Estate Planning Issues for Senior Citizens

Feb 5th, 2010 | By | Category: Senior Finances

2010 brings two serious decision-making issues to the forefront for senior citizens… changes in the Roth IRA program and estate tax changes.

Seniors may want to consider converting their taxable retirement account to a tax-free Roth IRA.  Beginning this year, there is no longer an income limit for Roth IRA’s (people can contribute post-tax dollars in this program, and their money appreciates tax-free).  The income limit has been $100,000 per individual until this year; now it’s eliminated.  It makes sense for some seniors to consider withdrawing money from retirement accounts, paying tax on the amount withdrawn and then investing in a Roth.  The reasoning behind this move is that if you do not expect your income tax bracket to change (lower) in the future, the investment makes obvious sense.  Other benefits to making this change are outlined in the New York Times article from December, 2009.

The second change is in fact a non-change.  Congress adjourned the 2009 session without making any changes in estate tax law.  So the tax disappears for this year, 2010, and then reverts to the old rate (55% for estates valued at more than $1million) in 2011.  The greater problem, however, is that the basis for tax purposes becomes the actual original cost of assets (not the stepped-up basis in effect with the old estate tax law), and capital gains tax has to be paid on the appreciated amount.  Some financiers suggest that if the estate tax is not reinstated in 2010, many more people will be dealing with income tax problems.

The gift tax exclusion is still in place, and in 2010 is $13,000; this means seniors can give $13,000 to anyone you want and the gift is tax free.  For seniors looking to minimize estate costs at the time of their death, this is a good option.  The New York Times article cited above gives this example:  “A married couple with a $10 million estate gives $13,000 a year each to six people for a decade. At the end of that time, they will have given $1.56 million tax-free. Based on the current estate tax rate, they will have also saved $702,000 in taxes by moving that money out of their estate before they die.” 

There are a variety of considerations senior citizens need to evaluate carefully, depending upon their unique financial and familial situation.  As always, SCJ recommends you consult your financial advisor to determine what plan best suits your needs.



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