Wednesday, December 24th, 2008

It's a done deal!  President Bush signs H.R. 7327!

It's official!  President Bush signed H.R. 7327, the "Worker, Retiree and Employer Recovery Act of 2008" (WRERA) on Tuesday, December 23rd.  Click here for the formal press release from the White House.

As mentioned below, this opens up huge tax planning opportunities for 2009, including the Roth conversion and an added benefit for the IRA Inheritance Trust®.

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Monday, December 22nd, 2008

HUGE Breaking News for the IRA Inheritance Trust®!

Two gigantic developments now make the IRA Inheritance Trust® even better than ever! 

First, both Houses of Congress have just passed legislation providing a one-year suspension of IRA Required Minimum Distributions (RMDs) for taxpayers 70½ and older.  This will apply only for year 2009 (H.R. 7327, The Worker, Retiree and Employer Recovery Act of 2008, awaiting the President’s expected signature).

This opens up a myriad of tax planning opportunities for 2009, including the Roth conversion.  By not having to take RMDs, a retiree may be in a lower tax bracket, meaning the tax cost of a Roth conversion may be lower.

The Roth conversion has many benefits for retirees - - the Roth IRA has no RMDs for the owner and the owner’s spouse (if a rollover is done); the owner and spouse can continue to grow money in a tax-free environment as an emergency fund for their later years; if they need to take it out (and the Roth account has been opened for five years) they pay no federal income taxes; and after they’re gone, their beneficiaries also pay no federal income taxes.  From the perspective of the IRA Inheritance Trust®, there is a big, additional benefit - - post-death distributions from a Roth IRA can be held in the Trust, and thereby take advantage of the considerable asset protection features of the Trust, without causing higher income taxes (distributions from a Traditional IRA, that are held in trust, typically are taxed at trust brackets much higher than those of an individual beneficiary).

In other words, the greater possibility of a Roth conversion means potentially greater asset protection for the beneficiaries of an IRA Inheritance Trust®!

Second, another provision of that same legislation will require all employer plans (401(k), etc.) to allow direct rollovers to non-spouse beneficiaries, beginning in 2010. 

Under the Pension Protection Act of 2006, a non-spouse beneficiary of a corporate retirement plan (including qualifying trusts, like the IRA Inheritance Trust®) could qualify to take advantage of the “stretchout” of RMDs over his or her lifetime (or, depending on the trust’s terms, the lifetime of the trust’s beneficiary), but only if the plan language permitted a direct rollover to a properly titled Inherited IRA.  Requiring corporate plans to make this direct rollover available means that the stretchout and protection benefits of the IRA Inheritance Trust® will now apply to considerably more inherited wealth - - not only the amounts already in IRAs, but the even greater amounts of wealth in corporate plans that may not be rolled out before a participant’s death!

Hope this has been helpful!  We’ll keep you abreast of further developments and opportunities in IRA planning as we see them!

Happy Holidays!

Yours Very Truly,

Philip J. Kavesh