Month: January 2024

How Does Divorce Affect Your Estate Plan?

trust disputes

How Does Divorce Affect Your Estate Plan?

If you are in the midst of a divorce, it’s easy to overlook estate planning.  However, doing so will protect your estate from your former spouse and give you peace of mind knowing that your wishes will be honored.  If you are contemplating divorce or have recently divorced, you should review your estate plan with your attorney to determine whether changes are needed to reflect your current wishes.

This article provides a very brief overview of common issues.  Please note that this is a complex area of law, so it is important to consult an experienced estate planning attorney to help in protecting yourself and your heirs in the event of a divorce.

During the Divorce Process

During the divorce process, you have limited ability to make changes or revoke estate planning documents.  However, you should consider the following available options:

There is a much longer list of prohibited estate plan changes, such as creating new trusts to hide assets; transferring, encumbering, hypothecating, concealing, or in any way disposing of property out of community property accounts without the written consent of your spouse or a court order; and creating or modifying a non-probate transfer without your spouse’s written consent (which includes life insurance, revocable trusts, IRAs, beneficiary designations, and profit sharing pension plans).

After the Divorce Is Finalized

Once the divorce has been finalized, California automatically changes your estate plan in several ways, including: removing your ex-spouse as an heir to your property; removing your ex-spouse as an executor, trustee, and power-of-attorney; and dissolving any living trusts that your ex-spouse and you created.

You will need to update your estate plan immediately following a divorce.  If you fail to do so and then pass away, it can lead to expensive and time-consuming litigation for your heirs. There are several key items to consider:

  • Updating your will and living trust. This includes reviewing all beneficiaries and executors, and ensuring proper disposition of assets previously held jointly with your ex-spouse and any assets held in trust.
  • Updating Power-of-Attorney and Advanced Health Care Directives. Determine who should now handle these critical decisions.
  • Disinheriting your spouse from any insurance policies or retirement plans in which he/she is named as beneficiary.
  • Update named beneficiaries on life insurance policies, retirement accounts, bank accounts, and other financial accounts.

Contemplating Divorce?

Considering the above, if you believe that your marriage is ending but you haven’t formally filed for divorce yet, you should meet with your estate planning attorney before filing.   You’ll want to consider what might happen if you pass away prior to the divorce being finalized, and to evaluate beneficiary designations and other key issues after the divorce is completed.

Specialized Estate Planning Expertise

If you are going through a divorce and are concerned about estate planning, Mortensen & Reinheimer, PC understands and can help you.  If you need legal expertise in addressing your specific estate planning needs, please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.

Tamsen-Reinheimer_150x100

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

New Options for Roth 401(k)s – How to Maximize for Your Retirement – REFS

New Options for Roth 401(k)s – How to Maximize for Your Retirement

Roth 401k

And alternatives for heirs, too!

Many 401(k) plans now offer employees the option to put away money as a Roth contribution. As compared to a traditional 401(k), the main difference with a Roth 401(k) is when the IRS takes its cut. Roth 401(k) contributions are made post-tax, same as with a Roth IRA.  Earnings grow tax-free, and you pay no taxes when you start taking withdrawals in retirement. This can be a massive amount of tax-free income in retirement, hence the allure of Roths.

Another key feature of Roth 401(k)s, is that beginning in 2024, the required minimum distributions (RMD) requirement for Roth 401(k)s will no longer apply due to changes from Secure Act 2.0.   This means that earnings can perpetually grow tax-free. Further, from an estate planning perspective, if you pass down those Roth assets to your heirs, they won’t have to pay taxes on distributions either.

Roth 401(k) vs. Roth IRA

Effective 2024, the main differences between Roth 401(k)s and Roth IRAs are contribution limits and income limits:

  • IRA contributions limits are much lower than Roth 401(k)s. Roth IRAs are capped at $7,000 for 2024—$8,000 if you’re 50 or older.
  • Roth 401(k)s don’t have an income limit for contributions. You can only make contributions to a Roth IRA if your modified adjusted gross income (MAGI) is less than $161,000 for single filers or $240,000 for married couples filing jointly or a qualified widow(er) for 2024.

Finally, a Roth 401(k) is only available through an employer plan (including self-employed). As long as you meet the above MAGI income requirements, you can open a Roth IRA on your own as part of your retirement strategy.

Roth 401(k) vs. Traditional 401(k)

Of course, taxes are a key consideration when it comes to deciding on a Roth 401(k) over a traditional 401(k). Discuss your personal situation (age, career status, current and future earnings, etc.) with your CPA to determine which is best for you.  Your CPA can run taxation scenarios to determine whether it is best to pay the taxes now (Roth) or to take advantage of the current tax write-off, as in a traditional 401(k).

Another strategy to deal with uncertainties in future tax rates, income and spending might be to contribute to both a Roth 401(k) and a traditional 401(k). This combination offers both taxable and tax-free withdrawal options, so that in retirement you could determine which account to tap based on your tax situation.

Roth 401(k) Contributions Now Allowed By Employers

Previously, all employer matching or profit-sharing contributions were made as a traditional, tax-deferred contribution. However, the SECURE 2.0 Act provides greater opportunities for employees by allowing them to elect employer contributions as Roth 401(k) contributions.

In particular, employers may allow plan participants to designate employer matching and nonelective contributions as after-tax Roth 401(k) contributions. These contributions would be included in the employee’s taxable wage income for that year. Further, employer contributions designated as Roth 401(k) contributions must be immediately 100% vested.

A key feature of this option is that it allows employees to choose whether their matching contributions are taxed up front (Roth) or in retirement (traditional).

SAVE MONEY ON TAXES!

Each situation is different, so have your clients contact MyCFO to make all the right moves. Contact us today for a free initial consultation!

New Options for Roth 401(k)s – How to Maximize for Your Retirement – PROSPECTS

New Options for Roth 401(k)s – How to Maximize for Your Retirement

Roth 401k

And alternatives for your heirs, too!

Many 401(k) plans now offer employees the option to put away money as a Roth contribution. As compared to a traditional 401(k), the main difference with a Roth 401(k) is when the IRS takes its cut. Roth 401(k) contributions are made post-tax, same as with a Roth IRA.  Earnings grow tax-free, and you pay no taxes when you start taking withdrawals in retirement. This can be a massive amount of tax-free income in retirement, hence the allure of Roths.

Another key feature of Roth 401(k)s, is that beginning in 2024, the required minimum distributions (RMD) requirement for Roth 401(k)s will no longer apply due to changes from Secure Act 2.0.   This means that earnings can perpetually grow tax-free. Further, from an estate planning perspective, if you pass down those Roth assets to your heirs, they won’t have to pay taxes on distributions either.

Roth 401(k) vs. Roth IRA

Effective 2024, the main differences between Roth 401(k)s and Roth IRAs are contribution limits and income limits:

  • IRA contributions limits are much lower than Roth 401(k)s. Roth IRAs are capped at $7,000 for 2024—$8,000 if you’re 50 or older.
  • Roth 401(k)s don’t have an income limit for contributions. You can only make contributions to a Roth IRA if your modified adjusted gross income (MAGI) is less than $161,000 for single filers or $240,000 for married couples filing jointly or a qualified widow(er) for 2024.

Finally, a Roth 401(k) is only available through an employer plan (including self-employed). As long as you meet the above MAGI income requirements, you can open a Roth IRA on your own as part of your retirement strategy.

Roth 401(k) vs. Traditional 401(k)

Of course, taxes are a key consideration when it comes to deciding on a Roth 401(k) over a traditional 401(k). Discuss your personal situation (age, career status, current and future earnings, etc.) with your CPA to determine which is best for you.  Your CPA can run taxation scenarios to determine whether it is best to pay the taxes now (Roth) or to take advantage of the current tax write-off, as in a traditional 401(k).

Another strategy to deal with uncertainties in future tax rates, income and spending might be to contribute to both a Roth 401(k) and a traditional 401(k). This combination offers both taxable and tax-free withdrawal options, so that in retirement you could determine which account to tap based on your tax situation.

Roth 401(k) Contributions Now Allowed By Employers

Previously, all employer matching or profit-sharing contributions were made as a traditional, tax-deferred contribution. However, the SECURE 2.0 Act provides greater opportunities for employees by allowing them to elect employer contributions as Roth 401(k) contributions.

In particular, employers may allow plan participants to designate employer matching and nonelective contributions as after-tax Roth 401(k) contributions. These contributions would be included in the employee’s taxable wage income for that year. Further, employer contributions designated as Roth 401(k) contributions must be immediately 100% vested.

A key feature of this option is that it allows employees to choose whether their matching contributions are taxed up front (Roth) or in retirement (traditional).

SAVE MONEY ON TAXES!

Each situation is different, so contact MyCFO to make all the right moves. Contact us today for a free initial consultation!

New Options for Roth 401(k)s – How to Maximize for Your Retirement – CLIENTS

New Options for Roth 401(k)s – How to Maximize for Your Retirement

Roth 401k

And alternatives for your heirs, too!

Many 401(k) plans now offer employees the option to put away money as a Roth contribution. As compared to a traditional 401(k), the main difference with a Roth 401(k) is when the IRS takes its cut. Roth 401(k) contributions are made post-tax, same as with a Roth IRA.  Earnings grow tax-free, and you pay no taxes when you start taking withdrawals in retirement. This can be a massive amount of tax-free income in retirement, hence the allure of Roths.

Another key feature of Roth 401(k)s, is that beginning in 2024, the required minimum distributions (RMD) requirement for Roth 401(k)s will no longer apply due to changes from Secure Act 2.0.   This means that earnings can perpetually grow tax-free. Further, from an estate planning perspective, if you pass down those Roth assets to your heirs, they won’t have to pay taxes on distributions either.

Roth 401(k) vs. Roth IRA

Effective 2024, the main differences between Roth 401(k)s and Roth IRAs are contribution limits and income limits:

  • IRA contributions limits are much lower than Roth 401(k)s. Roth IRAs are capped at $7,000 for 2024—$8,000 if you’re 50 or older.
  • Roth 401(k)s don’t have an income limit for contributions. You can only make contributions to a Roth IRA if your modified adjusted gross income (MAGI) is less than $161,000 for single filers or $240,000 for married couples filing jointly or a qualified widow(er) for 2024.

Finally, a Roth 401(k) is only available through an employer plan (including self-employed). As long as you meet the above MAGI income requirements, you can open a Roth IRA on your own as part of your retirement strategy.

Roth 401(k) vs. Traditional 401(k)

Of course, taxes are a key consideration when it comes to deciding on a Roth 401(k) over a traditional 401(k). Discuss your personal situation (age, career status, current and future earnings, etc.) with your CPA to determine which is best for you.  Your CPA can run taxation scenarios to determine whether it is best to pay the taxes now (Roth) or to take advantage of the current tax write-off, as in a traditional 401(k).

Another strategy to deal with uncertainties in future tax rates, income and spending might be to contribute to both a Roth 401(k) and a traditional 401(k). This combination offers both taxable and tax-free withdrawal options, so that in retirement you could determine which account to tap based on your tax situation.

Roth 401(k) Contributions Now Allowed By Employers

Previously, all employer matching or profit-sharing contributions were made as a traditional, tax-deferred contribution. However, the SECURE 2.0 Act provides greater opportunities for employees by allowing them to elect employer contributions as Roth 401(k) contributions.

In particular, employers may allow plan participants to designate employer matching and nonelective contributions as after-tax Roth 401(k) contributions. These contributions would be included in the employee’s taxable wage income for that year. Further, employer contributions designated as Roth 401(k) contributions must be immediately 100% vested.

A key feature of this option is that it allows employees to choose whether their matching contributions are taxed up front (Roth) or in retirement (traditional).

SAVE MONEY ON TAXES!

Each situation is different, so contact MyCFO to make all the right moves. Contact us today for a free initial consultation!