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Articles Posted in IRA

Nathan VinsonBelieve it or not, the end of 2020 is quickly approaching (insert collective sigh of relief). While I think most of us are ready to start looking forward to 2021 and would prefer to not even have to utter the words 2020 anymore, now is the time to finish off the year strong by reviewing simple, yet important, year-end tax planning and wealth transfer tips.

When most people think of tax planning and wealth transfer, they may have in mind complex estate planning documents and an overload of legal and accounting advice.  But that doesn’t have to be the case.  Here are three simple tips that you can implement with relative ease, though you will want to consult your tax advisor first.

1. The Annual Gift Tax Exclusion. The simplest tax planning and wealth transfer technique involves the all-too-familiar annual gift tax exclusion.  The annual gift tax exclusion is an amount that a person may give to another person without having to file a gift tax return or otherwise report to the IRS.  The current exclusion is $15,000 per person receiving the gift.  The exclusion is indexed for inflation, but it may only increase in $1,000 increments.  Further, married taxpayers may elect “gift-splitting,” which basically doubles the amount of the gift that they may make to one person using the gift tax exclusion; for each person receiving the gift, the limitation would be $30,000 rather than $15,000.  For example, if a married couple has two children and four grandchildren, they can give up to $30,000 to each of these people tax-free and without having to report it to the IRS.  Therefore, the married couple may transfer $180,000 total to the children and grandchildren.  Going further, if the children are also married, the taxpayers may give an additional $30,000 to each child’s spouse, which may be desirable if the child and the spouse hold a joint checking or investment account.  Note, however, that a gift tax return would need to be filed if the taxpayers elect gift-splitting.  The gifts are not taxable at all, but the IRS would like to know that the $30,000 was gifted via gift-splitting.

By Nathan Vinson, Partner

English, Lucas, Priest and Owsley, LLP

balance-business-calculator-163032-300x205Recently, a colleague asked me what I thought was a simple question about the required minimum distributions that those over 70 ½ must take each year from their retirement accounts. In the course of doing the research to answer that question, I discovered it’s not easy to determine exactly how required minimum distributions must be taken.

By Nathan Vinson

IRA, taxesThe IRS recently enacted a new IRA rollover rule that’s actually good for consumers, and something that can really help you – but it is a lot more complicated than it appears on the surface. Essentially, the IRS is now giving you a year to roll your old retirement account into a new account or IRA, but only if you’ve faced difficult circumstances that delayed you from making the transaction.

In the past, once you leave a job, you may have received a check for the balance of the funds in your 401(k) (or 403(b) or 457 plan, which are used by non-profits and government agencies, respectively). Once the check is in the mail, you’ve traditionally had 60 days to roll that money into an IRA or other qualifying retirement account.

The administrator of the retirement plan is required to withhold taxes plus a penalty from your check, and will report that to the IRS. You won’t see the withheld money again, unless you roll over the funds within that 60-day time period.

The basic concept is that Uncle Sam wants you saving for retirement, and penalizes you if you don’t keep up with it. Plus, 401(k) money goes into the account pre-tax, so it’s their chance to tax the money – and as we all know, the government never misses a chance to grab some dollars.

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By Nathan Vinson, Attorney

English, Lucas, Priest and Owsley, LLP

IRA gift provisionOver the past decade, Congress has passed a law – usually at the last minute – that allows for gifts directly from Individual Retirement Accounts to charitable organizations with favorable tax treatment. The gifts can be up to $100,000 to qualifying organizations, but it has to be made directly to the charity. The IRA gift provision has been a popular way for some to give to their favorite organizations, for two key reasons:

  • The gift counts towards your required minimum distribution from your IRA for the year. As you may know, seniors ages 70.5 and up are required to take a minimum distribution from their IRA each year.
  • The gift is excluded from taxable income. The money won’t be included in your taxable income (as it would otherwise) if the money is paid directly to the qualifying charity.

Only those who are 70.5 or older can take advantage of it.

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Nathan Vinson

Nathan Vinson

By Nathan Vinson, Attorney
English, Lucas, Priest & Owsley, LLP

An Individual Retirement Arrangement (IRA) may be a vehicle available to Kentucky residents to avoid Kentucky’s inheritance tax.  The Kentucky inheritance tax is payable by the beneficiaries of a person’s estate, depending on what the beneficiary received and the relationship of the decedent to the beneficiary.

“Class A” beneficiaries are exempt from the inheritance tax and include parents, surviving spouses, siblings (whether full or half), children (including adopted children and stepchildren), and grandchildren.

“Class B” beneficiaries enjoy a partial exemption from the tax and include aunts, uncles, nephews and nieces (including by the half), daughter-in-laws, son-in-laws, and great-grandchildren (including those who are the grandchildren of adopted children and stepchildren).

All other beneficiaries are considered “Class C” beneficiaries and are afforded a nominal exemption from the inheritance tax.  With the highest rate of Kentucky’s inheritance tax being 16%, Class B and Class C beneficiaries may take a big hit if they inherit any sizable amount from the decedent’s estate.

Here is where planning opportunities arise using IRAs.

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