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Estate planning and retirement accounts

On Behalf of | Feb 18, 2022 | Trust |

Estate planning is one of the most important kinds of financial planning for South Carolina couples. When there are special retirement accounts involved, the tax rules make it much more complicated to figure out the best way to preserve the accumulated wealth.

How to make plans for your retirement accounts

Retirement accounts like IRAs and 401(k)s are great ways to help you save more during your career because they provide protection from some of the taxes that would otherwise cut into their value. However, if there are a lot of accumulated assets in plans like these when a couple needs to consider estate planning, then the process of unwinding these accounts and avoiding big tax hit when each member of the couple passes away becomes difficult. The laws governing how and when taxes apply to payouts from these accounts has changed several times, and there are different possible choices to make.

For example, one estate planning tool for the couples to use is the portability election, which allows them to transfer the assets of the first spouse to die to the surviving spouse without a tax hit. This is simple and easy, but it has some limitations, such as not covering appreciation of assets and not applying if the surviving spouse remarries. An alternative is a bypass trust, which is legally more complex and expensive but also more powerful and flexible compared to the portability road. Designating a beneficiary directly from within the retirement account is perhaps the best choice but not always available.

The right approach can save a large amount of money in taxes and simplify legal issues, so it is an important matter. Taking the time to make plans now can help you protect your wealth in future years.
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