy benefits or proceeds of the retirement plan will go directly to the child and not into Trust.

Recently, I worked with the family of a client that lived in Kings Park, New York.  Upon his death several bank accounts were left directly to specific children via direct beneficiary.  It is perfectly acceptable to designate how assets will pass using both Trust designations and direct beneficiary.  The key to getting the best results is to work closely with a qualified estate planning attorney.

There are two key factors to consider when establishing beneficiary designations:

1. Make sure the asset passes as quickly and smoothly as possible, minimizing taxes and avoiding probate costs, and
2. Make sure the asset passes to the individual you wish.

Many of our clients work with financial planners here on Long Island.  Getting professional advice is always a good idea, but just like we are not professional investment counselors, financial planners do not have extensive estate planning knowledge.  The key is to enable us to work together on your behalf.  Make sure you let us know your current beneficiary designations for investment accounts, retirement accounts, annuities, etc – that way we can help ensure your assets pass to the right person as efficiently as possible while minimizing cost and potential estate taxes.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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It should come as no surprise that some people try not to pay their legal share of taxes.  (There is nothing wrong with taking every legal step possible to minimize taxes, of course.)  Recently the IRS published what it calls its ‘Dirty Dozen’ tax scams for 2011.  Included are schemes like hiding income offshore, identity theft, filing false returns, and abusing charitable deductions. To see the full list of the ‘Dirty Dozen’, click here.

Of special note to estate plans and retirement planning is the abuse of retirement plans.  The IRS focuses on transactions intended to avoid contribution limits on IRAs and also on transactions that are not properly reported as distributions.  (In other words, trying to deduct too much for IRA contributions and attempting to avoid paying taxes on a taxable distribution from a plan.)

One fraudulent strategy is to attempt to move assets into an IRA at less than full market value.  Another is to use a self-directed IRA to own all or part of a company, under-valuing the company to avoid contribution limits.

Avoiding taxes by using legal tax planning strategies is smart, whether on personal income taxes or where estate planning is concerned.  Illegal strategies could result in financial penalties, additional tax, and even criminal prosecution.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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Want to make charitable deductions directly from an IRA, free of federal income taxes?  You can, at least through 2011.

Here’s how it works.  The qualified charitable distribution privilege is available for anyone over the age of 70 1/2 who wishes to make charitable contributions.  Money is transferred directly from a traditional or Roth IRA to a charity approved by the IRS.

The deduction itself is not tax free, so you won’t itemize it on your income tax return as you would other charitable donations.  But, since any funds that would have been taxed when you withdrew them are not taxed due to the donation, in effect you receive a 100% deduction.

There are a few other advantages:

• If you don’t itemize deductions, you can still get tax savings.  (Generally speaking, only individuals who itemize deductions can benefit from making charitable gifts.)
• You can make large deductions that will not be affected by the normal standard, limiting taxable donations to 50% of your adjusted gross income.
• You can avoid taxes on required minimum distributions on IRAs.
• You can reduce the size of your estate fairly quickly and possibly avoid estate taxes later.

While you can make charitable distributions from a Roth IRA, there may be fewer advantages compared to making distributions from a traditional IRA.  Roth IRAs are not subject to required minimum distributions after you die, and withdrawals are made tax-free.  (That’s the beauty of a Roth IRA.)  So unless you hope to reduce your taxable estate, making distributions from a Roth IRA make less sense – unless you simply want to donate money to the charity of your choice, of course.

The charitable distribution privilege runs through 2011, so if you’re interested, talk to your accountant.  And if you are a resident of Long Island, New York, talk to us about how distributions can affect your estate plan; remember, good estate planning takes everything into account.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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Individual retirement accounts (IRAs) come in a few different shapes and sizes. Choosing can often be confusing, but the decision usually comes down to one point: Do you want to pay tax on the money now, or later? IRAs can be easily set up through your bank or broker, and you’ll just have a few forms to fill out, and then you can choose your investments. It’s always a good idea to speak to your tax advisor and estate planning attorney about the details.

Traditional IRAs

For the traditional IRA, you make contributions which can be deducted from your annual taxes up to a certain amount, if you are also not enrolled in an employment retirement plan and your total income is below a certain amount. You may begin making withdrawals from these accounts at age 59½, but it will be subject to income tax. Most early withdrawals are subject to penalties, in additional to income tax. You can wait until age 70½ to begin making withdrawals, but you must begin them at this age.

401(k) Plans and 403(b)

These plans are set up by your employer. Your contributions come from pretax dollars so you’ll have less tax deducted from your paycheck. The 401(k) plan contributions you make are often matched by your employer. These plans offer many different investment choices and the money grows tax-free in this type of account. 401(k)s and 403(b)s are subject to the same age contingencies and penalties as traditional IRAs, and withdrawals are subject to income tax.

Roth IRAs

Roth IRAs are the opposite of traditional IRAs. You make contributions with after-tax dollars, and there is no tax deduction for your annual contributions. This IRA is not subject to a mandatory withdrawal by a certain age. When you withdraw the money, you don’t pay tax on it, so the funds grow tax-free. This IRA is a great way to pass money on to your heirs due to the tax benefits. The Roth IRA is available to individuals provided they meet the income restrictions, which change with the rate of inflation.

Again an estate planning attorney can help you decide which of these accounts is best for you.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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You’ve spent years building up your retirement accounts so that you could enjoy those “golden years” without financial worry. But, what happens to these accounts when you pass away?

All of your retirement accounts include a named beneficiary as part of the account document. This beneficiary is who you want to receive the remaining funds upon your death. Retirement accounts are considered to be a payable on death (POD) account, meaning that they do not have to go through probate to be distributed after your death.

Here’s how to make sure your retirement benefits are distributed the way you want:

Keep your account information organized. It is hard for family members to collect the funds from an account they don’t know about. List all accounts and keep that information in a safe place. You should also keep your estate planning informed and let your Trustee/Executor know where the list is located.

Name a beneficiary. An account with no beneficiary will have to endure probate and this defeats the benefit of having a POD account. Every 401k, pension plan, IRA or other retirement savings account will allow you to name a beneficiary and by law, you’re typically required to name your spouse as the primary beneficiary. But you can name someone else with your spouse’s signed approval. Your attorney can help you to understand the rules regarding who you can name as a beneficiary on your various retirement accounts.

Your Trust as the beneficiary. A Revocable Living Trust is a great document to house all of your estate property, but you should be careful in naming your Trust as the beneficiary of your retirement accounts. Unless your Trust has the proper legal language, naming the trust as beneficiary may reduce the amount of money your loved ones receive. In my practice we constantly remind clients that not all Revocable Trusts are created equal and that seeking the advice and counsel of an experienced estate planning attorney can make a huge difference.

Do not use your Last Will and Testament. Your Last Will and Testament does not have the power to change a beneficiary on any POD account. In order to name or change a beneficiary, you must do so on the actual account document.

Your account holder will have a beneficiary form you can fill out and update as needed. If you use your Will to change a beneficiary, your new wishes will not be honored and this can lead to complications in settling your estate.

Review your accounts regularly. It is important to review estate documents often, and this is equally true of your retirement accounts. Every time you update your Will or Trust, check the status of your accounts too. Use this opportunity to review what you have done in the past and if necessary name a new beneficiary. When you regularly maintain your accounts, you ensure that your family’s financial needs can be quickly met after you are gone.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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Recently enacted in January 2010, a new law allows for any taxpayer with an existing IRA (investment retirement account) to convert that account to a Roth-IRA without regard for their income.

Under the old law, an IRA to Roth conversion could only be done by taxpayers with a Modified Adjusted Gross Income (MAGI) of $100,000 per year or less.

But this new law allows any taxpayer, regardless of their annual MAGI, to take advantage of the conversion to a Roth IRA. No matter your income, you can now convert your existing IRA into a Roth-IRA and reap the tax saving benefits. This advantage applies to both married and same-sex partner couples.

Advantages to having a Roth IRA

Roth IRAs are a great way to save for your child’s education, invest in real property, and of course to save for your retirement. Since their inception in 1998, Roth IRAs have been helping Americans save money for their retirement. The unique advantage of this type of account is its ability to allow its holder to make tax-free distributions (as long as the account has existed for at least 5 years). Another major advantage is that you are not subject to the RMD (required minimum distribution) rules that require withdrawals from your Roth IRA at age 70.5 years. In fact, there is no requirement to make any withdrawals in your lifetime if you so choose. This makes it especially advantageous for estate planning for the purpose of passing money onto your heirs without paying tax.

Before you convert your IRA to a Roth, though, it is important to consider the tax implications for the year in which you convert. As the law currently stands, regular income tax will be assessed on the fair market value of the conversion amount (you may convert all or a partial IRA to a Roth). That means that if you convert $10,000 from your existing IRA to a Roth IRA anytime in 2010, then the government will add $10,000 to your total taxable income for that year.

Likewise, these same tax implications could affect your heirs if you’re using your Roth for estate planning purposes. To determine specific details for your situation, be sure to consult with a professional estate planning or tax attorney.

Mark S. Eghrari & Associates, PLLC is a member of the American Academy of Estate Planning Attorneys.

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