Tax Planning for Retirees

Retirement Tax Planning Summary

  • § 1.00 Introduction (read Chapter 1 here)
  • —–[1] Summary of Tax Planning Ideas and Techniques
  • —–[2] The Key Role of Qualified Retirement Plans
  • —–[3] Tax-Favored Plans for Government Employees
  • —–[4] Tax-Favored Plans for Employees of Tax-Exempt Organizations
  • —–[5] Nonqualified Employer Retirement Plans
  • —–[6] Individual Retirement Arrangements (IRAs and Roth IRAs)
  • —–[7] Designated Roth Accounts
  • —–[8] Retiring Partners and Sole Proprietors
  • —–[9] The Role of Personally Purchased Annuities
  • § 1.01 Initial Tax Planning for Retirement
  • —–[1] Initial Considerations for Retirement Tax Planning
  • —–[2] Payment Options Under Employer Retirement Plans
  • ———-[a] Payment Options in General
  • ———-[b] Non-tax Considerations Affecting Choice of Payment Option
  • ———-[c] Taxation of an Annuity Payable over One or More Lifetimes
  • ———-[d] Taxation of Required Spousal Annuities
  • ———-[e] Taxation of Distributed Annuity or Life Insurance Contracts
  • ———-[f] Taxation of a Lump Sum Distribution of the Entire Amount of Benefits
  • ———-[g] Taxation of a Lump Sum Distribution of a Portion of Total Benefits
  • ———-[h] Distribution of Employer Securities
  • —————[i] Distribution of Employer Securities Containing Net Unrealized Appreciation
  • —————[ii] Distributions from Stock Bonus Plans and ESOPs
  • ———-[i] When Payments Begin Under Employer Retirement Plans
  • —————[i] When Qualified Plans Must Begin Payments
  • —————[ii] When Payments May Begin Under Section 401(k) and 403(b) Plans
  • —————[iii] When Payments May Commence Under Employer Pension Plans
  • —————[iv] When Payments May Commence Under Eligible State/Local Government Plans
  • —————[v] Earliest Date Retirement Payments May Begin Without Penalty
  • —————[vi] Latest Date Retirement Payments Begin Under Tax-Favored Employer Plans
  • ———-[j] Payment Elections Under Eligible Exempt Organization Plans
  • ———-[k] Planning Payments Under Unfunded Nonqualified Plans
  • —————[i] Elections Changing the Time and Form of Payment of Deferred Compensation
  • —————[ii] Special Treatment for Plans of States and Tax-Exempt Organizations
  • —————[iii] Short-Term Deferrals Not Subject to Usual Rules for Deferred Compensation
  • ———-[l] Qualified Retirement Plan Annuity Earned Substantially Outside U.S
  • ———-[m] U.S. Government Benefits Payable to Foreign Persons
  • —–[3] Transfers from Employer Retirement Plans to IRAs
  • ———-[a] Transfers from Employer Retirement Plans to IRAs Generally
  • ———-[b] Employer Plans Qualifying for Tax-Free Transfers to IRAs
  • ———-[c] Tax-Free Trustee-to-Trustee Transfers from a Plan to an IRA
  • ———-[d] Tax-Free Indirect Rollovers from a Plan to an IRA
  • ———-[e] Retention or Transfer of Investment in the Plan
  • ———-[f] Retention or Transfer of Employer Securities
  • ———-[g] Timing of Transfers from a Qualified Plan to an IRA
  • ———-[h] Transfers from Retirement Plans to IRAs by Surviving Spouse
  • —–[4] IRA Rollovers to Qualified Retirement Plans
  • —–[5] Avoiding the Penalty on Certain Early Distributions
  • ———-[a] The Penalty Tax and Exceptions
  • ———-[b] Avoiding the Penalty Using Substantially Equal Periodic Payments
  • —————[i] The Substantially Equal Payment Exception Generally
  • —————[ii] Substantially Equal Exception Safe Harbors
  • —————[iii] Tailoring the Source and Amount of Substantially Equal Payments
  • ———-[c] Avoiding the Penalty by Purchasing a Single-Premium Immediate Annuity
  • ———-[d] IRA Funds Transferred to an Employer Plan to Avoid the Penalty
  • ———-[e] Roth IRA Conversion While Receiving Substantially Equal Periodic Payments
  • ———-[f] Retention or Transfer of Investment in the Plan
  • ———-[g] Young Surviving Spouse
  • ———-[h] Form 5329 and the Statute of Limitations
  • ———-[i] Early Retirement of a Police Officer, Firefighter, or Emergency Medical Worker
  • —–[6] Employee Stock Options and Other Stock Rights
  • ———-[a] Dealing with Statutory Employee Stock Options and Stock Received
  • —————[i] Favorable Tax Treatment of Statutory Employee Stock Options
  • —————[ii] Satisfying Statutory Stock Option Conditions
  • —————[iii] Favorable Treatment of Statutory Stock Options After Retiree’s Death
  • —————[iv] Paying the ISO Exercise Price with Previously-Acquired Employer Stock
  • —————[v] Unfavorable Alternative Minimum Tax (AMT) Treatment of ISOs
  • ———-[b] Dealing with Nonstatutory Stock Options and Stock Received
  • —————[i] Tax Treatment of Nonstatutory Stock Options
  • —————[ii] Paying the Option Price with Previously-Acquired Employer Stock
  • —————[iii] Treatment of Forfeitures of Nonstatutory Stock
  • —————[iv] Gifts of Unvested Nonstatutory Stock
  • —————[v] Transfers of Nonstatutory Options or Stock Incident to Divorce
  • —————[vi] Death of Retiree Before Vesting of Nonstatutory Stock
  • ———-[c] Dealing with Employee Stock Rights
  • —–[7] Golden Parachute Payments
  • —–[8] Qualified Small Business Stock (QSB Stock)
  • —–[9] Retirement of Partners and Sole Proprietors
  • ———-[a] Partners and Proprietors as “Self-Employed Individuals” Under Retirement Plans
  • ———-[b] Special Section 736 Provisions for Retiring Partners
  • —–[10] Tax Treatment of Same-Sex Marriages
  • § 1.02 Tax Planning During Retirement Years
  • —–[1] Funds in Tax-Favored Plans Contributed to Roth IRAs or Roth Accounts
  • ———-[a] Taxable Qualified Rollover (TQR) Contributions to Roth IRAs
  • ———-[b] Long-term Tax Savings Due to Tax Rate Differential
  • ———-[c] Long-term Tax Savings Due to Transfer of High Income Assets
  • ———-[d] Transfers to Roth IRAs When Funds Not Needed in Retirement
  • ———-[e] Retention of Funds in Both Traditional IRAs and Roth IRAs
  • ———-[f] Potential Collateral Benefits of TQR Contributions
  • ———-[g] Limitations on TQR Contributions
  • ———-[h] Trustee-to-Trustee TQR Contributions to a Roth IRA
  • ———-[i] Indirect TQR Contribution from a Tax-Favored Plan to a Roth IRA
  • ———-[j] Choice of Qualified Plan or IRA for Making a TQR Contribution
  • —————[i] Different TQR Tax Computations for IRAs and Qualified Plans
  • —————[ii] Varying the Source and Timing of TQR Contributions
  • —————[iii] Multiple Rollovers from a Single Distribution by a Qualified Plan
  • ———-[k] TQR Contributions While  Receiving Substantially Equal Periodic Payments
  • ———-[l] Recharacterizations of TQR Contributions to Roth IRAs
  • —————[i] Desirability, Qualification, and Effect of a Recharacterization
  • —————[ii] Limited Time for Completion of a Recharacterization
  • —————[iii] Recharacterization of Contributed Assets that Decline in Value
  • —————[iv] Recharacterizations to Avoid Higher Tax Brackets
  • —————[v] Preserving Five-Year Participation for Nontaxable Roth Distributions
  • ———-[m] TQR Contributions by Surviving Spouses
  • ———-[n] Arrangements That May Shift Value to a Roth IRA from Related Entities
  • ———-[o] TQR Contributions to Designated Roth accounts
  • —————[i] TQR Contributions to Designated Roth Accounts Generally
  • —————[ii] Multiple Rollovers that Include a TQR Contribution to a Roth Account
  • —–[2] Nontaxable Rollovers from Designated Roth Accounts
  • ———-[a] Designated Roth Accounts Within Cash or Deferred Arrangements
  • ———-[b] Rollovers from Designated Roth Accounts to Other Roth Accounts
  • ———-[c] Rollovers from Designated Roth Accounts to Roth IRAs
  • ———-[d] Choice of Rollover to another Designated Roth Account or to a Roth IRA
  • ———-[e] Multiple Rollovers from a Single Designated Roth Account Distribution
  • —–[3] Planning for Required Minimum Distributions
  • ———-[a] Required Minimum Distribution Rules Generally
  • ———-[b] Choice of Annuity or Non-Annuity Minimum Distributions
  • ———-[c] Planning Non-Annuity Distributions for the First Minimum Distribution Year
  • ———-[d] Planning Non-Annuity Distributions for Married Individuals
  • ———-[e] IRAs and Plans Making both Annuity and Non-Annuity Minimum Distributions
  • ———-[f] Form 5329 and the Statute of Limitations
  • —–[4] Tax Planning for Required Spousal Annuities
  • ———-[a] Two Types of Spousal Annuities: QJSAs and QPSAs
  • ———-[b] Tax Deferral for Participants
  • ———-[c] Tax Deferral for Surviving Spouses
  • ———-[d] Dealing with Refusal to Consent
  • ———-[e] Marriage and Divorce Planning
  • —–[5] Temporary Personal Use of Rolled-Over Funds
  • —–[6] Rollovers of Plan Offsets for Qualified Loans
  • —–[7] The Nontaxable Portion of Social Security Benefits
  • ———-[a] Lowering Taxes on Social Security Benefits Generally
  • ———-[b] Lump Sum Payment of Prior Year Social Security Benefits
  • —–[8] The Nontaxable Portion of U.S. Military Disability Pay
  • —–[9] Plan Insurance Premium Payments for Retired Police, Firefighters, etc.
  • —-[10] Chronic Illness Costs and Insurance
  • ———-[a] Deductions for Long-Term Care Services
  • ———-[b] Long-Term Care Insurance
  • ———-[c] Fees Paid to Continuing Care Retirement Communities
  • —-[11] IRA Distributions Paid Directly to Charities
  • —-[12] Payments for Long-Term Disability
  • ———-[a] Sourced Disability Payments
  • —————[i] Taxable in Proportion to Employer Contributions
  • —————[ii] Conversions to Retirement Benefits
  • —————[iii] Corrections of Employer Errors or Methodology
  • ———-[b] Wholly Exempt Disability Benefits
  • —————[i] Types of Exempt Disability Benefits
  • —————[ii] Workers’ Compensation
  • —————[iii] Tort Judgments or Settlements for Disability
  • —————[iv] Structured Settlements
  • —————[v] Interest, Medical Expenses, and Attorneys Fees
  • —————[vi] Power of Attorney Effective Upon Disability
  • —-[13] Reverse Mortgages: Drawing Retirement Funds from Home Equity
  • —-[14] Tax Treatment of the Sale of a Retiree’s Residence
  • —-[15] Minimizing the Medicare Tax on Net Investment Incomee
  • —-[16] Tax-Free Restorative Payments
  • § 1.03 Beneficiary Tax Planning
  • —–[1] Beneficiary Tax Deferral Planning Generally
  • —–[2] Tax Deferral Planning for Surviving Spouse Who Is Sole Beneficiary
  • ———-[a] Alternative Rules for Surviving Spouse Who Is Sole Beneficiary
  • —————[i] When Surviving Spouse Qualifies as the Sole Beneficiary
  • —————[ii] Death of Retiree After Required Beginning Date (RBD)
  • —————[iii] Death of Retiree Before Required Beginning Date (RBD)
  • ——————–[A] Annuity Rule and Non-Annuity Alternatives
  • ——————–[B] Death in Calendar Year Before Year Attaining Age 65 ½
  • ——————–[C] Death in Calendar Year Attaining Age 65 ½ or in Subsequent Years
  • ——————–[D] Limited Period for Choosing Distribution Rule
  • ———-[b] Spousal Election to Own IRA or Roth IRA
  • —————[i] Spousal Ownership of IRAs and Roth IRAs Generally
  • —————[ii] Spousal Ownership of IRA; Spouse Younger than Decedent
  • —————[iii] Spousal Ownership of IRA; Spouse Older than Decedent
  • —————[iv] IRA or Roth IRA Ownership Election for Young Surviving Spouse?
  • —————[v] Alternative Where IRA Ownership Election Not Available
  • —————[vi] Interest of Surviving Spouse in a Qualified Retirement Plan
  • ——————–[A] Tax-Free Rollovers to Spouses’ IRAs or Roth IRAs
  • ——————–[B] Tax-Free Rollovers to Spouses’ Retirement Plans
  • ——————–[C] TQR Contributions to Spouses’ Roth IRAs or Roth Accounts
  • ———-[c] Surviving Spouse’s Designation as Owner or Beneficiary After Rollover
  • ———-[d] Community Property Interests; Spouses and Registered Domestic Partners
  • —–[3] Tax Planning if Spouse Is Not a Beneficiary or Is Not the Sole Beneficiary
  • ———-[a] Alternative Rules When Surviving Spouse Not Sole Beneficiary
  • —————[i] Death of Retiree After Required Beginning Date (RBD)
  • —————[ii] Death of Retiree Before Required Beginning Date (RBD)
  • ——————–[A] In General
  • ——————–[B] Comparison of the Five-Year Rule and the Life Expectancy Rule
  • ——————–[C] Choice of the Five-Year Rule or the Life Expectancy Rule
  • ——————–[D] Limited Period for Choosing Distribution Rule
  • —————[iii] Stretching the Distribution Period
  • ———-[b] Rollovers by Beneficiaries
  • —–[4] Advantages of Establishing Separate Accounts for Beneficiaries
  • —–[5] Advantages of a Trust as the Beneficiary of a Plan or Arrangement
  • ———-[a] Choosing a Trust as Beneficiary of a Plan or Arrangement
  • ———-[b] Designated Beneficiary Exception for Certain Trusts
  • ———-[c] Use of Conduit or Grantor Trusts
  • ———-[d] Use of Other Trusts with Identifiable Beneficiaries
  • ———-[e] Use of Powers of Appointment
  • ———-[f] Use of Other Trusts with Identifiable Beneficiaries
  • ———-[g] Separate Accounts, Separate Trusts, and Subtrusts
  • ———-[h] Special Needs Trusts: Structuring and Funding
  • ———-[i] Elimination of Beneficiaries Before Finally Determining  Designated Beneficiaries
  • ———-[j] Payment by a Trust of Estate’s Expenses, Creditors, and Taxes
  • ———-[k] Planning with Trust Tax Accounting Rules
  • —————[i] Special Allocations of Different Classes of Trust Income to Beneficiaries
  • —————[ii] Special Allocations of Trust Expenses to Classes of Income
  • —————[iii] Separate and Independent Beneficiary Shares in a Trust
  • —————[iv] Trust Transfers of Beneficial Interests in IRAs and Other Retirement Plans
  • —————[v] Charitable Contributions Paid by a Trust
  • ———-[l] Trusteed IRA as Alternative to Naming Trust as Beneficiary
  • ———-[m] Placing Benefits Left to Surviving Spouse in Trust
  • —–[6] Use of Disclaimers in Post-Mortem Tax Planning
  • —–[7] Designation of Charity as a Beneficiary
  • —–[8] Advantages of Personally Purchasing an Annuity
  • —–[9] Beneficiary Elections for Unfunded Nonqualified Plans
  • —-[10] Rollover of Military Death Gratuities and Life Insurance Proceeds
  • —-[11] National Guardsmen or Reservists Dying or Injured on Active Duty
  • —-[12] Planning to Reduce Federal Estate Taxes on Retirement Benefits
  • ———-[a] Federal Estate Taxes Generally
  • ———-[b] Use of the Marital Deduction for Retirement Benefits
  • ———-[c] Use of the Charitable Deduction for Retirement Benefits
  • ———-[d] Effective Use of the Applicable Exclusion
  • —————[i] Portability of the Applicable Exclusion
  • —————[ii] Traditional Planning May Still Be Useful
  • —————[iii] By-Pass Trust as Beneficiary of a Tax-Favored Retirement Plan
  • ———-[e] Effective Estate Planning

» Chapter 2 – QUALIFIED RETIREMENT PLANS