When planning out your retirement with an Orange County estate planning lawyer, one of the most important jobs this professional has is to ensure that you or your heirs receive the most money possible. Because taxes can take a significant chunk of wealth from various retirement accounts, it makes sense for the estate planning lawyer to consider the tax ramifications that come along with them.
There are different types of retirement accounts, and 401(k), 403(b), and traditional IRAs fall into a category known as “tax-deferred accounts.” Because taxes aren’t paid up-front on these, they are taken out when the money is dispersed. This is different from other types of inheritance, which generally are not subject to an income tax. That means that when a beneficiary withdraws money, he or she is expected to pay income tax on it. Working with an estate planning lawyer to help make your retirement planning more effective can help to minimize the hit they take.
There is an exception to this income tax rule. If a spouse inherits the account, the money can be rolled into the spouse’s own IRA who can then defer withdrawals until he or she is 70 ½. On the flip side, any other beneficiary must make the first withdrawal the year after inheriting the funds. When the withdrawals begin, so does the income tax.
Taxes are also a concern when it comes to revocable trusts. While you and your Orange County estate planning lawyer will want to thoroughly review your situation in making the right choices, it is often preferable not to leave a retirement account to this type of trust. If you do plan to create a trust, it might be best to have your lawyer help you find other ways to fund it so that those tax-deferred accounts do not end up being less valuable.
Our law firm is uniquely comprised of both tax and estate planning professionals to help you make the best choices for today and the future. If you would like to schedule an appointment at our Orange County office to talk more about Retirement Planning at one of our other offices located throughout the state of California, simply contact us at (800) 244-8814.