Public Policy Changes May Have Negative Impact on Retirement Plans

IRA distributions, IRA wealth, Illinois estate planning attorney, reduce Social Security benefits, retirement plans, Social Security benefitsIf you are approaching the age of retirement, or are currently planning your finances for your golden years, you probably have been following a set plan. However, a recent article indicates a few proposed changes in the current public policy that are on the table for the 2015 fiscal year budget. And these changes could have a serious impact on retirement plans.

IRA Distributions

Currently, there are no required minimum distributions rules for ROTH IRAs. The pending change would reverse that by implementing required distributions after the owner is 70 ½ years of age. This can cause people to take out more money than they actually need instead of investing it. This has a trickle-down effect that includes higher taxation as well as a higher amount of Social Security being taxed.

Cap on IRA Wealth

Though the cap that is being proposed is substantial, it is still a cap. This change will impact only those that are used to a very high standard of living. The cap will be $3.2 million. Once that cap is reached, no further contributions will be allowed. The worrisome part is that the 401(k) and 403(b) is also included in the figure with the IRA. This would lead to a reduced amount of retirement savings for some.

Social Security Benefits

The proposed reduction of Social Security benefits could potentially be the most damaging as Social Security accounts for nearly 40 percent of retirement income. Possible changes include an extension of the retirement age as well as decreasing the monetary amount of the benefits. However, the greatest proposed change involves the claiming strategies for Social Security as the government is looking to “eliminate aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits.” This could change the planning strategies that are currently in place for middle and lower class retirees.

These changes could significantly impact your retirement planning. Hence, this is why it is so important to meet with an estate planner regularly to review your documents and discuss trusts or other vehicles. For questions regarding the 2015 proposed public policy changes and how they can impact retirement plans, please contact an experienced Illinois estate planning attorney today.

Estate Planning Guidelines When you Have a Non-Citizen Spouse

resident alien, Illinois estate planning lawyer, estate planning, estate tax, Standard estate planning tax advice might not work for situations in which one or both spouses are resident aliens. The term resident alien is used by the U.S. government to describe non-citizens who are permanent U.S. residents, and it could be beneficial for those in this circumstance to get some guidance from an estate planning attorney.

Under federal tax law, resident aliens and American citizens are governed by the same estate tax rules. In cases where the taxable estate assets are above $5.34 million, the IRS will want 40% of those excess funds. With careful planning, the implications of the federal estate tax can be avoided or minimized.

U.S. citizens are eligible to take advantage of the unlimited marital deduction, which allows for as many tax-free transfers to your spouse during your lifetime as you would like. Unfortunately, non-citizen spouses can’t take advantage of this program. This can be a big hit when it comes to the estate tax, since the IRS will always want to go after 40% of the excess.

There are several solutions to this issue if you are already married to a non-citizen. First, your spouse can become a citizen. This can even occur after you have passed away provided that it is done before the due date for your federal estate tax return, allowing your spouse to reap the rewards of the unlimited marital deduction.

Second, you can reduce your taxable estate by making big gifts to your spouse while you are alive- married couples can transfer $145,000 to one another in 2014. Finally, you could set up a qualified domestic trust, deferring the federal estate tax on any assets inside until your spouse removes them or passes away.

As you can see, estate tax planning with a non-citizen spouse can be complicated, but there are opportunities for you to reduce the federal estate tax. Consult with an Illinois estate planning attorney today for more details.

Illinois Estate Tax Exemption Increases in 2013

LucyAccording to Lexology, the Illinois estate tax exemption increased in 2013. The differences between the Illinois estate tax system and the federal estate and gift tax regime require very specific estate planning for residents of Illinois, as well as anyone who owns real estate in Illinois.

According to Lexology, the major differences between the Illinois estate tax system and the federal estate and gift tax regime are:

  • “The Illinois estate and generation-skipping tax exemption is $4 million, while the federal estate and generation-skipping tax exemption is $5.25 million.
  • The Illinois estate tax exemption is not indexed for inflation. The federal estate tax exemption, however, is indexed for inflation and has increased about $250,000 since 2011 because of the inflation adjustment.
  • Illinois does not impose a gift tax on transfers made during life, but there is a federal gift tax on transfers made during the lifetime.
  • The maximum estate tax rate in Illinois in 16 percent, but the federal estate tax rate in 40 percent.
  • Illinois does not recognize “portability” for surviving spouses, however, under the federal estate tax system, a surviving spouse does have the option to elect to take advantage of any unused portion of the estate tax exemption of his or her predeceased spouse.”

An estate planning attorney in Illinois can help ensure that you understand these differences and how they apply to your situation. If someone does not properly plan, the differences between the Illinois estate tax system and the federal gift and estate tax regime can lead to paying estate taxes that are not necessary.

If you need create an estate plan, or alter the estate plan that you already have, contact Stock, Carlson, Flynn & McGrath, LLC attorneys in DuPage County today. These estate planning attorneys can help you plan your estate properly now.