A Smart Retirement Savings Plan for Here and for the Beyond
Wealthy investors will find that their whole process in thinking about their retirement savings plans is changing this year. 2010 will be a game changer in the rules that tax the way elderly investors handle their savings. About the first tax they could begin taxing their brain cells over could be the one on their retirement account. Should they jump ship to a taxless Roth Individual Retirement Account? And what do they do about the new rules and estate taxes that are not even really properly defined yet? Here's the first thing to consider: starting this year, Roth IRAs will no longer place an artificial ceiling on how much you can contribute. Of course, it could have all been done years ago, but the Bush administration was busy with wars and everything, so it's now down to the new president and Congress to step through this minefield.
With a Roth IRA, you can place in it any amount of your money after taxes, and it will no longer be taxable after that. So if you already have an IRA, something that is taxable, do you want to move it over to the taxless Roth IRA? It's been around for more than three years now, but today is a particularly opportune time to switch to a Roth IRA retirement savings plan. If you ever had a pre-tax retirement account, it is quite likely that you've lost a lot of value on it over the past two years. You might want to withdraw everything you have in that account, come clean and pay taxes on it, and then put it back in a Roth. If you don't ever see yourself coming by a hard time maintaining the standard of life you've achieved, this could make sense.
A part of any retirement savings plan includes something about the great beyond that comes afterwards. What happens with all that you have that you want to leave your heirs? What is the best way of doing that? Estate taxes are about the most unforgiving demand on your retirement savings plan out there. They are not being done away with, if that was what you were hoping for. They expect that the tax will come back this year and everyone is trying to find ways around it. One possible option is how you can give your heirs a gift now. You are allowed to give them $1 million apiece, and not pay any taxes; if you make a gift that is greater than that, you pay a 45% gift tax. So why should you go pay that 45%? Isn't this about avoiding taxes? Well, estate taxes are usually deducted like income tax. But a gift tax you could pay now, you would see applied like a sales tax. You do have to pay some kind of tax either way; but with the gift tax, you save $5 million. Give now instead of later through your will and estate, and you save.
If you are really going to plan for retirement, what happens at the end of that is an integral part of the plan too. Consider the annual gift tax exclusion, what they say is one of the greatest estate tax strategies ever. You are allowed to give anyone at all, not just heirs, a gift of $13,000 a year, tax-free. If you are wealthy, $13,000 in a year may seem like peanuts. But that's not really true. If you have an estate tax of 45%, a gift like that could save you more than $5000 in year. The moral of the story is that sums of money that look like peanuts to someone rich, do tend to add up. Part of retiring, is planning for what will happen to all that you have accumulated over your lifetime. Will it disappear into the ether in the form of taxes, or will it go to people you care about?
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