Raleigh Business and Taxation Law Blog

7 Times When You Should Use A Trust

March 22, 2019 By wrlaw

When you consider your family’s financial planning needs, you may be surprised to learn that a trust may be the best option. A trust is a versatile family planning instrument. It can give you flexibility and control over your family finances. It can help you protect assets and ensure that assets are managed responsibly.

What are some scenarios where a trust is beneficial?

Here are seven scenarios where a trust may be appropriate:

Example 1: Senior who wants protection and simple asset transfers

Louise is 80 years old. She has $200,000 in assets that she wishes to leave to her children. Social security provides the rest of her income. Louise needs funds to live in an assisted living center.

A trust may be appropriate for Louise for several reasons. Having a trust can shield Louise’s assets from personal legal liability. If Louise were to be at fault in a car accident, the funds in the trust may be off-limits from individuals who may want to make a claim against her assets.

The trust also provides for asset management and private distribution of the estate to her heirs upon her passing. Louise can place her assets in trust for her benefit with the remainder paid to her heirs. The trust can pay for her assisted living needs as well as pay for the other day-to-day expenses necessary to meet her needs. Having a trust provides the easiest asset management for Louise, the most financial security and the easiest transfer of the funds to her heirs in the future.

Example 2: Child with physical or mental impairments

Caden was born with significant physical impairments. He is going to need assistance for his care throughout his life. Over the years, Caden’s parents have saved $50,000 to help Caden with his living expenses.

Although Caden may qualify for disability payments from his state, if he has $50,000 in assets in his own name, he loses his eligibility. Caden’s parents may create a trust for the $50,000. The trust can pay for Caden’s expenses above and beyond what he receives in disability payments. Having a special needs trust ensures that Caden can access all available resources in order to meet his needs.

Example 3: Planning for children for an unknown future

Jack and Cheryl are the proud parents of three children ages 12, 8, and 3. Jack and Cheryl are preparing their estate planning package including their savings of $25,000. If Jack and Cheryl were to both pass away unexpectedly, their children are too young to manage the savings.

Creating a testamentary trust as part of the estate planning package can help these parents know that their savings are going to be managed properly in the future for the benefit of their children. The children are the beneficiary of the trust, and the managers of the trust must operate with the directive that they must use the trust assets for the children’s benefit.

The parents can specify whether the funds are for education, for daily living expenses or for another purpose. In this case, the trust can go into place in the event that the parents pass away while the children are minors.

Example 4: Leaving assets to charity

Jamie is 75 years old. Jamie is retired and has no children. He has $300,000 that he wants to leave to charity at his death, but he needs monthly income now. Jamie can use a charitable trust in order to receive a steady income stream from the funds now while committing to donate the funds to the charity upon his death.

To create a charitable trust, Jamie can place the assets in a trust. The trust can pay him income directly throughout his life. When Jamie passes away, the funds can go immediately to the charity. Using a trust, Jamie can meet his goals of preserving his income as well as leaving funds to the charity of his choice.

Example 5: Adult child who needs guidance

Charlie is 25 years old. He has a history of substance abuse. Although he graduated from high school, he has difficulty holding down a job. Charlie lacks direction. His parents have resources, but they fear that Charlie can’t manage a windfall of money.

Placing funds in a trust for Charlie can protect Charlie’s assets for the long-term. Charlie’s parents can structure the trust to provide for substance-abuse treatment. They can also set standards for trust distribution so that the assets last throughout Charlie’s life.

Rather than risking mismanagement and quickly depleting the assets, Charlie’s parents can have the peace of mind to know that the funds are going to be available for their child now and in the future.

Example 6: Maintaining privacy for asset distribution

The Rodriguez family is known in town for being a wealthy family. They own several businesses in town, and they make charitable contributions regularly. Because of their known financial success, community groups often ask for donations. The family often doesn’t know how to respond to the requests. They have limited time to respond to requests, and they want to ensure that they donate to organizations that they believe have the most impact in the community.

A trust can be the answer for the Rodriguez family. By placing assets in a trust for charitable purposes, they can tell people that their trustees handle donation requests. Family representatives can structure the trust in order to maintain as much control or as little control as they want as they decide where to donate the funds. With a trust, the family can keep their financial matters private as well as respond with an acceptable answer when others ask for contributions.

Example 7: Unique family situations

Katia married and had two children. Her husband died. Eventually, Katia remarried and had another child. Her third child is 12 years younger than her other two children. Katia wants to make sure that her spouse and minor child are protected. She also wants to ensure that her older children eventually receive a share of her savings in the event of her passing.

A trust may be the right answer for Katia. She can create a trust that provides income to her spouse for life as well as provides for her youngest child while the child is a minor. However, with a trust, she can ensure that her older children eventually receive a share of her assets. A trust can help Katia manage the complexity of her family situation to ensure that all family members have their needs met in the future.

Do I need a trust?

If you have assets that you want to manage for others, a trust may be right for you. Even if you’re the primary beneficiary of the trust, you may still benefit from the legal protections, privacy and convenience that may accompany a trust.

To know if a trust is right for you, consult one of Wilson Ratledge’s experienced estate planning attorneys. We can help you examine your entire situation in order to determine whether you and your loved ones can benefit from a trust. An estate plan can address all of your family needs and goals.

Seven Things You May Not Know About Trusts

March 8, 2019 By wrlaw

As estate planning attorneys, we know the misconceptions that most people have about trusts. Many people are surprised when we suggest a trust as part of their estate plan. Trusts aren’t just for the wealthy. They can be a useful and important resource management tool for a variety of reasons. If you’re going to use a trust effectively, it’s important to understand how a trust works. Here’s an introduction to trusts from our team of wills and trusts attorneys:

What is a trust?

A trust is a legal entity for the management of assets. A person puts assets in the trust for the benefit of a third party. The trust owns the assets. The person or people who manage the trust make decisions about how to manage the assets, and there can be rules about when and how the trustees distribute trust property to the beneficiaries.

How does a trust work?

A trust works by placing money or property into ownership by the trust. Instead of a person owning the property, the trust owns the property. The trust is set up for a specific purpose. The person who originally owns the property that goes into the trust can be a beneficiary of the trust. A person or people who are in charge of the trust make decisions about when to distribute property to the trust beneficiaries. Each trust has its own rules about who the trust benefits and what kinds of things the trust can provide for.

The trust is its own legal entity. The trust is the owner of the property in the trust. Placing property in a trust can be beneficial for several reasons. First, when you’re using a trust to transfer assets after someone passes away, the property may transfer faster and easier to the third party using a trust than using a traditional will. In addition, when the trust owns the property, instead of an individual owning the property, the property may be out of reach from third-party lawsuits and other claims. Also, when a trust beneficiary has special needs, trust property doesn’t count as the property of the beneficiary so the beneficiary may still qualify for means-tested public assistance programs.

A trust can provide for financial privacy

When a will goes through probate, it becomes a part of the public record. A will is a public proceeding. If a person uses a will to transfer assets, there’s no way to stop anyone from going to court, accessing the court record and sharing it with others. When you have a trust, the terms of the trust may not become public record. There are many reasons that the parties involved in asset management may want financial privacy. Placing property into a trust can provide the privacy that a will cannot provide.

Is a trust a financial investment? What kind of financial return can I expect on a trust?

A trust is not necessarily a financial investment. You can invest the property that’s placed in a trust, but the trust in and of itself isn’t like purchasing an investment. The financial return on the property in a trust depends on the property that’s in the trust and how the trustees choose to invest it.

Each trust is different. Just like other investments, you can evaluate your risks and choose what’s in the best interests of the trust beneficiaries. It’s important to understand the risks associated with any type of investment including investments made with trust property.

Who can be trustee of my trust?

You can name anyone to be the trustee. You can even name yourself the trustee of a trust. Actually, when you’re the person transferring the property and the beneficiary of the trust, naming yourself trustee is the most common choice. When you’re the trustee of your own trust, you retain control over the assets for your lifetime. You have the legal protections of a trust while maintaining control over how you spend the trust assets.

There are also other options for naming a trustee. Managing a trust can be complex. You may consider using a professional trustee. When you choose a professional, they have experience with accounting, taxation and asset investment. You can also name any other party that you like. Multiple parties can even serve as co-trustees. It’s important to consider the skills that you need in a trustee as well as their personal knowledge of the trust beneficiaries and the amount of control that you may want to retain over trust assets.

Not all trusts are created equal

As you consider whether a trust is right for your estate planning, it’s important to understand that there are a variety of kinds of trusts. The kind that you use depends on your assets and your goals. For example, you may create a trust that you can revoke during your lifetime. In other scenarios, it may make the most sense not to reserve any right to revoke the trust. You may use a trust to donate to charity, or you may use a trust in order to protect certain assets from creditors. A special needs trust provides for a loved one with physical, mental or emotional challenges. A spendthrift trust doesn’t allow the trust beneficiary to dissipate assets except under the terms of the trust.

It’s important to consider the needs of the family as you begin to think about your estate plan. Once you know your needs and goals, you can evaluate the different types of trusts. The person who creates the trust has a great deal of control over the terms of the trust. You can work with an experienced trust attorney in order to set up the trust in the best possible way. There are ways you can customize your trust in order to have the maximum benefits for your trust beneficiaries.

Is a trust right for me?

When you’re considering your financial planning, it’s important to understand both the risks and benefits of a trust. A trust is a versatile financial planning tool that can protect your assets and ensure that they’re used for a particular purpose. You can create a trust that’s effective immediately, or you can create a trust that begins in the event of your passing. If you think a trust may be right for you, it’s important to sit down with an experienced trust attorney in order to consider your options. You can explore what a trust can do for you and for your loved ones and create an estate plan that meets all of your goals.

What Is An “Offer In Compromise?”

February 22, 2019 By wrlaw

IRS tax debts can be a source of frustration, uncertainty and stress. If you’re facing a tax burden that you can’t pay, an Offer in Compromise may be one way to settle your debts. When the IRS accepts your offer, the Offer in Compromise is one way that you can resolve your overdue taxes with the IRS and get a fresh start.

What is an Offer in Compromise?

An Officer in Compromise is a tax relief program of the Internal Revenue Service that resolves an outstanding tax liability for less than the entire amount due. The IRS allows qualifying taxpayers to make an offer to settle their entire tax debt for a fraction of the total debt. The goal of the Offer in Compromise program is to collect at least some of the outstanding tax debts while giving the taxpayer the opportunity to become current on their obligations to the United States government.

How does an Offer in Compromise work?

An Officer in Compromise occurs when a tax debtor makes an offer to the IRS to pay a portion of their outstanding tax debt. IRS representatives decide whether to accept the offer or reject it. There are requirements for all offers and guidelines for whether the IRS can accept the offer. If the IRS accepts the offer, the debtor pays the taxes according to the settlement agreement. The remaining debts are discharged and the debtor once again returns to paying taxes according to U.S. tax law.

Is an Offer in Compromise right for me?

Whether an Offer in Compromise is right for you depends on your tax liabilities, the likelihood of the IRS accepting your offer and your ability to pay according to the terms of the offer. The IRS accepts about 40 percent of the offers they receive. Because there’s a downpayment that goes along with making an offer, it’s critical to make an offer that the IRS is likely to accept. An Offer in Compromise may be right for you if you’re unable to pay your tax liability and you can make a reasonable offer according to IRS guidelines.

Why would the IRS accept an Offer in Compromise?

It may seem like the Offer in Compromise program isn’t a good deal for the government. If the taxpayer owes the entire tax debt, it may seem more logical for IRS agents to continue to try and collect the debt. There are several reasons why the IRS participates in the OIC program.

It’s more advantageous for the IRS to collect the debt quickly. Even if they collect a lower amount, it may be worth it to the IRS to have the money now instead of later. The longer the debt drags on, the less likely the government is to collect anything at all. In some circumstances, IRS agents believe that it’s better to get less now than risk collecting nothing at all.

Why should I make an Offer in Compromise?

An Offer in Compromise can help you in multiple ways. If you’re unable to pay your tax debt, an OIC can help you resolve the issue with the IRS for an affordable amount. Also, while an OIC is under consideration with the IRS, the IRS stops garnishments and temporarily ceases asset seizure proceedings. It may be advantageous to you as a debtor to stop garnishments and make payments under the terms of the OIC. An experienced tax attorney can help you determine if it’s in your best interests to make an offer.

How do I make an Offer in Compromise?

There are two ways to make an Offer in Compromise. The first way is to make a lump sum payment. With a lump sum payment, you pay 100 percent of the offered amount within five months. You must also make a 20 percent down payment when you make the offer.

The other type of OIC is an offer for periodic payments. If you offer to make periodic payments, you must pay within 24 months of the IRS accepting the offer. You must make the first payment with the application.

To determine what amount you have to pay, the IRS looks at how much they’re likely to collect if they continue to try and collect the entire tax liability. If the IRS finds that you can pay your debt in full, they’re unlikely to agree to a settlement. The amount that the IRS believes you can pay depends on your assets and your disposable income.

The IRS calculates the value of your assets based on what they’re worth if they’re sold quickly. They also factor in your disposable income to determine what’s called your net realizable value. If you make an offer that’s at least as much as your net realizable value, there’s a good chance that the IRS is going to approve the offer.

Am I eligible to make an Offer in Compromise?

You’re eligible to make an offer in compromise if several conditions are true:

There’s an outstanding tax bill
It’s an economic hardship to require you to pay the full amount or there’s a doubt about the validity of the full amount
You file all of the required tax returns
Estimated tax payments are up to date if you’re self-employed or own a business
If you’re a business owner, payments are up to date for employees
There’s not a pending bankruptcy proceeding

How can I make an Offer in Compromise successful?

If you’re considering making an Offer in Compromise, it’s critical to make a payment that’s realistic based on IRS guidelines. You want your offer to be the lowest amount that the IRS is going to accept. An experienced estate planning attorney can help you determine if an Officer in Compromise is in your best interests. They can also help you understand how it can benefit you and what steps you need to take to make your offer successful.

What Is Medicaid Estate Recovery?

February 8, 2019 By wrlaw

If you have a loved one that receives Medicaid or if you have a loved one who needs special care, how you structure their finances is critical to ensuring that your loved one receives of the resources available to them. In some cases, the state may try to recoup the cost of Medicaid benefits from a beneficiary’s estate. Fortunately, how you structure your loved one’s finances can protect them and protect your entire family. Here’s what you need to know about Medicaid Estate Recovery:

What is Medicaid Estate Recovery?

Medicaid estate recovery is a process that the state can use in order to seize assets from the estate of a Medicaid recipient. When a person receives Medicaid, the state may try to recoup the costs of their care from the person’s estate. When a qualifying Medicaid recipient passes away, the state may look to the items in their estate in order to provide reimbursement for Medicaid payments made during the person’s lifetime.

Why does Medicaid Estate Recovery matter if a loved one receives Medicaid?

If you have a loved one who receives Medicaid benefits, Medicaid Estate Recovery matters because it may impact your loved one’s estate distribution. When the Medicaid recipient has an estate, the process of Medicaid Estate Recovery may prevent them from leaving the estate to their heirs. Estate planning is critically important for all Medicaid recipients in order to structure the estate both to receive Medicaid benefits and leave their estate to their heirs.

How does Medicaid Estate Recovery work?

Medicaid Estate Recovery works by looking at the Medicaid recipient’s estate after they pass away. If a person has items in their estate like real property, bank accounts or even personal property, state agents may try to seize those assets from the person’s estate. The process may stop heirs of the Medicaid recipient from receiving a distribution from the recipient’s estate.

What types of assets are subject to seizure in Medicaid Estate Recovery?

Medicaid Estate Recovery may apply to any items in a person’s estate including:

Real property, including the recipient’s home
Vehicles, including primary vehicles, motorcycles or recreational vehicles
Home furnishings like furniture and electronics
Personal items of value
Annuities
Bank accounts
Cash
Investments

Any asset may be subject to seizure. However, there may be exceptions and ways to structure resources in order to prevent Medicaid agents from attempting to seize the assets.

When does Medicaid Estate Recovery apply?

There are two circumstances where Medicaid Estate Recovery applies. First, when a Medicaid recipient is over age 55, the estate recovery process applies.

Second, anyone who is permanently institutionalized who gets Medicaid at any age is subject to the recovery program. Because Medicaid is a program for lower-income and disabled people, there are many people who do not leave assets that are subject to seizure. However, special needs Medicaid recipients may structure their resources in a way that both allows them to receive Medicaid and protect their resources.

Protecting the family home from Medicaid Estate Recovery

For surviving family members, Medicaid Estate Recovery may create doubt surrounding the family home. If there is a spouse or child living in the home, it’s important to protect the home from seizure. You can work with your Medicaid planning attorney in order to structure your finances in a way that prevents seizure. For example, it may make sense for a trust to hold title to the home, or it may make more sense to have a family member hold title to the home.

There are some exceptions in the home seizure laws for family members. Although a home falls under estate recovery laws if it is owned as tenants by the entirety, you may be able to secure an exception if you are the surviving spouse and still living in the home. Children under 21 may also qualify for an exception. There is also a generic exception that covers situations creating an undue hardship.

The best option is to carefully plan the estate of the loved one as soon as you realize that they need may special care. Estate planning is not just for the wealthy. In fact, it is especially important if you need to carefully manage limited resources. By carefully structuring your loved one’s assets, you can ensure that they qualify for Medicaid benefits and that their resources survive their estate for distribution to their heirs. The goal of estate planning is to restructure the Medicaid recipient’s assets so that they qualify for Medicaid and so that their assets are exempt from the seizure process.

Where do Medicaid Estate Recovery laws come from?

Medicaid Estate Recovery laws come from both state and federal sources. The U.S. federal government requires each state to have a program for Medicaid Estate Recovery. However, the federal government leaves it up to each state to decide how to implement its program. The rules may vary by state, and a state may change its procedures for recovery over time. For example, North Carolina’s program is administered by the North Carolina Division of Medical Assistance. It’s critical to work with an experienced Medicaid planning attorney in your state in order to ensure that they apply the appropriate law when creating the best estate plan for your loved one.

How can an estate planning attorney help me?

An estate planning attorney can help you manage every aspect of your finances or a loved one’s finances. Estate planning can help you qualify for government programs for you or for your loved one without penalizing you for dutifully saving for the future. Structuring your finances through estate planning helps you keep the money that you save while allowing you to tap the government resources that you depend on for your loved one’s care. If you or a loved one receives Medicaid or has special needs, contact Wilson Ratledge today to talk about your case.

Why You Need A Business Succession Plan

January 25, 2019 By wrlaw

If you’re a small business owner, you may have had a conversation with a loved one about business succession planning. Your loved one asks you if you’ve thought about your plan for the business and business succession. You make a joke that you don’t plan on going anywhere any time soon. If you’re one of the many small business owners who has had this conversation, you’re not alone.

There are lots of reasons that small business and family-owned business owners don’t like to talk about business succession planning. Maybe you think it’s too far off in the future. Maybe you’ve put your life’s work into your business and talking about succession is just too painful. There are lots of great reasons that you should have a business succession plan. Here are our top eight:

1. Unexpected life events can happen at any age

Major life events can happen to you or a loved one at any age. No matter how much you plan for the future, you just never know what might happen tomorrow.

Creating a business succession plan can protect you if you or a loved one has a life event that leaves you unable to tend to your business. Succession planning before you need it puts you in the driver’s seat. You don’t have to worry about an event that leaves you unable to control your business’ destiny. Instead, you’re prepared for any possibility.

2. Your business can continue smooth operation

When you have a business succession plan, you’re able to ensure that your business doesn’t have any hiccups during the transition. As part of your planning, you gather financial records, valuation data, inventory and even client lists. Even information for day-to-day operations can be critical to gather in order to keep your business running smoothly in the future.

For example, passwords, bank account information and even IT information can all be critical to prevent business disruptions in the future. Succession planning helps you think of all of these details as part of the planning process.

3. Business succession planning ensures a fair transition on your terms

You can get a better deal as you exit your business if you have time to plan. With business succession planning, you can use buy-sell agreements to establish prices, purchase terms, the value of each share and even who can purchase an ownership interest in the business. It can take time to find a buyer willing to pay. Planning ahead gives you time to consider how much retirement income you need and what your goals are in retirement.

4. You ensure the right people inherit your business

Your business is personal. It may be your life’s work. Pre-planning for business succession gives you time to step back and think about who you want to inherit your business.

If you expect family members to take over, it’s important to start having those conversations now. You should speak with family members in depth about their commitment and their goals for the business. Your loved ones may have different interests and priorities. They may need the training to run the business successfully.

The sooner you have these tough conversations, the more time you have to ensure that the right person takes over and continues to make your business thrive.

5. There’s time to make a deal

A successful business deal takes time to negotiate. Even if an option looks great, when you start to iron out the details, the deal can fall through. It may take several tries to get the right deal in place.

Business succession planning gives you time to try again if the first plan doesn’t work out. It gives you time to explore contingencies and make sure that you’re getting a fair deal and fair terms for your business.

6. Due diligence can help you get a better deal

When you start to look at the details of your business, there may be things that potential buyers don’t find flattering. There might be changes to make, issues to address and things to put in order in order to make your business more attractive to potential buyers.

Starting your business succession plan now gives you time to make adjustments to ensure that you get every dollar that you need and deserve when it’s time for retirement.

7. Planning can minimize tax burdens

Planning for business succession now can help you avoid surprising and burdensome taxes on down the road. A professional business and estate planning attorney can help you look at business succession planning as part of an overall estate planning strategy.

There are things that you can do now that can reduce your tax burden later on, as well as things that you can do that make the transition logistically easier when it’s time to transfer ownership of the business.

Thoughtful planning can make things so much easier on down the road. Qualified legal advice can help ensure that you look at all the important considerations in your planning.

8. You have peace of mind that you’re leaving a legacy

Your business is your life’s work. You want to leave it in the right hands and look back on it with pride. Business succession planning at any stage gives you the peace of mind to know that your business is in good hands. In addition, succession planning helps the ones that depend on you also have the confidence to know that their future is in good hands.

Business succession planning

Business succession planning doesn’t mean announcing a retirement date. Instead, it means taking steps to protect you and your loved ones as well as establishing an exit strategy that’s on your terms and for a fair price when the day comes.

Taking steps for business succession planning now can keep you in control and protect your family. Our experienced team can make business succession planning a key part of your overall retirement and estate planning strategy.

2019 Changes To Retirement Plan Contributions

January 12, 2019 By wrlaw

There are some key retirement plan contribution changes going into effect in 2019. While major tax reform went into effect last year, there are some changes that hit retirement contributions in 2019. Looking at the changes and making adjustments now can help you make the most of the coming year – most workers can save more across all income levels. Here’s what’s changing for 2019 401k contribution limits and other 2019 retirement contribution changes:

How much can you put in a 401k in 2019?

You can put up to $19,000 in a 401k in 2019. That’s up from $500 from last year’s limits. While it’s only a slight increase, for workers who want to make the most of their retirement savings or get caught up, every little bit makes a difference. In addition, lower-income earners can claim a savings tax credit in addition to the tax deduction that everyone gets for contributing to a 401k.

The contribution changes apply not only to 401ks, but also to 403b plans, many 457 plans and the Thrift Savings Plan for government workers. You can adjust your monthly contributions to add another $500, or you can make the additional contribution all at once. If you make the contributions monthly, it’s an extra $42 per month.

401k catch-up contributions for older workers

While the contribution limits for general 401k contributions have gone up a little bit, the 401k catch-up limit has not changed. Employees 50 and older can contribute more to their 401k than the annual limit. The extra contribution is called a catch-up contribution, but it’s really just a higher limit for older workers.

The 401k catch-up contribution in 2019 is $6,000. That means if you’re 50 or older, you can contribute an extra $6,000 to your 401k account. If you’re 50 or older, you can contribute a total of $25,000 to your 401k in 2019.

What is the IRA contribution limit in 2019?

In addition to 401k contribution limit changes in 2019, there are also changes to IRA contribution limits. An IRA allows you to save for retirement on a tax-free or tax-deferred basis. Like the 401k contribution limit, the IRA limit is also inching up by $500 in 2019. It’s the first time the IRA contribution limit has gone up since 2013. There’s also an IRA catch-up contribution limit, but it’s unchanged for 2019 at $1,000.

Income limits for retirement savings in 2019

In 2019, there are limits to IRA contributions based on your income. There are a few things to keep in mind when you’re sorting out whether the income limits apply to you. First, if you don’t get a 401k through your employer, you can contribute to the IRA no matter how much you earn. Even if you earn over the income limits, the limits don’t apply to you because you can’t do an employer-sponsored plan. Your filing status matters, too, so if you’re filing joint, you may have a higher income limit than if you file single.

Even if you can’t deduct your IRA contributions from your income, there may be benefits to you of contributing to an IRA. Your contributions may still grow with tax-deferred status. You can still come out ahead even if you can’t take the tax deduction on your 2019 taxes.

There are a lot of moving parts when it comes to determining whether you qualify to contribute to an IRA and whether you can take a 2019 tax deduction for your contribution. Your income and whether you have an employer-sponsored 401k are both factors that might change your IRA tax deductions. If you have an employer-sponsored 401k, you can still take tax deductions in 2019 for an IRA if you earn $74,000 or less as an individual. The joint income cut-off for IRA contributions in 2019 is $123,000. These limits represent a $1,000 and $2,000 increase from 2018. There are also phase-outs which start at $64,000 for a single and $103,000 for a couple. There are different phase-out limits that apply if one spouse can do a 401k through work and the other spouse can’t.

2019 Roth IRA contribution income limits

In 2019, the income limits are going up for Roth IRA contributions. A Roth IRA is a special kind of IRA where you pay the taxes up front when you make the deposits. Later on, you get to withdraw your contributions tax-free. The income limit for Roth contributions goes up $2,000 for singles in 2019 and $4,000 for couples.

The cut-off in 2019 is $203,000 for a married couple and $137,000 for a single. If you make over these amounts, you can’t contribute to a Roth at all. If you make $122,000 as a single or $193,000 as a couple, you can still contribute some to a Roth account, but there are phase-outs that apply to what you can contribute. Because withdraws in retirement aren’t taxed from a Roth account, a Roth can be a fantastic savings vehicle for people who qualify.

Saver’s credits in 2019

In addition to other 2019 retirement contribution changes, there are also increases to saving tax credits for lower-income workers. Workers who earn $32,000 or less as individuals and $64,000 as married couples get an additional 10-50 percent deduction from their 2019 taxes for 401k and IRA contributions. The limit is up to a $2,000 credit for singles and $4,000 for couples.

Retirement savers with the lowest incomes are eligible for the biggest tax credit which can be worth as much as $1,000 for individuals and $2,000 for couples. The saver’s credit can be claimed in addition to the tax deferral for saving in a traditional retirement account. The workers with the lowest incomes get to claim the highest percent deductions.

Retirement contributions and estate planning in 2019

Addressing retirement contributions should be part of your estate planning in 2019. Estate planning is so much more than just drafting a will. As you plan for your future and for your loved ones, maximizing tax benefits and determining optimum retirement contributions is an important consideration. One of our experienced estate planning attorneys can help people of all income levels maximize their retirement benefits and overall estate planning strategy in 2019.