How Do Retirement Investments Fit Into My Estate Plan?

Estate planning deals with your property after you pass away. Throughout your life, you may accumulate money, property, and other assets. When you die, that property has to go somewhere, and estate planning allows you to have a say in what happens with your estate.

Retirement planning and estate planning can be combined to make sure you have enough for your needs when you are no longer working but still have something to pass on to your loved ones. It is impossible to know when you may become incapacitated, so striking the right balance can be complicated. An estate planning attorney can help you prepare for the future. Contact an estate planning lawyer for legal advice about retirement investments and your estate plan.

What Are Your Retirement Investment Plan Options?

There are many types of retirement plans you can use to save up for when you retire. These types of investments may provide tax-deferred growth and other tax advantages. They can provide a source of income for you during retirement that is taxed at a lower rate than regular income. These options can also keep your assets outside of costly probate proceedings. Investment options include:

• Annuities: This is a plan that you buy from an insurance company where the company agrees to pay you monthly (or weekly, quarterly, or yearly) for a set amount of time or the rest of your life.
• Individual retirement account (IRAs): This is a tax-advantaged retirement plan. The money you put in will grow in a tax-free or tax-deferred manner.
• Roth IRA: This is an IRA in which you contribute after-tax dollars. Once you hit a certain age, you can make withdrawals on the tax-free growth of the account.
• 401(k): This is a common retirement plan offered by companies where you contribute pre-tax money to an investment account. Sometimes employers make contributions as well.
• Life insurance: This is an insurance policy that will pay out a certain amount of benefits after your death.

There are important differences between these investment options and what may be available to your beneficiaries. You can also include a collection of different types of investments, depending on the benefits and drawbacks. Consult an investment advisor, an estate planning lawyer, or a tax advisor before deciding how to invest your money.

What Are the Tax Benefits of Retirement Accounts?

Many investment options provide for tax-deferred growth. This means the retirement assets are tax-free while they remain in the account. You only pay tax on the distribution payouts. Many people are in a lower tax bracket after they retire, so the retirement income from capital gains will be at a lower tax rate.

Other tax advantages from these investment options depend on your financial situation. For most investors, making the maximum contributions to a 401(k) or a traditional IRA will be more advantageous than initially turning to an annuity. For example, all contributions to a 401(k) plan through your employer are made on a pre-tax basis. This means that you not only get the benefit of your 401(k) contributions growing on a tax-deferred basis. At the same time, you reduce your taxable income for the year. 

Another tax advantage of 401(k) plans is that many employers offer some sort of matching funds up to a certain percentage of your 401(k) contributions. You are getting free money from your employer to contribute to your 401(k) and enjoying significant tax savings. For most workers, it is worth contributing up to the maximum matching fund by your employer.

An IRA also offers substantial tax advantages. Based on your ordinary income, a certain amount of contributions to an IRA are deductible on your income tax return. The maximum IRA deduction amount changes every year. It is generally advantageous for investors to reap the full tax benefits of an IRA.

What Are the Benefits of an Annuity?

If you have invested your funds in a variable annuity through a 401(k) plan or IRA, you will not receive any additional tax advantage from the annuity contract. Choosing an annuity may not be as helpful until you consider some other benefits of the annuity. This includes a death benefit, which guarantees a certain level of income to a surviving spouse after the death of the annuitant.

How Can an Estate Planning Lawyer Help With Retirement Planning?

Different investment options offer distinct tax advantages and other attractive features. The best option for you depends on your financial situation. You should consult professional advisors in order to create a retirement and estate plan that best meets your needs.

An estate planning attorney can help you plan for your future needs and for your beneficiaries. Talk to an estate planning attorney about making a will and trust to reduce estate taxes and provide for your loved ones.