Tag Archives: Retirement Planning

Don’t Forget State Estate Taxes

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Don’t Forget State Estate Taxes

Don’t forget your state of residence and state estate tax changes when planning your Estate. Many differences between states require that you carefully review your estate and include state rules into your financial plan!  Even when you determine that you are exempt from federal taxes you may still have unexpected significant estate taxes at the state level.  Larger estates are more likely to have both but you’d be surprised that in some states how smaller estates may also qualified.

Nearly half of U.S. states impose an estate or inheritance tax regardless of whether the resident’s estate also owes federal estate taxes. Two states, New Jersey and Maryland, levy both estate and inheritance taxes!

Florida, Nevada, and Alaska are among states generally thought to be attractive place to retire, not only when you are living — because there is no income tax — but also when you die. Neither estate nor inheritance taxes are charged in these states.

Many estates owe taxes to multiple states because the deceased person owned a vacation home or other tangible property such as a boat outside of the state they lived in when they died. Intangible property, such as stocks and money in bank accounts, is taxed in the state the individual legally resided in at death, regardless of where the investments are physically located.

In California, we’ve phased out Estate taxes after 2005 and there is no inheritance tax. Executors of estates of persons who died on or after Jan. 1, 2005, are no longer required to file a California estate tax return.

Imposing just an estate tax, with exemption amounts ranging from $338,333 to $5 million, are Washington, Oregon, Minnesota, Ohio, North Carolina, Hawaii, New York, Delaware, Connecticut, Massachusetts, Vermont, Maine, Rhode Island, Illinois and the District of Columbia. Rates vary from 7% in Ohio to 19% in D.C.

Six states collect just an inheritance tax, which is paid by the heirs and not the estate, and generally increases for beneficiaries the more removed they are from being close family members. Rates range from 9.5% to 20% in Pennsylvania, Tennessee, Kentucky, Indiana, Iowa and Nebraska.

New Jersey begins taxing estates at $675,000 and has a maximum rate of 16%, in addition to a maximum 16% inheritance tax on beneficiaries who are not spouses or parents, or children or other lineal descendants. New York has a $1 million exemption for its estate tax, which also tops out at 16%.

Of course, states are always changing tax rules. So be mindful and consult a tax attorney before filing.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Financial Planning if you don’t have children

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Financial Planning & Retirement Planning for Singles & Couples

Financial planning is often addressed by couples when they plan or have their first child.  In our society this is part of becoming responsible parents.  In turn this process brings parents closer together and forces them to review short and long term goals like cash flow & retirement planning.  In many cases, the process can help parents deal with their own emotions about money and bring about personal growth and a greater maturity that strengthens their relationship.

I’ve addressed financial and retirement planning for parents through presentations and workshops and would like to share some highlights for non-parent couples and singles.

Child-free couples and individuals should consider that often children serve as an important support for a parent’s retirement plan.  Their children and grandchildren often serve as a social and sometimes financial support network that is not available to those without children.  I propose that without children growing older requires more, not less, financial planning to ensure that a plan and a support network are created.

Think about your current network.  Do you have individual(s) that could be your advocate(s) and help you or make for you medical and financial decisions?  You’ll need to identify and empower advocate(s) that will care for you if you are hurt and unable to communicate your wishes.  Your advocate may need to answer questions regarding your quality of life and make critical financial decisions in your stead.  For example: Who will file your taxes or sign your insurance claims?  Who will pay your bills? Who will decide if it is time for you to sell your home and move to a more appropriate care facility?  Who will decide the level of care you want and can afford?

Couples can often depend on each other but sometimes you may want to choose a medical advocate whose beliefs are the same as yours – that may or may not be your current partner.

Planning the financial support network is particularly important for those without children.  Saving maximally for retirement is critical since you’ll likely need more financial income to retain your independence during retirement.  Singles need to plan earlier since they may have even more expenses.

Finally, once you are gone your loved ones will need clear direction on how you want your assets distributed. Don’t leave the courts to decide or your hard earned assets may go to a cause (or individual) you would not want supported.

A financial and retirement plan should help you understand yourself and your behavior around money – through understanding you can better work with your loved ones and make lasting joint retirement decisions.

Seek independent advice and explore the actions that you need to implement today to have your finances support your future wishes.  The time is now.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Kaiser Permanente Physician Retirement

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Kaiser Permanente Physician Retirement Package

After a long career, retiring physicians employed at Kaiser are faced with a Retirement Package that presents excellent opportunities and multiple planning pitfalls. Giving yourself and your adviser sufficient time to plan each component will yield the greatest return for your situation. Make sure that your retirement plan supports your goals and addresses each phase in retirement while reducing your tax burden. Start early!

The first component of the Kaiser Retirement Package is based on the number of years of credited service and the average of your highest paid three consecutive annual earning (base+bonus) years. For most long-term Kaiser doctors, this is their largest retirement resource that can be in the range of $200,000/year (amount does depend on the specific situation). Although HR will calculate this value for you there are many critical decisions that you and your adviser will need to address. Some decisions such as your payout structure will need to be based on your goals, estate wishes and your tax situation. They will require that you make life-long decisions on how you will receive these retirement benefits. Will it be for Life, Joint & Survivor, Period Certain or Installment? – These are not generic or trivial questions.

The second component in Kaiser’s Retirement package for physicians is the Defined Contribution plan that will also be calculated for you but will require your input – particularly on how you wish it distributed. Do you want it as a lump sum, an installment or defer until you are 70.5? For tax reasons in particular, it is critical that this decision be made as early as possible (ideally 5 years before you plan to retire). Often this component of the Kaiser Retirement package generates about $30,000 per year (this amount does depend on your specific situation). Don’t forget that this amount will be further supplemented by social security.

The third component of Kaiser’s physician retirement package is a Salary Deferral employee funded or 401K plan. Your annual contributions, of tax deferred dollars ($16,500 limit in 2009), properly allocated and rebalanced will grow to supplement the first two components of the Kaiser Permanente Retirement Package. With these three components Kaiser physicians can retire at close to pre-retirement salary levels.

The final piece of the Kaiser Retirement Plan provides benefits such as health care, dental and insurance benefits. These should be reviewed carefully with your adviser to ensure that they match your lifestyle and will support all of your retirement needs.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com