From the time we enter the workforce, most of us are conditioned to start planning for retirement. There is a very good reason for that – living comfortably during your “Golden Years” requires years of planning ahead and careful saving. In today’s world, one of the most popular tools used to plan for retirement is an Individual Retirement Account, or IRA. Understanding how your IRA and retirement plan fit into your overall estate plan is crucial to ensuring a successful and comfortable retirement. Toward that end, the estate planning attorneys at The Mendel Law Firm, L.P provide answers to some frequently asked questions about IRAs and retirement planning. If you have additional questions or concerns, please feel free to contact our office to schedule an appointment.
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Because the days of employer sponsored pensions are all but over, retirement planning now requires you to take control and create your own plan. One common tool used to save for your retirement years is an Individual Retirement Account, or IRA. An IRA is a tax–advantaged retirement account that you own and control. Earnings generated can compound on a tax–deferred basis until withdrawal. In essence, an IRA is like having your own personal pension that you and/or your employer may contribute to for your retirement years.
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In fact IRAs have evolved so much over the years that there are now several different options in addition to a Traditional IRA, including:
- Roth IRA
- Simplified Employee Plan (SEP) IRA
- Savings Incentive Match Plan for Employees (SIMPLE)
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Benefits that you would have been entitled to are usually paid to your designated beneficiary in a form provided by the terms of the plan (lump-sum distribution or an annuity). Assets held in a retirement account can be paid out to the beneficiary shortly after the owner’s death because retirement accounts are “non-probate” assets, meaning they bypass the probate process.
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If you inherited the IRA from your spouse you have three options, including:
- Treat it as your own IRA by designating yourself as the account owner.
- Treat it as your own by rolling it over into a traditional IRA, or to the extent it is taxable, into a:
- Qualified employer plan
- Qualified employee annuity plan (section 403(a) plan)
- Tax-sheltered annuity plan (section 403(b) plan)
- Deferred compensation plan of a state or local government (section 457(b) plan), or
- Treat yourself as the beneficiary rather than treating the IRA as your own.
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During the early part of your working years you probably kept your estate plan and your retirement plan completely separate; however, as you get closer to retiring it becomes increasingly important to integrate those two plans. Your retirement plan has a fairly narrow goal of providing you with sufficient income to live comfortably during your “Golden Years” while your larger estate plan has a broader goal of preserving your assets so they can be passed down to your loved ones at the end of your life. Although the two are not competing goals, they do need to work in harmony with each other for both to be successful, hence the need to combine the two plans.
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You are free to retire at any age; however, you are not eligible to begin collecting Social Security retirement benefits until you reach age 62. Furthermore, the latest you can begin collecting your benefits is age 70. The amount you will receive from Social Security retirement benefits will depend on when you start accepting benefits. You can request a statement from the Social Security Administration that will provide you with an estimate of your retirement benefits or you can go online to the Retirement Estimator Tool to get an idea what you would receive at what age.
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