A growing proportion of wealth is held in retirement vehicles, such as 401(k), IRA, and 403(b) accounts. To maximize the tax and creditor protection benefits available to retirement account assets, consider the following:

  • IRA Charitable Rollovers - The IRA Charitable Rollover has been extended through 2014. Individuals age 70½ or older may exclude up to $100,000 from taxable income for donations paid directly to a charity from the donor’s IRA. While the rollover has only been extended through 2014, contributions made before April 15, 2015 may be designated as 2014 contributions. Additionally, on February 12, 2015, the House of Representatives passed a bill that, if enacted, would permanently authorize the IRA Charitable Rollover.
  • Traditional to Roth IRA Conversion - Although individuals with taxable income above a certain threshold ($131,000 for individuals and $193,000 for married couples filing jointly) are prohibited from contributing to a Roth IRA, anyone may convert their traditional IRA into a Roth by paying income tax on the previously untaxed assets. Withdrawals from a converted IRA are tax-free. Additionally, Roth IRAs are not subject to required minimum distribution requirements, allowing the account beneficiaries to control the distribution of funds. Generally speaking, a conversion is not recommended for anyone who anticipates a drop in taxable income, because he or she may pay more in taxes to convert the account than would be owed on withdrawals from a traditional IRA, made after the drop in income (and consequently, tax rate).
  • Update Beneficiary Designations - At an account owner’s death, assets in a retirement account pass pursuant to the owner’s beneficiary designation form. The owner’s Will does not control the disposition of the account. In order to ensure the proper disposition of account assets, an account owner should periodically review his or her beneficiary designation forms and update them when necessary. Care should be taken to determine if the assets should pass outright to the desired beneficiaries or if the assets should be transferred in trust. If you are contemplating a change in your beneficiary designation forms, please contact your Arnold & Porter attorney to discuss the proper beneficiary designations.
  • Creditor Issues After a 401(k) Conversion - Assets in a qualified retirement account, such as a 401(k), are insulated from creditor claims. Depending on the state where the account owner resides, these assets can lose creditor protection upon a conversion to an IRA. Even in states where converted 401(k)s are protected from creditors, such accounts must be segregated from non-converted assets.