End of Year IRA Planning

As the end of the year approaches, and we start thinking about tax season, you should schedule some time to review your past and upcoming financial, estate and asset protection goals.  One area to review, or initiate, is retirement planning with individual retirement arrangements (IRA).  It may be wise to consult with your tax preparer or CPA, financial advisor or estate planning attorney before making any changes.

For 2014 and 2015, your total contributions to all of your traditional and Roth IRAs cannot be more than:

  • $5,500 ($6,500  if you’re age 50 or older), or
  • your taxable compensation for the year, if your compensation was less than this dollar limit.

Your traditional IRA contributions may be tax-deductible.  The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.  You can make 2014 contributions until April 15, 2015.  Also, you can’t make regular contributions to a traditional IRA in the year you reach 70 1/2 and older.  However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.


Considerations When Designating The Beneficiary Of Your IRA

As more and more workers are saving for retirement through IRA’s and 401(k)s, the question that usually comes up is who should be named as beneficiary.  Who you name as beneficiary and how your pre-tax account is transferred could have significant tax consequences.

  • Spouse As Beneficiary

The simplest yet optimal way to to pass your IRA is to name your spouse as beneficiary.  Your surviving spouse will have four (4) options at your death:

  1. Roll over the assets into a new or existing IRA
  2. Transfer the assets to an inherited IRA
  3. Convert the assets to a Roth IRA
  4. Disclaim all or part of the assets

For purposes of this article, we will only discuss these options generally, and will not go into detail regarding the advantages/disadvantages to these four options.  As you can see, the surviving spouse has several options to choose from.  He or she can use the funds if there is an immediate need, allow the assets to compound tax-deferred for future retirement needs, or disclaim to other beneficiaries for tax benefits. [Read more…]