Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can’t remember, you’re not alone. But it’s worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they’ll receive. Here are some key facts about beneficiary designations.
- When you designate a beneficiary for an account, you are naming the person you want to inherit that account.
- Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named.
- You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living.
Why are they important?
- It’s important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won’t change the beneficiaries.
- There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary.
How do I update them?
- First, find copies of all your current designations. Contact your insurance company and plan trustees if you can’t locate the documents.
- Review them and decide what changes you’d like to make. Make an appointment to go over the changes with your tax or estate planning advisor.
- Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records.
Almost any taxpayer who owns commercial real estate can reduce his or her current income tax bill by using cost segregation. Just how much you save in taxes will depend on several variables. The greater the cost of your property, the greater the potential for current tax savings.
Any building that was constructed, purchased, or remodeled since 1987 may be eligible for cost segregation. Retroactive tax deductions are available on older buildings without the need to file amended tax returns.
To pass an IRS audit for these deductions, you will want to use a cost-segregation specialist. This will usually be a construction engineer who can perform a detailed engineering study of all the building components (walls, ceilings, floors, plumbing, electric, telecommunications, heating and cooling systems, etc.) and assign the appropriate value to each. Those elements that qualify for five, seven, or fifteen year write off will provide the property owner with greater depreciation deductions and hence lower taxes in the early years.
The downside may be the cost to do the study versus the accelerated cash flow and possible penalties from the IRS for those who use cost segregation too aggressively.
The main elements of a proper cost segregation study are:
- Conducted by someone with valid credentials as to experience and expertise.
- A detailed description of the proper methodology.
- Complete and proper documentation.
- A full listing of all property that qualifies for shorter write off periods.
A properly conducted cost segregation study can provide a property owner with cash today that he or she would not otherwise get for several years.
An initial consultation with a cost segregation specialist can help you determine if your property is a candidate for a full blown study.
Your retirement funds are protected from creditors even if you file for bankruptcy, with only a few limitations. This protection extends to funds in all government-qualified pension plans, including IRAs (traditional and Roth), 401(k)s, 403(b)s, Keoghs, profit sharing, money purchase, and defined benefit plans. A recent U.S. Supreme Court decision has held, however, that an inherited IRA is not a “retirement fund” and therefore doesn’t qualify for bankruptcy protection.
An inherited IRA is a traditional or Roth IRA that a deceased owner has bequeathed to a beneficiary. It differs from a “true” retirement account in three ways:
- The beneficiary is not allowed to contribute additional retirement funds to the inherited IRA.
- The beneficiary, regardless of age, may withdraw funds from an inherited IRA in any amount and at any time without penalty.
- The beneficiary, regardless of age, is required to take annual minimum distributions from any inherited IRA.
Based on the above characteristics, the Court unanimously concluded that with respect to beneficiaries, inherited IRAs are “not funds objectively set aside for one’s retirement” and instead constitute a “pot of money that can be used freely for current consumption.”
Although the Court didn’t specifically address it, there is a possible option available if (and only if) the beneficiary is the spouse of the decedent. Spouses are permitted to roll over funds from inherited IRAs into their own IRAs, which would presumably bring those funds back under bankruptcy protection. The funds would, however, become subject to the rules that apply to non-inherited IRAs, such as penalties for withdrawals before age 59½.
Certain other strategies may be available if you have inherited or are likely to inherit an IRA and you are interested in possible bankruptcy protection. Call us for an appointment to discuss your options.
Recent job statistics indicate that more employers are using part-timers to deal with variations in workload and for short-term projects. Here are a few tips your business will find useful if you hire part-time workers.
- Communicate clearly with the part-timer. Explain the person’s duties, the hours and benefits, and the individual to whom the part-timer will report.
- Tell your full-time staff why you’re hiring the part-timer. Make it clear what that person will and won’t be expected to do.
- Provide introductory training for the part-time worker. Assign someone the new person can turn to with everyday questions.
- Monitor the part-timer’s progress. Provide feedback on performance and recognition for doing a good job.
Pay attention to these points if you want hiring part-time workers to be a good choice for your company.
When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.
- Save for retirement. When you’re self-employed, you’re allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
- Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That’s because your child’s earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
- Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an “above the line” deduction, subject to certain restrictions.
- Take business-use deductions. Self-employed individuals can also deduct “mixed-use” items directly against their business income. Use your car for business and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.
- Please give us a call to find out more about the tax breaks available to self-employed individuals.