| It is universally accepted that death and taxes are the | | | | taxes easier for your heirs. The option of transferring |
| only two certainties of life. However by designing a tax | | | | assets to an irrevocable trust is a good one if you are |
| efficient strategy for investment and distribution, people | | | | approaching the threshold of $2 million. In this |
| who are retiring can keep majority of their assets for | | | | arrangement assets are passed on without estate |
| themselves and for their heirs. Here are four of them. | | | | taxes, which save thousands of dollars to your heirs. A |
| 1. Selecting appropriate investments | | | | specific point is - keep in mind moving assets from |
| Municipal bond is a choice of most of the retiring | | | | your tax deferred account prior to 70 ½ years. |
| people for investments. These bonds enjoy exemption | | | | You can make a tax free gift of $12,000 for every |
| from Federal taxes on the interest. If your tax bracket | | | | individual ($24,000 for married couples) every year. |
| is higher, then these bonds give you a real advantage. | | | | This is a good distribution strategy from your taxable |
| You can also think of investing in mutual funds which | | | | estate. Also making gifts to kids over fourteen years |
| are tax-managed. There are a lot of strategies | | | | of age is a good strategy because the dividends |
| employed by the managers of these funds to get the | | | | which are gains will be charged at a lower rate than |
| tax efficiency. Also from 2003 onwards, the maximum | | | | those charged to the adults. |
| federal tax rate on many dividend producing | | | | 4. Management of RMDs |
| investments is limited to 15%. So it is advisable to make | | | | It is necessary that you should start taking an annual |
| an appropriate mix of municipal bonds, high yield bonds | | | | RMD from your traditional IRAs after your age of |
| and growth stocks or value stocks to get maximum | | | | 70½. The logic behind RMD rule is very simple |
| tax advantage. | | | | -withdraw less every year if you're expected to live |
| 2. Order of liquidating your securities | | | | longer. The RMDs take into account the age of a |
| This is a very important decision to be taken by the | | | | participant, and they are based on a uniform table. If |
| retiring people. Generally it is advisable to hold on the | | | | you are unable to take the RMD, then it can result into |
| tax deferred investments because they compound on | | | | tax penalties which are 50 per cent of the required |
| a pre-tax basis and naturally have better earning | | | | distribution amount. If you feel that you will be taken |
| potential as compared to taxable investments. | | | | into a higher tax bracket at the age of 70 ½ due |
| However, remember that the tax deferred | | | | to RMD rules, you may start withdrawing when you |
| investments ordinarily attract federal income tax rate | | | | are in sixties. |
| of 35% while the rate is maximum 15% for taxable | | | | However if you are contributing to Roth IRA, there is |
| investments. This is because capital gains on these | | | | no necessity to take distribution by age 70½. |
| investments held for less than a year will be taxed at | | | | You will be never required to take distributions from |
| a regular rate. | | | | such accounts and whenever you withdraw it is tax |
| So it isn't good to hold taxable securities for a longer | | | | free. So you should liquidate your investments from a |
| time in order to get the tax rate of 15%. Long-term | | | | Roth IRA only after exhausting your other sources of |
| capital gains are most attractive from the point of | | | | income. |
| view of estate planning because you get the 'basis' on | | | | There will always be some complications when you |
| appreciated assets. | | | | plan your taxes for retirement. So it is better to plan |
| 3. Appropriate gifting strategies | | | | well in advance and if necessary consult a tax adviser |
| There are many strategists to make the payment of | | | | and a real estate expert to sort out your options. |