Natalie Choate Releases 201 Best and Worst Strategies
Today's tax regime is
unforgiving to the wealthy, but there are still plenty of strategies to help
mitigate the impact — if you're creative.
Tax expert Natalie B. Choate,
who is of counsel at Nutter McClennen & Fish LLP, unveiled her “201 Best
and Worst Planning Ideas for Your Client's Retirement Benefits” at The
Retirement Income Summit in Chicago.
Regarding distribution
strategies, wealthier clients already are using withholding of their income
taxes from their IRA distribution to reduce estimated taxes.
Your wealthy client who is over
age 70½ doesn't want or need to take the distribution from his IRA, but he has
to,” Ms. Choate said. “He also hates paying estimated income taxes.”
One way to soften the blow is
to use the 2013 required minimum distribution from the IRA to pay down the
year's estimated income taxes on Dec. 1. The RMD payment should go straight to
the IRS from the company holding the IRA, Ms. Choate said. By doing so, the
client avoids paying these taxes in four installments and the withheld income
taxes are credited to the client as if he or she had paid them throughout the
year, even though the IRS didn't get the money until December. This can amount
to a few thousand dollars in savings, Ms. Choate said.
Other good ideas on
distributions from a retirement plan is for individuals over 70½ to direct up
to $100,000 from an IRA to a favorite charity. It has to be a charitable organization,
not a donor-advised fund, a charitable remainder trust or the client's own
private foundation.
By shipping the money off to a
charity, the client is keeping that money out of his or her adjusted gross
income, which can have lots of planning implications for the taxability of
Social Security benefits, the amount the client has to pay in Medicare premiums
and the application of the new surtax on investment income, Ms. Choate said.
Single people with more than $200,000 or married couples filing jointly who
have more than $250,000 in adjusted gross income are subject to the 3.8% surtax
on investment income. Moving that money out of the IRA via a charitable
distribution can keep some people below those AGI limits, she said.
“This
isn't something that's just for billionaires and millionaires,” Ms. Choate
said. “It helps lower income for people who are charitably inclined.”
In terms of rollover guidance,
Ms. Choate unveiled a number of tips, including how to ensure that clients who
are remarrying can pass their retirement plan benefits to their children.
The Employee Retirement Income
Security Act of 1974 requires that a worker's spouse be named a beneficiary on
an ERISA plan. But clients can sidestep that if they roll their money over to
an IRA before they get married and allow the children from the earlier marriage
to be beneficiaries. “IRAs are subject to state law spousal rights, which you
can waive with a prenuptial agreement,” Ms. Choate said.
But what if the client has
already remarried and only now finds out about the ERISA requirement?
“With a 401(k), you can roll
over to an IRA without spousal consent, at least under federal law,” Ms. Choate
said. “I've heard sad stories here at this conference where things could have
gone better if only people had known the rules.”
