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Retirement Accounts and Estate Plans: Making the Two Work Together

There are many goals that can be accomplished through the use of an estate plan. From ensuring that your personal and family goals are met after death to decreasing or even eliminating taxes, these goals will vary for each individual's unique situation.

Regardless of each individual's specific goals, some generalities often come into play. For example, most Americans have taken advantage of retirement accounts as a way to save money for their future. A strong estate plan incorporates these accounts with other assets to help provide financial stability throughout retirement and to pass on any remainder in the best fashion at death.

Retirement Accounts

Many Americans have established a 401K, IRA or other retirement account not only to save money, but also as a way to defer tax payments. Since tax payments may not have been paid initially on the income placed in these accounts, income tax is often due when money is removed from the retirement account.

Of course, there are exceptions. If the spouse is the named beneficiary there is the option to roll the account into his or her own without paying the tax at the time of rollover. This allows deferment of withdrawals and income tax payments until retirement age. However, withdrawals and income tax payments must begin the year after the retirement account holder's death if anyone else is named as the beneficiary of the account.

Since the beneficiary designation plays a large role in estate planning, it is important to review the listing with the occurrence of major life changes like marriage, divorce, death or birth of a new child.

Unfortunately, income taxes are often not the only tax burden associated with a retirement account. Depending on the total assets and the estate tax laws at the time of death, potential estate taxes must be taken into account in planning and current tax law estate taxes may also be required.

Navigating through the various tax implications of a retirement account and estate plan can be difficult, particularly since estate tax law often changes. As a result, it is wise to seek the counsel of an experienced estate planning attorney to ensure all your goals are accomplished.


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