There’s no limit on the number of IRAs you can have. You can also own multiple types of IRAs, like a traditional, a Roth, a SEP, etc. You can even own multiple IRAs of the same type at the same or different financial institutions.
A Nerd Wallet article simply asks, “Can You Have Multiple IRAs?” The article notes that increasing the number of IRAs you own doesn’t necessarily increase the amount you can contribute annually. Let’s look at the pros and cons of having multiple IRAs.
Having multiple IRAs can help you fine-tune your tax strategy and gain access to more investment choices and increased account insurance. Different types of IRAs give you different tax breaks. A traditional IRA gives you an immediate tax deduction, letting you delay what you owe the IRS, until you begin withdrawing your savings from the account in retirement. With a Roth IRA, there’s no upfront tax break on contributions, but qualified withdrawals are tax-free.
Having IRAs at multiple financial firms can give you a choice of different types of investments and even different investing strategies.
The main drawback of multiple IRAs is the hassle. Think about double (or quintuple) the paperwork. While it’s easier than ever to monitor and manage your money online, having multiple accounts means dealing with multiple tax forms, notices of service changes/updates, privacy policies and other disclosures.
When your assets are spread across multiple accounts, monitoring performance and rebalancing the overall mix to maintain a coherent investment strategy is more involved.
For most people, the right number of IRAs is at least two: a Roth and traditional IRA, in addition to a workplace retirement plan, if you’ve got one. The Roth IRA gives you the most flexibility both before you retire (tax- and penalty-free withdrawals of contributions) and in retirement (tax-free distributions and no required minimum withdrawals). If you qualify to contribute to a Roth IRA, it’s worth having one.
A traditional IRA is a wise choice for money from old workplace retirement plans, or if the upfront tax deduction incentivizes you to save more. You’ll likely get access to more investment options and more control over fees, as opposed to your old 401(k). Rolling the money from a plan funded by your pretax dollars into a traditional IRA, which treats taxes the same way, also ensures there aren’t any surprise bills from the IRS.
Reference: Nerd Wallet (February 26, 2019) “Can You Have Multiple IRAs?”
Attorneys who focus their practices on estate planning, know that not every story has a happy ending. For some of them, it’s a professional mission to make sure that young parents are prepared for the unthinkable, says KTVO in the article “Family 411: Thinking about estate planning while your kids are young.”
It’s a very easy thing to forget, because it’s so unpleasant to consider. The idea of becoming seriously ill or even dying while your children are young, is every parent’s worst fear. But putting off having an estate plan with a will that prepares for this possibility is so important. Doing it will provide peace of mind, and a road forward for those who survive you, if your worst fears were to come true.
Start with a will. In a will, you’ll name a guardian, the person who would be in charge of rearing your children and have physical custody of them. Don’t assume that your parents will take over, or that your husband’s parents will. What if both sets of parents want to be the custodians? The last thing you want is for your in-laws and parents to end up in a court battle over custody of your children.
Another important document: a trust. You should have life insurance that will be the source for paying for the children’s education, including college, summer camps, after-school activities and their overall cost of living. In addition, proceeds from a life insurance policy cannot be given to a minor.
However, what if your son or daughter turned 18 and were suddenly awarded $500,000? At that age, would they know how to handle such a large sum of money? Many adults don’t. A trust allows you to give clear directions regarding how old the child must be, before receiving a set amount of money. You can also stipulate that the child must complete college before receiving funds or reach certain milestones.
An estate plan with young children in mind, must have a Power of Attorney for financial decisions and one for medical decisions. That allows a named person to make important financial and medical decisions on behalf of the child. You may not want to have their legal guardian in charge of their finances; by dividing up the responsibilities, a checks and balances system is set into place.
However, for medical decisions, it is best to have one primary person named. In that way, any care decisions in an emergency can be made swiftly.
While you are creating an estate plan with your children in mind, make sure your estate plan has the same documents for you and your spouse: Power of Attorney, medical Power of Attorney, a HIPAA release form and a living will.
Speak with a local estate planning attorney who has experience in planning for young families.
Reference: KTVO.com (Feb. 6, 2019) “Family 411: Thinking about estate planning while your kids are young”
A woman wakes up to hear her husband gasping for breath, unresponsive and in full cardiac arrest. He was only 55, he biked 25 to 50 miles every day, he ate right and was one of the healthiest people she knew. Yet, he was having a heart attack. He did not have a health care directive in place, and she did not know what his wishes were in the case of a health emergency.
The story, as related in “START WITH A PLAN (not a heart attack)” from OakPark.com, is not as unusual as one would think. What does make it unusual, was that both of these individuals are attorneys. They had never had an estate plan created or drafted documents.
As the woman sat by his hospital bed in the critical care unit after his surgery, she started thinking about the practical realities. If he remained unconscious for some time, how would she access his individual finances, his paycheck or pay the monthly bills? She would need to hire an attorney and seek guardianship from the court to handle his financial affairs. If he died, she’d have to hire an attorney and open a probate case.
Without a will in place, her husband’s estate would be deemed intestate, and the laws of the state, in her case, Illinois, would be applied to distribute his property. Half of his property would be distributed to his children and the other half to her.
That might mean she would have to borrow money from her own children to pay bills and cover their college tuition.
Her husband responded well to the surgery, but at one point he needed to be transferred to another hospital. As they travelled by ambulance to another hospital, a terrible thought occurred to her: what if the ambulance were in an accident and they were both killed? Who would rear their children? How long would it take to settle the estate, with no will?
Thankfully, the ambulance arrived safely at the hospital, her husband recovered from his heart attack and the first thing they attended to when he recovered was their estate plan.
It’s a dramatic story, but a telling one: everyone, no matter how healthy, needs to have an estate plan in place. That means a will, power of attorney, healthcare proxy, HIPAA release form and any other planning tools that each family’s situation may need.
Make an appointment to meet with an estate planning attorney to put your plan in place. Don’t wait until you have time, because you never know when you may run out of time.
Reference: Oak Park.com (Feb. 27, 2019) “START WITH A PLAN (not a heart attack)”
This is just one of the reasons people think they want a trust: to ensure that the value of their overall estate will not decrease, because of the cost of probate. The most common way to do that is with a trust, says The Houston Chronicle in the article “Elder Law: Which should I have—A Living trust or a will?”
In some states, probate is not an expensive or overly time-consuming issue. Texas, for example, has what is called an independent administration. Executors handle the tasks involved in settling an estate and distributing assets to beneficiaries. As a result, there’s very little court involvement. However, that’s not the case everywhere. An estate planning attorney in your area will be able to explain the details of your state’s procedures and discuss whether a trust is right for your estate. They’ll also explain the difference between different types of trusts.
The trust most frequently used to avoid probate, is known as a revocable management trust, living trust or an “inter vivos” trust.
Selecting the best type of trust for each situation is different. Here are some advantages of living trusts:
Avoiding probate. The cost of probate alone is not reason enough to use a trust. However, if your assets are in trusts, you may not need to file an inventory listing your assets with the court. That’s not always required in every jurisdiction, but if it is required where you live, a trust can help keep your asset list private, by ensuring that it is only seen by beneficiaries.
Asset management for incapacity. A living trust goes into effect, while you are alive. If you become incapacitated, an alternate trustee can step in to manage assets, pay bills and ensure that finances are taken care of.
Avoiding probate in another state. If you own out-of-state property, your estate may need to be probated in your home state and in the other state. If you have a living trust, out-of-state parcels of land can be deeded into the trust during your lifetime, thus avoiding the need for probate in another state. After your passing, your trustee can handle the out-of-state property in the living trust.
Administrative ease. There are, unfortunately, instances when Power of Attorney can be challenged by financial institutions. The authority of a trustee is more likely to be recognized, by banks, investment companies, etc.
There are some questions about whether it’s better to have a living trust or a will. The most complex part of having a living trust, is the process of funding the trust. It is imperative for the trust to work, that every asset you own is either transferred into the trust or retitled into the name of the trust. If assets are left out or incorrectly funded, then probate will probably be necessary. This can occur, even if only one single asset is left out.
If an asset is controlled by beneficiary designation, then the trust may not need to be named a beneficiary, should you want it to pass directly to one or more beneficiaries.
Funding the trust becomes complicated, when retirement accounts are involved. Consult with an experienced estate planning attorney, if you want to make the trust a designated beneficiary of a retirement account. This is because very specific and complex rules may limit the ability to “stretch” the distributions form the account.
Using a trust instead of a will-based plan is growing in popularity, but it should never be an automatic decision. An estate planning attorney will be able to explain the pros and cons of each strategy and help you and your family decide which is better for you.
Reference: The Houston Chronicle (Feb. 15, 2019) “Elder Law: Which should I have—A Living trust or a will?”
Here’s a sad fact: The Humane Society of the United States estimates that as many as 100,000 to 500,000 pets end up in shelters, after their owners die or become incapacitated. So, while we spend upwards of $60 billion on food, supplies and veterinary care, says The National Law Review in “Estate Planning For Your Pets,” we also allow many beloved pets to end their lives in shelters.
The answer is to include your pet’s care in estate planning, just as we do for our family members. The first major consideration is to name who you would want to be responsible for your pet, if you should become incapacitated. Make sure that person is willing to take on the role of caretaker and that they have sufficient room in their homes (and their hearts) for your pets.
If they agree, then start by preparing a sheet with this basic information:
- What does your pet eat? Do you give him/her treats, and if so, what kind?
- Medical records for your pet: vaccinations, surgery, special medications.
- The name of the veterinarian and any specialists.
- What does your pet do, when she/he is nervous or anxious? What calms them down?
- What other information would you want someone to know, in your absence?
Speak with your estate planning attorney to see if they have a “Pet Care Authorization” form. This is a form that is similar to something you would use for a child staying with a relative who might need care. The form would designate the agent to act on your behalf for a variety of situations, including medical care.
For planning for your pets after you die, you can designate a caretaker. This may be the same person who agreed to care for your pet, if you became incapacitated. You can do this in a last will and testament or a revocable living trust. You’ll also need to provide funding for the care of your pet.
You can use a trust as an alternative to an outright distribution of funds to the caretaker. The pet trust would be overseen by a named trustee, who would be responsible to ensure that funds are used to benefit your pet(s). Make sure to allot a reasonable amount of money to cover the cost of veterinary care, grooming, feeding, training and any additional expenses.
You don’t have to be a wealthy person to have this arrangement in place. It is simply a practical matter to ensure that your furry family members are taken care of, after you pass away. Another factor to consider: what is the average age expectancy of your pet? A parrot could easily live 60 to 80 years, and a horse could live for four decades. The care and feeding of a horse will be considerably higher, than for a golden retriever or house cat.
Speak with an estate planning attorney to learn how pet care can be built into your estate plan, so next time your pet welcomes you home you will know you’ve planned for their future.
Reference: The National Law Review (Feb. 18, 2019) “Estate Planning For Your Pets”
Enjoy these tunes as we ease into the first weekend of Spring….
The reason the revocable living trust is so appealing is in its name: it can be changed by the grantor at any time. The revocable trust lets you determine exactly how you want your estate to be distributed to beneficiaries upon your death, and can be used to put some assets out of reach of probate, says Barron’s in the article “Why a Trust is a Great Estate Planning Tool – Even if You’re Not Rich.”
Many people want to try to avoid probate, the legal process by which a will is deemed to be valid. The problem of probate is that in some states, it can take a long time, and court fees can mount up quickly. Depending on where you live and how complex your estate is, it could potentially add about 5% to the value of your estate.
There are a number of ways to avoid probate, including owning property jointly, using payable-on-death (POD) accounts, or payable-on-death transfers. Many people use trusts to solve this problem. An estate planning attorney will review assets and determine which ones should be assigned to the trust. Some people chose to put all of their probatable assets into the trust. That may include brokerage accounts and real estate, jewelry, art collections and other valuables.
Retirement accounts, insurance policies and any other assets with beneficiaries are not included in the trust, because they do not go through probate.
The revocable trust allows you to control the trust, including making changes or revoking it completely.
There is a trade-off, however. Since the trust is considered part of your estate, it does not offer tax benefits or asset protection. An irrevocable trust is used by estate planning attorneys to remove assets from the estate, but they are difficult to change or cancel.
Another benefit of a trust is to provide you with clarity and control. A trust can be used to outline exactly how you want heirs to receive their inheritance. You can specific the ages and conditions for heirs. That may include completing college or reaching a milestone in life.
In families with special needs individuals, a Special Needs Trust is used to protect an individual’s ability to receive government benefits. Special Needs Trusts are designed, so that disbursements can take place to cover costs for health or comfort that may not be paid for by Social Security, Medicare or other programs.
In blended families, trusts clarify which assets should go to a surviving spouse and which should go to the children of a first, second or even third marriage.
An estate planning attorney will be able to review your personal situation and make recommendations for the type of trust that will work best for you and your family.
Reference: Barron’s (Feb. 23, 2019) “Why a Trust is a Great Estate Planning Tool – Even if You’re Not Rich”
But don’t pat yourself too much — you’re not done yet. A will is not a static instrument, says The Item in its recent article “Don’t wait until high noon.” If laws change, which happens regularly, or your life changes, you need to review your will and be aware of any significant changes that may have an impact on your will and its goals.
Marriage, divorce, birth, adoption and death are some of the key trigger events in life that call for a review of your will. Some of these events seem very obvious, but others aren’t. That is when problems can arise. For instance, if a widow or widower remarries, the will needs to be updated to clarify how the new spouse and the children from prior marriages are to be provided for.
Welcoming a new child into the family is an event to celebrate, whether by birth or adoption. The will needs to add the new child. However, there’s another step that may be even more important. A will is used to name a guardian for the child, so the parents may name a person to rear their child in their absence. If a guardian is not named, then the court will select someone who might have not been the parent’s first (or even second) choice.
The death of an executor, beneficiary, guardian or trustee named in the will also means that the will needs to be updated. If the person who has died is a beneficiary, their name needs to be removed. You may want to reconsider how assets are distributed. For executors, guardians or trustees, remember to add a secondary person for each role.
What if you inherit an unexpected fortune? You’ll definitely need to review your will, since your estate tax liability may have changed. Even if you don’t owe federal estate taxes, there may be state estate taxes to plan for. If you suffer a large financial loss, you’ll need to review your will, since the generous gift you had planned on leaving to a nonprofit. may no longer be available.
Some changes to wills occur because people change their minds about how they want to distribute their assets, or who they want to handle their post-mortem responsibilities. If you have a falling out with an executor, for instance, that change needs to be made in a timely manner.
If you have not reviewed the beneficiaries who are named on your life insurance policies and retirement accounts, and any other accounts where beneficiaries are named, you’ll want to do that too. If your will says cousin Andrew gets your life insurance policy proceeds, but his sister Stella is the one named as the beneficiary, then only Stella receives the proceeds. The named beneficiary is a contract that cannot be challenged or changed, regardless of what your will says.
If you don’t yet have a will, now is the time to make an appointment to meet with an estate planning attorney in your community. Remember that estate laws are set by the state of your residence, so an experienced estate planning attorney in your area is your best source.
Reference: The Item (Feb. 15, 2019) “Don’t wait until high noon”
When you are thinking about getting married, Social Security retirement benefits are probably the last thing on your mind. If you are not fresh out of college, however, you need to think about this question: Will getting married affect an older American’s Social Security benefits?
Marriage could affect the amount of Social Security benefits you might get one day, depending on whether it is your first marriage and your age when you marry. Many people discover this fact too late, and then have to live with the consequences.
First Marriages and Social Security Retirement Benefits
If this is your first marriage, you can go back to thinking about the caterer, the cake and who to seat next to whom at the reception. Your first marriage does not change the amount of Social Security retirement benefits that you will eventually collect.
The Social Security Administration (SSA) will calculate the amount of your monthly Social Security check, by using the earnings from your 35 highest-earning years. Your spouse’s benefits will go through the same calculation process.
The only difference that the first marriage makes is that you could have two people in the same household who each get a Social Security retirement check one day, instead of one person, if you stayed single and lived alone. When you qualify for retirement benefits because of your work record and earnings history, the amount is the same, regardless of your marital status.
How Remarriage Can Affect Your Eligibility for Social Security Retirement Benefits
You could marry 12 times, and it would not change the amount of Social Security retirement benefits you will get based on your work record and earnings history. On the other hand, if you are counting on getting benefits because of your previous spouse’s work record and earnings history, you might be in for a shock if you remarry.
If your previous marriage ended because of death or divorce, you can usually start to collect survivor benefits when you turn 60, or at age 50 if you are disabled. A person in this situation who remarries before age 60 (or 50 if disabled) loses the right to get those survivor benefits. The only way to become eligible again under your previous spouse’s work record, is if your current spouse dies or you get divorced.
If you wait until after you turn 60 (or 50 if you are disabled) to remarry, you can still collect benefits using a deceased previous spouse’s work record. So, if you are, for example, 59 years old and not disabled (or 49 and disabled), you might want to wait a year before getting married again.
The rules are different, if your former spouse is still alive and your marriage ended by divorce. You lose the Social Security retirement benefits from the former spouse’s work record, if you marry at any age. You can become eligible again, if the subsequent spouse dies or you divorce. In other words, if you marry again when you are 99 years old, in this situation, you will lose your benefits linked to the former spouse.
AARP. “How does marriage affect Social Security benefits?” (accessed February 18, 2019) https://www.aarp.org/retirement/social-security/questions-answers/does-marriage-affect-social-security/