Planning for retirement is no simple task. In addition to figuring out how much you’ll need to live on and how much you should set aside each year, there are so many retirement plans to choose from, each with its own rules and regulations. Here are a few common retirement plan myths, along with the facts you should know.

·         Your choice of IRA beneficiary is “locked in” once you reach age 70 ½. This is not true. Age 70 ½ is the age at which Required Minimum Distributions begin, but as long as you’re alive and mentally competent, you can change your choice of designated beneficiary at any time.

·         If you own multiple IRA’s, then after you reach 70 ½, you’re required to take a certain amount of money out of each account. After age 70 ½, you’ll be required to take a minimum IRA distribution each year. The amount is determined by your IRA account balance and by your remaining life expectancy. If you own more than one IRA, though, you’re allowed to figure your Required Minimum Distribution based on the total balance of all your IRA’s, and your Required Minimum Distribution can come out of one account or a combination of accounts.

·         If you name your children as IRA beneficiaries, they’ll be required to cash out the account as soon as they inherit it. In reality, your children will only have to take an annual Required Minimum Distribution, and it’s to their benefit not to withdraw any more than the required amount each year. This is called “stretching out” the IRA, and it results in fewer tax bills and more opportunity for the IRA to grow over time. In fact, many people choose to establish an IRA trust to ensure that their beneficiaries only take the Required Minimum Distribution each year.

·         You must take a certain amount from your 401(k) each year after you reach age 70 ½, regardless of your employment situation. Assuming you don’t own the business, you’re only required to begin taking Required Minimum Distributions from your 401(k) when you reach age 70 ½ if you’re actually retired. If you remain employed, there’s no distribution requirement.

Retirement planning and estate planning are very closely linked. To make sure that your retirement plan and your estate plan work together to serve the needs of you and your family, you’ll want to consult with a qualified estate planning attorney.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

When you leave your 401(k) to a designated beneficiary, the money that beneficiary withdraws from your plan is counted as his or her income, and your beneficiary will be liable for income taxes on any withdrawals he or she takes.

While you’re alive, you have the option of taking money out of your plan, or leaving it in the plan and allowing it to grow, at least until you reach age 70 ½. After this point, the IRS requires that you take at least a baseline amount, called a Required Minimum Distribution (RMD), on an annual basis. The amount of your RMD depends on your age at the time the distribution is taken, as well as the amount of  money in your 401(k).

When you pass away and a designated beneficiary inherits your 401(k), your beneficiary’s relationship to you determines whether or not withdrawals will be required to start right away. If your beneficiary is your spouse, he or she is allowed to roll your 401(k) into his or her retirement plan. In this situation, the rules that govern your spouse’s retirement plan take effect, and depending on the type of account and your spouse’s age, he or she might not have to take RMD’s, at least not right away.

On the other hand, if a beneficiary other than a spouse inherits your 401(k), then he or she will be required to start taking RMD’s in the year after your death. Your beneficiary’s RMD will be calculated based on your 401(k) balance and your beneficiary’s age, and he or she will have the option of withdrawing more than the RMD at any given time. Your beneficiary will owe income tax on any amount withdrawn from your plan in the year that money is withdrawn.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

When you have a young family, life insurance is an essential part of making sure that your spouse and children are financially secure in the event of your death. You likely have a mortgage to pay, you might have other debt, plus you want to provide for your children’s education.

But by the time you’ve retired, your financial picture and your responsibilities have likely changed. You might not have the same debt load, your mortgage may well be paid off, and your children are likely finished with college and out on their own. What does this mean for your life insurance needs?

For many retirees, reducing or eliminating life insurance makes sense. Your premiums are likely to be higher than they were when you were younger, and your family’s needs have changed. If your spouse will be able to live on savings after you’ve passed away, you might only need a small policy to cover your funeral expenses and final bills.

On the other hand, you might choose to continue to carry a significant life insurance policy, and use it as a tool for leaving a substantial inheritance for your children, grandchildren, or other loved ones.

Regardless of your goals, retirement is a good time to review not only your life insurance needs, but your overall estate plan. This way, you can make the appropriate adjustments and ensure that everyone you love is taken care of in the most cost-effective manner.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

If you’re approaching retirement and still carrying a mortgage, you’re likely to wonder which approach makes more sense:

1) Dip into your savings and pay off your mortgage, entering retirement without a house payment; or

2) Keep making your regular payments even after you retire, and hang on to your nest-egg.

The answer depends on a number of factors, not the least of which are the size of your mortgage and the amount you have saved.

Before you decide to write a payoff check to the mortgage company, what you’ll want to consider first and foremost is how much you’ll have left in savings if you choose to pay off your mortgage. If having no house payment would also mean having no emergency fund, you’re probably wiser to stick with the house payment. It’s essential to have extra funds available to cover those unexpected home repairs or other surprises, and the last thing you want to do once you’ve retired is to start taking on credit card debt to cover day-to-day expenses.

If you’ve determined that you can pay off your mortgage and still have a comfortable amount of savings in the bank, but you’re still on the fence, you may want to consider a couple of other factors.

Can Your Nest Egg Out-Earn Your Mortgage Interest?

Take a look at how much your savings and investments are earning you right now. Your rate of return depends on your investing style, and on the market. Now, compare this rate of return to your mortgage interest rate. Assuming you have the funds to do it, one way to decide whether to pay off your mortgage is to consider whether your savings and investments are likely to out-earn your mortgage interest rate.

Will The Mortgage Interest Deduction Really Benefit You?

Many people are quick to look to the income tax deduction that comes with a mortgage as a reason for hanging onto their house payment. However, you’ll want to carefully analyze your financial picture to see if the deduction will truly benefit you. After you retire, your income is likely to drop, lowering your tax rate. This means your deduction will have less of a bite. Plus, retirement can mean a loss or reduction of certain itemized deductions. The home mortgage interest deduction only benefits you if your total itemized deductions outweigh your standard deduction.

Ultimately, deciding whether or not to pay off your mortgage prior to retirement is a very personal choice, and it depends on your individual financial circumstances. It’s a good idea to seek the advice of a trusted professional in making this decision.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

If you didn’t quite meet your $5,000 IRA contribution limit for last year, there’s still time. You have until April 15 of this year to make IRA contributions for 2010 – this deadline is for both traditional and Roth IRA’s.

Already Made Your 2010 Contribution?

Already made your full 2010 contribution? You’re ahead of the game – and now’s a great time to get started on this year’s contributions. Of course, you’ll have until April 15, 2012 to make your full 2011 contribution, but you’re always free to contribute to your IRA throughout the year.

Speaking of April 15^th…

If you rolled over an IRA or a 401(k) last year, did you know that you have to report that transaction on your tax return come April? Don’t worry! Even though it’s reportable, it’s not taxable. You’ll get a form 1099-R from the custodian of the account that was terminated due to the rollover (your old account). This form tells you the amount that will need to be entered on your tax return as reportable to the IRS. If you have questions about your rollover – or about your IRA or 401(k) – check with your tax professional.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

COLA stands for “cost of living adjustment”, an important term when it comes to retirement benefits – whether those benefits come from your employer-provided pension or from Social Security.

It is just what it sounds like – an adjustment in the amount of benefits you’ll receive each month once you retire, based on the increase in the cost of living.

Employer Pensions

If you’re entitled to a pension from your employer, you’ll want to check with your company to find out whether the pension is subject to cost of living adjustments, and, if so, when those adjustments are applied.

Social Security

For Social Security benefits, COLAs are based on the consumer price index. This index tracks inflation; so, if inflation goes up, you’ll get a cost of living adjustment for that year. If not, you’re out of luck.

For 2011, like last year, there will be no Social Security cost of living adjustment, because the consumer price index has shown no inflation.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

If you work for a private employer, such as a corporation, you likely have a traditional 401(k) plan. And if you don’t have one, you’re likely to be at least familiar with them.

A traditional 401(k) plan is a retirement savings plan that’s sponsored by your employer, and that is funded via payroll deduction with pre-tax dollars. Recently, though, a new kind of 401(k) has gained popularity. It’s called a Roth 401(k), and it works slightly differently than its traditional cousin.

Contributions to a Roth 401(k) are made through payroll deduction, but they’re made with after-tax dollars, meaning that money going into the plan is taxed as regular income in the year it’s contributed.

You reap the tax benefits from a Roth after you retire. Funds withdrawn from a Roth during retirement are tax-free. This includes both your original contribution, and any growth the account has seen over the years. So, if you plan to use your 401(k) for long-term investing, or if you anticipate being in a higher tax bracket after retirement, a Roth might be a particularly good option for you.

Keep in mind that, just like any retirement plan, a Roth 401(k) carries with it restrictions concerning rollovers and withdrawals. If your employer offers you a choice between a traditional and a Roth 401(k), you’ll want to carefully compare the advantages and disadvantages of each before making a choice. And, of course, it’s best to seek the advice of a qualified financial planner before making any investment decision.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

One thing that sets Roth IRA’s apart from other retirement savings plans is their availability as an option for passing on a large chunk of money to your loved ones – outside of probate – when you pass away.

How does this work?

Tax Free

A Roth IRA is a “tax-free” account, which means that you contribute to the account with after-tax dollars, and then (as long as you follow all the rules) the money you later withdraw from the account isn’t taxed.

Because contributions are taxed on the front end, there’s no annual required minimum distribution once you reach age 70 ½. So, money deposited into a Roth IRA is allowed to grow, tax-free, indefinitely.

No Probate

If you don’t need the money in the account to live on during your retirement years, this means that you can build up quite an inheritance to pass on to your spouse, your child, or anyone you choose. And because you designate one or more beneficiaries for your Roth IRA, when you do pass away, the account is transferred outside of the probate process.

Be Careful With Beneficiary Designations

When it comes to designating a beneficiary for your Roth IRA, you’ll just need to fill out the form provided by your account custodian. You can designate more than one beneficiary, but if you want to leave them unequal shares of your account, you’ll need to specify this. Otherwise, multiple beneficiaries will receive equal shares of your account.

And, it’s important to remember that, once you’ve designated a beneficiary for your IRA, your will and living trust have no control over that account. So, when you review your estate plan, you’ll also want to take a look at your retirement plan beneficiary designations, to make sure your wishes are still reflected.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

If you have a tax-deferred retirement savings plan, like a 401(k) or a traditional IRA, then you know that once you reach age 70 1/2, you’ll have to begin taking a Required Minimum Distribution (RMD) from your account each year. Very basically, the amount of your RMD is equal to your account balance divided by your life expectancy. It’s different each year, and if you don’t withdraw the correct amount on an annual basis, you’ll pay a penalty to the IRS.

The Reason for RMD’s

Why is an RMD required for these accounts? Because they’re tax-deferred. Since you don’t pay taxes on money when you contribute it to the account, you’re instead taxed on money when you withdraw if from the account. So, to make sure you pay at least a minimum amount of income tax on the account funds, the government imposes a Required Minimum Distribution.

Roths are Different

Roth IRA’s are different, though. Instead of being tax-deferred accounts, they’re tax-free accounts. When you have a Roth IRA, you make contributions with money that’s already been taxed. Later, when you retire, withdrawals you make in accordance with the rules of your account are not taxable.

Because Roth IRA contributions, instead of withdrawals, are taxed, the government does not impose a Required Minimum Distribution rule on these accounts. This makes Roth IRAs a great option for people who want to use their retirement account to pass on wealth to their children or grandchildren, instead of using the account to fund their own retirement.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

As you approach retirement, you’re likely paying extra attention to your finances, making sure that everything’s in order and that you’ll be able to afford to do all the things you’ve planned to do.

While Americans spend time and energy making sure they’ll be financially fit for retirement, many neglect to make sure they’re physically fit to enjoy the lifestyle they’ve spent so many years looking forward to.

Here are some tips for making sure you retire in top form:

1. Stay Active. Getting enough exercise is one key to maintaining optimum health. So, if you’re already active, keep it up! And, if you’ve always been meaning to exercise more, now’s a great time to start. You don’t have to become a triathlete – just find an activity you enjoy, and stick with it. Exercise can be as simple as taking a walk after dinner each evening. And, you’ll want to talk to your doctor before starting any exercise program.
2. Watch Your Blood Pressure. According to the American Heart Association, one in three Americans has high blood pressure. And high blood pressure puts you at risk for heart attack, stroke, and kidney failure, not to mention brain, kidney and eye damage. A normal blood pressure reading is 120/80 mm Hg or less. You can manage your blood pressure by reducing your salt intake, cutting back on your alcohol consumption, reducing stress, increasing the amount of exercise you get, and quitting smoking, among other lifestyle changes.
3. Keep an Eye on Your Cholesterol. High cholesterol can lead to coronary artery disease, heart attack, and stroke. It’s important to get an annual physical and monitor your cholesterol levels. What numbers should you aim for? Your total cholesterol should be 200 mg/dL or lower, with your LDL cholesterol coming in at 100 mg/dL or less, and your HDL cholesterol at 60 mg/dL or higher. Your triglycerides should be 150 mg/dL or lower.
4. Eat Right. We all know that we should eat plenty of fruits and vegetables, stay away from too much red meat, and not overindulge in fatty or sugary foods. But few Americans really follow a healthy diet. Adding in the good stuff, and subtracting some of the bad stuff from your diet can help you lose weight, fight disease, and increase your energy.
5. Reduce Stress. Your stress levels can have a huge negative impact on your health. That’s why it’s important to make time to relax. It’s also important to be aware of the way you think. Negative thinking and perfectionism can put you and those around you under pressure, adding untold amounts of stress to your life.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.