Retirement Distribution Choices
Outlined In Detail

The purpose of this letter is to inform our senior clients about the tax rules for taking distributions from traditional IRAs and qualified retirement plans to help ensure that penalties are avoided and maximum family tax savings are realized by making the correct choices as to the timing and amount of distributions.

In general, you must begin taking distributions by Apr. 1 of the year in which you attained age 70-1/2. Thus, if you reached age 70-1/2 in 2003, you must take a distribution for 2003 by Apr. 1, 2004. Similarly, if you will reach age 70-1/2 this year, you must take a distribution for this year by Apr. 1, 2005. However, it does not always make sense to take advantage of the 3 month "grace period." That's because, if you do, you will have two distributions in a single year. This, in turn, could cause you to be taxed on your social security benefits or more of them. It could also cause various deductions and credits to be reduced or eliminated.

In general, you must take a minimum amount each year that is determined with reference to a life expectancy from a uniform table. If you do not withdraw the minimum, you may have to pay a penalty equal to 50% of the difference between the amount that should have been taken and the amount actually taken.

In general, it's a good idea to take the minimum amount if you can afford to limit distributions to that extent.

Doing so generally results in a lower tax bill, can extend the tax shelter of the IRA or other retirement vehicle for the benefit of your family members, and can ultimately result in larger payouts for your beneficiaries.

However, in some cases, it might make sense to take distributions that are larger than the minimum where they could be completely sheltered from tax.

We can help figure out the correct level of distributions for you, whether you are already taking them or about to begin, to make sure that you won't be penalized, and that maximum tax savings will be realized by you and your beneficiaries.

For those who reach 70-1/2 this year, we show you how to avoid unnecessarily owing extra tax from "bunching."

Examine The Benefits of Creating An Estate Plan

Everyone can benefit from some form of estate planning.

Prospects for estate planning can include high net-worth individuals, people who want to benefit a charitable organization, people with minor children and anyone who wishes to have their assets distributed in a certain manner.

Estate planning may include preparing a will, setting up a trust or preparing financial and health care powers of attorney. More complex planning is usually necessary for high net-worth clients.

Some people simply like to have a will drafted to appoint a guardian for a minor child. A well-prepared estate plan can help reduce - or eliminate - the cost of probate and it can reduce the amount of estate taxes due, which means you can control how more of your assets are distributed.

Major life changes - births, deaths, marriages or divorces - can have a profound effect on estate planning affairs, which makes these events an opportune time to think about creating or reviewing an estate plan.

Consider 529 Plan When Saving For University

The Coverdell Education Savings Account (ESA) and 529 college savings plan offer attractive tax advantages.

With both, earnings grow tax-deferred and distributions are tax-exempt when used for qualified expenses.

Deciding which option is best for you depends on a number of things, including your income, your investment priorities and the nature of your education expenses.

Consider a 529 Plan if:

• You are able to make substantial contributions. With a 529 plan, maximum lifetime contributions range from $100,000 to $250,000 depending upon the plan.
• You do not anticipate incurring elementary and/or secondary expenses; 529 plan funds must be used for higher education.
• You exceed the income eligibility limits for the Coverdell ESA (a range of $190,000 to $200,000 for married couples, $95,000 to $110,000 for singles).
• You want to move significant assets out of your taxable estate.

Consider a Coverdell ESA if:

• You are funding a more modest education or you cannot invest more than $2,000 a year, the Coverdell ESA annual limit.
• You anticipate incurring elementary and/or secondary school expenses, which can be funded with ESA dollars.
• You wish to do some education funding, but have made retirement planning a priority.

Of course, before making a decision, always discuss education-funding options with your financial advisor.

Tips For Estate Planners

In 2010, unless Congress changes the law, the rules on step-up in basis will be modified, permitting a maximum step-up in only $4.3 million of appreciation ($3 million to a surviving spouse plus another $1.3 million to other beneficiaries). Carry ­ over basis will apply to appreciation on amounts in excess of the $4.3 million.

Until that time, the capital gains tax on pre-death appreciation is avoided where inherited property is sold shortly after death, thanks to the step-up in basis under Code 1014. There is an exception to the step-up rules, however, where an individual receives property but dies within one year. For example, if a parent gives back to the child, there is no step-up in basis. The child maintains the original basis in the stock. However, this rule applies only where the asset returns to the donor or the donor's spouse. If the stock instead passes to the donor's child, the child takes a stepped-up basis and can sell the shares, completely avoiding the capital gains tax on the $75,000 in appreciation.

Long-Term Care Coverage Pay Revealed

The average tab for a private room in a nursing home recently jumped 8% to $180 a day, bringing the average 2.5-year stay to about $160,000. William Browning, president of the National Academy of Elder Law Attorneys, was asked when it makes sense to buy long-term care insurance.

Who should skip it?

People with less than $100,000 in assets may qualify for Medicaid if long-term care is needed.

People with more than $2 million probably can afford to pay for care out-of-pocket.

What about those in-between?

People age 70 or older, who are in good health and whose family members tend to live long, should consider coverage.

Any exceptions?

Yes. Even good candidates must have at least $3,000 a month in fixed income to comfortably afford the policy premiums. If the policy lapses, it was a waste.

What is an ideal policy?

One that provides at least three years of coverage, lets you lower premiums by offering a deductible of 120 days, and comes with an in-home care provision.

How to locate a policy?

G.E. Capital. Com has a free calculator to estimate what each policy would cost. We can also review and obtain cost/benefit comparisons at no charge to you.

Once you get over the need to provide for Children's Education and the assorted expenses of living, this coverage becomes extremely important. Unless you want to be a burden to your children.

IRS Tax Notices

The IRS has sent certified letters to taxpayers that never have received the letters. They were in fact returned to the IRS.

(The taxpayers were not aware of the letter, did not refuse it, and never received a 2nd notice.) They felt that they should have had a chance to fight for a lower tax bill. The IRS said that the certified letter set the time factorŠ. Tough.

The tax court said no. The taxpayers had no notice through no fault of their own; thus, they can still argue the assessment.

What this means to you is twofold. You can not be held responsible for a notice you did not receive. However, it is extremely important that you respond to a notice. Get it to me as soon as possible so that we can respond. If you hold a IRS notice for 3 weeks and send it to me at the last minute may cause future problems if I cannot answer the problem immediately.