The Retiree???s IRA in 2013

Adam H Wolf, CPA/PFS, CFP®

Magdalein & Stratton Retirement Financial Strategies

Like many of our retired or nearing retirement clients, you may have an IRA, 401(k) or 403(b). There’s a chance that it is the largest financial asset you own. We’ve found that when we meet with clients for the first time, they have a lot of questions about their IRAs, whether traditional IRA or Roth IRA. The following is a list of items that retirees [1]may want to consider and address in 2013:

Converting to a Roth IRA

A Roth IRA is an IRA that is funded with dollars that have already been taxed. There is no upfront tax benefit, however, the growth within the Roth is free of Federal income taxes. When you make a qualified distribution from a Roth IRA the money you take out is Federal income tax-free. There are no RMDs (Required Minimum Distributions) on Roth IRAs. If you don’t take any money from your Roth while you’re alive, your beneficiaries may take distributions tax-free as well.

For anyone who has a traditional or rollover IRA, you can turn your traditional IRA into a Roth IRA by converting it. The amount converted is taxable income in the year of the conversion, which means you have to pay taxes on the amount of IRA you convert to a Roth. You have until December 31 to convert to a Roth IRA for a given year.

So why would a retiree convert to a Roth IRA? They do so for many reasons but mainly they choose to pre-pay taxes now by converting because they think their Federal income tax situation will be higher when they, their spouses or their heirs take money out in the future. Converting to a Roth IRA is not an all or nothing decision. You can convert as much or as little as you like, up to your IRA balance. Once you reach 70 1/2, you cannot convert your RMD to a Roth IRA.

Required Minimum Distributions (RMDs)

If you own a traditional IRA and turn 70 1/2 in 2013, you will need to take your Required Minimum Distribution. The IRS requires you to start taking money out of your IRA when you turn 70 ½, and every year after, and has specific rules to follow when doing so. The amount you are required to take out depends on your IRA balance and your age. Your RMD will be taxed and the tax you pay will be dependent on your Federal income tax situation. The penalty for not taking your RMD on time is 50% of the amount you should have taken. If you turn 70 1/2 any time during 2013, you must take your RMD between January 1, 2013 and April 1st, 2014. If you choose to wait until 2014 to take your first RMD, you must also take your 2014 distribution by December 31, 2014. Most clients I work with choose to take their first RMD by December 31st of the first year to prevent having to take two RMDs the second year. Every year after you take your first RMD you must take your RMD by December 31st. What you do with the RMD money is up to you.

Inherited IRAs              

What happens if you die with an IRA? Your IRA will pass to the beneficiaries that you designate for the IRA. If your spouse inherits, they can treat your IRA as their own. Non-spouse beneficiaries, such as children, who properly set up an inherited IRA have the option to take required minimum distributions (RMDs) over the rest of their lives and pay taxes only on the distributions every year. Often, however, this is not the case as beneficiaries may need or want to take the money out now, pay taxes and use the rest immediately.

What happens to my Roth IRA if I die? Your spouse can treat your Roth IRA just like their own, meaning there are no RMDs and the Roth IRA can continue to grow Federal income tax free. What happens when I die and my kids inherit my Roth IRA? Depending on how it is set up, they will enjoy tax-free growth and tax-free distributions, but are subject to RMDs over their life expectancy.

Beneficiary Designations

Make sure that you review all of the beneficiary designations of your IRA, prior employers’ tax-deferred plans and life insurance policies. After a major life event such as death of a spouse, marriage or remarriage, is a good time the time to review and update your IRAs beneficiaries. Passing IRAs to kids or grandkids so they can take advantage of inherited IRA rules may be a goal for some retirees and you will want to confirm the IRA is designated as such. Contact your financial professional or company to confirm that your wishes for beneficiary designations are complete.

Adam Wolf CPA, CFP® is Executive Vice-President of Magdalein and Stratton and has worked for the past fourteen years to help clients keep more of their hard-earned money. He is holding seminars on IRAs in January. RSVP today by calling Sarah or Kate at (904) 425-0943.

This article is for informational purposes only. It is not intended to provide specific tax or legal advice. You are encouraged to consult with you tax advisor or attorney. Be sure to consult with your CPA, financial professional or tax advisor for advice on your IRAs.

 

Reference:

*  Sources: IRS.gov, IRS Publication 590

 

 

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MS-531

 

January Open Houses

Mark your calendars now for our January Open Houses!

 

Topic: Planning for Income During Retirement

January 24th and Jan. 29th at 6:00pm
Magdalein and Stratton offices – Gate and 9A, 7807 Baymeadows Rd., Ste. 402

Dinner catered by Matthew’s of San Marco

If you are considering becoming a client with Magdalein & Stratton, you would probably like to know more about our services before setting an appointment. We encourage you to join us for our Open House! This in-office event is less formal than a seminar, and does not include a full seminar presentation. The group size is less than 30 attendees, including prospective clients, clients, and staff. Over dinner (complements of Magdalein & Stratton, and catered by Matthew’s of San Marco), you’ll have an opportunity to chat with some of our clients and meet our team. After dinner, we’ll have a brief office tour, and a 15 minute presentation by our President, Eric Stratton, detailing our financial services for retirees. This is a great opportunity to learn more about us in a friendly, no-pressure environment. We hope you’ll join us as our guest! RSVP today by calling Sarah or Kate at (904) 425-0943.

By responding to this invitation you may be provided information regarding the purchase of insurance products.  

 

Upcoming Seminars

Here’s what’s coming in January:

Topic: Your IRA in 2013

January 15th and 17th at 11am
Magdalein and Stratton offices – Gate and 9A, 7807 Baymeadows Rd., Ste. 402

Lunch catered by Matthew’s of San Marco

Join Adam Wolf as he discusses what to expect concerning your IRA in 2013. How will the election results and the fiscal cliff affect tax rates? What can retirees do to respond to possible tax changes? We look forward to having you as our guest! RSVP today by calling Sarah or Kate at (904) 425-0943.

Topic: Preparing for Tax Season

January 29th and 31st at 11am
Magdalein and Stratton offices – Gate and 9A, 7807 Baymeadows Rd., Ste. 402

Lunch catered by Matthew’s of San Marco

With tax season upon us, prudent retirees are taking steps to insure that their strategy is as tax friendly as possible. Adam Wolf will discuss what retirees can do to prepare for tax season, and how you can use this time of year to make sure that your overall strategy is saving your tax dollars, and not costing you. We look forward to having you as our guest! RSVP today by calling Sarah or Kate at (904) 425-0943. 

By responding to this invitation, you may be provided information regarding insurance products. 

 

December 13th Open House

Topic: Planning for Income During Retirement

December 13th at 6:00pm 
Magdalein and Stratton offices – Gate and 9A, 7807 Baymeadows Rd., Ste. 402

Dinner catered by Matthew’s of San Marco

If you are considering becoming a client with Magdalein & Stratton, you would probably like to know more about our services before setting an appointment. We encourage you to join us for our Open House! This in-office event is less formal than a seminar, and does not include a full seminar presentation. The group size is less than 30 attendees, including prospective clients, clients, and staff. Over dinner (complements of Magdalein & Stratton, and catered by Matthew’s of San Marco), you’ll have an opportunity to chat with some of our clients and meet our team. After dinner, we’ll have a brief office tour, and a 15 minute presentation by our President, Eric Stratton, detailing our financial services for retirees. This is a great opportunity to learn more about us in a friendly, no-pressure environment. We hope you’ll join us as our guest! RSVP today by calling Sarah or Kate at (904) 425-0943.

By responding to this invitation, you may be provided information regarding insurance products. 

 

Join us for a Coffee Concert at the Jacksonville Symphony

You are invited to join us for a morning of music, food and fun at the Jacksonville Sym- phony Orchestra! We will gather in the lobby prior to the concert for coffee and cookies provided by the Symphony. After the concert we’ll enjoy a catered lunch upstairs.

The performance being held is I love a Piano,with piano pop sensation Rich Ridenour. Mr. Ridenour will perform with his son Brandon, a trumpeter with the world famous Canadian Brass. The two will play favorites such as Raphsody in Blue.

After the show we’ll enjoy a catered lunch.

Who: All clients and prospective clients WhAT: I Love a Piano at the Jacksonville Symphony, with lunch to follow WhERE: Times Union Center for the Performing Arts, 300 Water St.

WhEN: Friday, Jan. 18th at 11am
This is a referral-only event. Referrals are always greatly appreciated so if you have

retired or near-retired friends, bring them along!

Seating is limited and will fill up quickly, so RSVP today by calling Sarah or Kate at (904) 425-0943. See you there!

By responding to the invitations contained in this newsletter, you may be provided information regarding insurance products.

 

 

 

What the Election Results Mean for Retirees

By Attorney Grady Williams

This article is being provided to you informational purposes only. While we believe this information to be reliable, we do not guarantee the accuracy of the information included.

The so-called “Fiscal Cliff ” is the anticipated and legislat- ed effect of the sunset of the Bush tax cuts and our current favorable estate and gift tax planning environment, by a return to 2001 federal tax laws on January 1, 2013, coupled with automatic spending cuts under the 2011 Budget Control Act in fiscal year 2013, and thereafter. However, the overall effect on federal government spending is projected only to increase at a slower rate, due to the continuing increase in domestic entitlement program expenditures. Sound like a mess? It is, and all concerned hope for a solution, but inevitably, after a strong electoral showing by the President, and a predictable entrenchment by the other side, a whole lot of politics has to take place prior to reaching a solution.

To start with what we know for 2013, barring a miracle inside the beltway this year as a result of the preliminary talks starting between the administration and Congressional leader- ship on November 16th, ordinary individual income tax rates will be topping out at 39.6% in 2013, up 4.6% over the 2012 top end rate. The capital gains rate will be going up to 20% for high-income earners, as will the tax treatment for dividends, which will be at ordinary income tax rates for 2013. There is also the new 3.8% Medicare surtax on net investment income for certain taxpayers. CPA Robert Keebler of Green Bay, Wisconsin, has correctly pointed out that for those taxpayers affected by the surtax, their higher marginal rates are in effect increased by another 3.8%, generally starting at the 31% tax bracket for 2013. In addition, more Social Security benefits will be taxed, and prior phase outs of itemized deductions and personal and dependency exemptions will be reinstated for higher earners. Summary: See your CPA or tax advisor early in 2013, not only to file for 2012 taxes on time, but also to do some real income tax planning for 2013.

Also known on the estate and gift tax planning side for 2013, we will be leaving behind the gift and estate tax planning “sweet spot” we enjoyed in 2012, that is, a $5.12 million effective exemption amount, with a 45% top end tax rate, to a $1 million effective exemption amount, with a 55% top end tax rate. In addition, we are leaving portability behind, which means traditional “A-B” marital deduction planning trusts will be more popular than ever in estate planning documentation. In addition, irrevocable trusts, leveraged lifetime gifting, and split interest trusts, will be very much in demand for single clients whose net wealth and life insurance exceed $1 million, and for married couples with net worth and life insurance totaling over $2 million. “Clawback” is the unknown in this area for 2013, which would effectively try to “true up” the estates of decedents in 2013 and beyond if the taxpayer took advantage of the higher current individual lifetime gift tax exemption amount of $5.12 Million by making completed gifts in 2012. There’s real doubt that clawback will happen, but pay attention to estate and gift tax updates and announcements from the IRS as we go into 2013. This area can be very confusing, to say the least, and detailed planning with your CPA, estate and gift tax advisor, estate planning attorney, and insurance or financial advisor, is in order in early 2013.

A very real economic concern, expressed by many, is that the “Fiscal Cliff ”, if unaddressed, could plunge the U.S. into a full-fledged recession in 2013. As if we needed some more bad news! I mentioned that talks between the President and Congressional leaders are supposed to start on November 16th to attempt to establish a framework for addressing and avoiding the potential problems we might otherwise encounter if no Congressional action (with Presidential approval) otherwise takes place. Although stated beginning points of that negotiation are far apart, there does seem to be agreement that the so-called “middle class” taxpayer (i.e., $200,000 AGI or less if single, $250,000 AGI or less if married) should receive a contin- uation of the Bush tax cuts on the income tax side, and that the effective estate tax exemption should be set at a minimum of $3.5 million per individual. However, the Republicans generally favor no income tax rate increases for anyone, preferring instead to tighten up loopholes and exemptions. Also, the Republicans favor a repeal of the estate tax, but would probably see the light to continue the current $5 million individual effective estate tax exemption level, increased annually for the cost of living. Keep this in mind: if nothing happens as a result of the discussions between the President and the Speaker, then the tax changes discussed in the two prior paragraphs take place automatically, without any further Presidential or Congressional action.

It’s really hard to see the Tea Party Republicans, who are now on the defensive more than ever, and the liberal wing of the Democratic Party, who are now more empowered than ever, sorting this out on their own. Facing the possibility of a GDP decline in 2013, or worse, if the President and Speaker don’t lead their respective camps to get a budget and tax deal in place, we’d all better hope that cooler heads prevail, and that some kind of an acceptable tax and budget reset can be made in early 2013, to give us some chance at a continued, albeit slow, economic recovery.

If you are having trouble absorbing this information, and deciding what it means to you, you are not alone. Thousands of attorneys, CPAs, insurance agents, and financial advisors and planners will be studying this and arriving at a range of options and contingency plans for their 2013 income, estate, and gift tax planning cli- ents. You need to plan to visit with your own advisor as soon as you can in 2013, to set your own planning goals and consider appropriate strategies and contingencies.

Grady H. Williams, Jr., J.D., LL.M. is an Es- tate Planning attorney in Jacksonville, FL. He holds a Master of Laws in Taxation degree from the Graduate Tax Program at the University of Florida College of Law and has been in prac- tice since 1982. 

Wolfson Children’s Hospital Toy Drive

As many of you know, Magdalein and Stratton has a special relationship with Wolfson Children’s Hospital. Throughout the month of December we will be collecting items to donate to the hospital.

Please feel free to bring new toys, books or children’s games by our office any time during the month of December and we will deliver the donated items to the hospital after the holidays.

While we are happy to accept donations for the hospital at any time, we are especially happy to help out during this season of giving. Thank you all for helping us provide a little fun to the children and families in Wolfson’s care! 

Upcoming Social Events

DECEMBER

 

White Christmas at the Alhambra

Nov. 29th at 6:00pm

12000 Beach Blvd.

Join us and bring friends for an evening of dancing, singing and celebrating the holiday season with a stage-adaptation of Irving Berlin’s beloved musical, “White Christmas” at the Alhambra Dinner Theater!  This is a referral-only event. Referrals are always greatly appreciated so if you have retired or near-retired friends, bring them along! Seating is limited and will fill up quickly, so RSVP today by calling Sarah or Kate at (904) 425-0943. See you there! By responding to this invitation you may be provided information regarding the purchase of insurance products.

 

 

January

 

Coffee Concert at the Jacksonville Symphony

January 18, 2013

After the success of last year’s Symphony event, we knew we wanted to do it again! We’re looking forward to a new performance in January! Details to come!

 

 

February

 

Valentine’s Double Date

Date TBA 

We’re planning a fun, romantic evening to celebrate Valentine’s Day! Details to come!

December Roth IRA Seminar

Topic: Roth IRA Conversions

Dec. 4th and 6th at 11am

Magdalein and Stratton Offices–Gate and 9A

7807 Baymeadows Rd., Ste. 402

Lunch catered by Matthews of San Marco

 

What are the differences between a traditional IRA and a Roth IRA? How do your unique goals affect the decision to convert a traditional IRA to a Roth IRA? Economists and financial experts are clamoring about Roth IRA conversions, but you only have until the end of the year to convert for 2012. If you are considering converting your taxable traditional IRA to a non-taxable Roth IRA, attend this free lunch workshop. Your questions will be answered by Adam Wolf, CPA, CFP® at the end of the presentation. We look forward to having you as our guest! RSVP today by calling Sarah or Kate at (904) 425-0943. By responding to this invitation you may be provided information regarding insurance products. 

November Roth IRA Seminar

Topic: Roth IRA Conversions

Nov. 13th at 11am

Magdalein and Stratton Offices–Gate and 9A

7807 Baymeadows Rd., Ste. 402

Lunch catered by Matthews of San Marco

 

What are the differences between a traditional IRA and a Roth IRA? How do your unique goals affect the decision to convert a traditional IRA to a Roth IRA? Economists and financial experts are clamoring about Roth IRA conversions, but you only have until the end of the year to convert for 2012. If you are considering converting your taxable traditional IRA to a non-taxable Roth IRA, attend this free lunch workshop. Your questions will be answered by Adam Wolf, CPA, CFP® at the end of the presentation. We look forward to having you as our guest! RSVP today by calling Sarah or Kate at (904) 425-0943. By responding to this invitation you may be provided information regarding insurance products.