Estate Planning With IRAs To Avoid Unnecessary Taxes

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Estate planning with IRAs requires constructive thought. If you have a large amount of money in your retirement account, there are several things to consider. In order to save your descendants from unnecessary taxes, here's what you need to look at.

The "tax it later" approach has caused people to lose as much as 50% of their inheritance. If you have a traditional account, your beneficiaries will be required to pay (your) employment and (their) estate taxes.

You can easily pay the employment taxes yourself, by converting from a traditional to a Roth account. If your Modified Adjusted Gross Income (MAGI) is more than $100,000, you'll have to wait until 2010 to make the change, however.

Current tax laws only allow converting from a traditional to a Roth account if your MAGI is under $100,000. But that restriction will be lifted, at least temporarily, in 2010. That's good news when it comes to future taxes and estate planning with IRAs. The converted amount will be taxed as regular income for the year, but you will prevent your beneficiaries from being required to pay those taxes themselves, later.

When it comes to estate taxes, one of the possible ways to lower or avoid them completely is to start giving your money away now. If you have several children or grandchildren, you can give each of them up to $11,000 per year ($22,000 for a couple) without subjecting yourself to the gift tax. You could also make charitable contributions or transfer the money into a trust fund.

Now you have to understand that tax estate planning with IRAs is only important if the value of your account, combined with your other assets, exceeds two million dollars. At the time of your death, that amount may be even higher, but it's best to think ahead and consider all of your assets, particularly if you have a single beneficiary.

When it comes to estate planning with IRAs, there is another important consideration. Some people think that they might not live long enough to spend all of their money. They give away large chunks of their estate, only to become dependent on family members when their retirement fund runs out. You don't want that to happen to you.

How much money is enough? Consider what you would like to do after you retire, along with when you would like to retire. With a three million dollar account, you should be able to take distributions of about $300,000 per year, starting at age 60. If you want to travel and really enjoy your retirement, that figure is a good and reachable goal. The question is "how?"

With traditional investments in stocks and bonds, you are not likely to reach that goal. If however, you start up a self-directed account and start looking into the real estate market, you can achieve that goal relatively easily.

There are experienced investors that are willing to help. It may make your estate planning with IRAs a little more difficult, but it will make your retirement that much more comfortable.

Ray Stockwell is a real estate investor who enjoys making money by investing in projects that help people and their communities, all without capital gains taxes. Visit his web site at www.IRA-Investment.org

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