The Problem...
Retirement plan accumulations are continuing to grow. For many years the tax laws have encouraged the use of tax qualified plans to accumulate substantial retirement assets. These funds have accumulated and are now subject to a variety of taxes and penalties. Since there is no way to really avoid the tax, the next best possibility is to prepare for the tax in an attempt to reduce the overall impact.
Income Tax |
For an ordinary IRA the full-accumulated amount of every distribution is subject to the federal income tax. If distributions occur at death, the remaining balance is taxable as ordinary income in the year of death. Only net (face minus cash value) insured death benefits would bypass the income tax. |
Estate Tax |
Tax-qualified assets are fully included and taxable under the regular federal estate tax rules. While the unlimited marital deduction is available if the beneficiary is the surviving spouse, any remainder will ultimately be taxed in the survivor’s estate. |
Minimum Distribution Tax |
If we accumulate qualified assets, the laws make it hard to pass these assets to the next generation by making the owner take certain minimum distributions after the age of 701/2. If the minimum required distribution isn't met, this tax is equal to 50% of the amount that should have been distributed and wasn't. |
The Solution... The only solution is to plan for the possibilities. The tax (unless all is given to charity) can not be eliminated. However, with planning the impact of the tax can be minimized.
distTool allows the setup of multiple IRA accounts including both Roth and Ordinary IRA accounts. Each account can have it own designated beneficiary.
distTool contains a variety of reports including...
Cover Page: This page is designed to introduce your client to the analysis.
Planner's Notes: You can add your notes regarding this client and save the notes with the client file.
IRA Eligibility: This report looks at eligibility to participate in an Ordinary IRA (tax-deductible or non-deductible) or an ordinary IRA. The entries on the Client Information screen relating to income, type of tax return filed, and plan participation are used to generate this report.
Current IRA Accounts: This report provides a summary of existing IRA Accounts used in the Analysis.
Specifications/Assumptions: Details of the assumptions and important dates are included on this report.
Plan Summary -All Years: This report provides a one page numeric and graphic summary for the plan. It includes a summary for the entire period and the status in the final year.
Graphic Summary -All Years: This report provides a graphic year-by-year analysis of all IRA accounts used in the plan.
Numerical Summary -All Years: This report provides a year-by-year analysis of all IRA accounts used in the plan.
Select Single Year: This is a one page report that highlights a single year selected on the report tool bar.
Select Single Year Summary: This report provides a one page numeric and graphic summary for the plan from the first year through the selected year. It includes a summary for the entire period and the status in the final year. The report is based on the year selected on the tool bar.
Estate Settlement: A year-by-year analysis of maximum estimated estate settlement costs.
Distribution Analysis - Ordinary IRA: This report provides a year-by-year analysis of only the ordinary IRA accounts used in the plan.
Distribution Analysis - Roth IRA: This report provides a year-by-year analysis of only the Roth IRA accounts used in the plan.
Minimum Distribution Factors: This report provides a table of minimum distribution factors based on the Primary Beneficiary as entered on the Client Information screen.
Historical Inflation: A graph that illustrates historical inflation beginning with your client's year of birth and ending last year.
Projected Inflation: A graph that projects inflation's impact on the value of $100 beginning today and ending with the last year of the report. The inflation rate used is the rate entered on the 'Investment Return / Taxes /Inflation' screen.
Financial Pyramid: A simple graphic used to explain risk and return.
For calculations associated with tax-qualified minimum distributions, check out distTool from yyyZ, Ltd. -- it can highlight the problems and let you offer possible solutions.
System Requirements
The minimum recommended system configuration is a Pentium computer operating Windows 95 or Windows NT 4.0
The Price
distTool is priced at $45
Questions that may influence your decision...
iraTool, rothTool and distTool will handle all required minimum distribution calculations associated with both traditional IRA accounts and the new Roth IRA accounts. For a Roth IRA there are no minimum distribution requirements during the account owner's life, or if the designated beneficiary is the account owner's spouse. However, if there is a non-spouse beneficiary, the account must be distributed either:
- By December 31 of the year containing the fifth anniversary of the grantor’s death; or,
- Over the life expectancy of the designated beneficiary starting no later than December 31 of the year following the year of the owner’s death. Life expectancy for beneficiary is calculated using the attained age of the non-spouse beneficiary, as of the beneficiary’s birthday in the year distributions are required to begin.
iraTool, rothTool and distTool all have the following options regarding life expectancy calculation options:
Recalculate participant only;
Recalculate participant and beneficiary;
Recalculate participant and not beneficiary;
Recalculate beneficiary and not participant; or,
No recalculation of life expectancy for participant or beneficiary.
3. What distribution options are available to determine the payout at retirement?
iraTool, rothTool and distTool all allow you to set different (or the same) distribution patterns for the Ordinary IRA and the Roth IRA. Planned distributions may include:
Minimum Distributions;
Amortization to a given age;
Amortization to a given age but not less than the Required Minimum Distribution;
Distribution of a percentage of the accumulated fund;
Distribution of a percentage of the accumulated fund but not less than the Required Minimum Distribution;
Level withdrawal amount;
Level withdrawal amount but not less than the Required Minimum Distribution; and,
Level withdrawal amount increasing by a stated percentage each year and not less than the Required Minimum Distribution.
3. Does the software have the ability to handle both the recalculation of life expectancies and term certain methods?
4. Does the software have the ability to handle spousal rollovers for Roth IRAs?iraTool, rothTool and distTool will handle both recalculated and non-recalculated (sometimes referred to as term certain) methods.
5. Does the software take into account estate taxes?Spousal rollovers can be handled for both traditional and Roth IRA plans. Because of the design of iraTool, you can assume that the surviving spouse continues, or rolls over, the remaining account balance. By setting up a second scenario, the surviving spouse can even designate grandchildren allowing the illustration of the 'Stretch IRA' concept.
Estate taxes are automatically calculated for each year of the plan. For additional estate assets you can also designate both a growth rate and a percentage administrative expense charge. 6. Is the software updated to reflect '98 tax changes?
The '98 tax changes are reflected in iraTool, rothTool and distTool.
The Price
rothTool is priced at $45
distTool is priced at $45
iraTool is priced at $80 (contains both rothTool and distTool)