Estate Planning and Your Retirement Accounts
For many people, retirement accounts, including
401(k) plans and individual retirement accounts (IRAs), are their
most significant assets. While you may think you'll need every
bit of money in those accounts for your retirement, what would
happen if you die at an early age? You should include these accounts
in your estate plan so heirs inherit them with minimal estate-
and income-tax effects.
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Organize Your Estate
Don't think you're finished with the estate
planning process once a will, trusts, and other estate planning
documents are in place. From your heirs' point of view, it's just
as important for you to organize paperwork and inform them of
basic decisions. One way to approach this task in a systematic
manner is to prepare a notebook
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Using Portfolio Losses
Capital gains on investments held for one
year or less are short-term capital gains taxed at ordinary income
tax rates. For investments held over one year, the maximum long-term
capital gains tax rate in 2010 is 15% (0% for taxpayers in the
10% or 15% tax bracket). While the 15% rate is significantly below
the maximum ordinary income tax rate of 35%, it still takes a
significant chunk out of your investment portfolio.
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Don't Forget about Inflation
Inflation has been tame for so long that
it's easy to forget how much it can affect your purchasing power
over a long retirement. Over the past 10 years, inflation, as
measured by the consumer price index, has averaged 2.5% (Source:
Bureau of Labor Statistics, 2009).
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Pay Yourself First
The advice sounds simple enough - to force
yourself to save regularly, treat those savings as a bill to yourself
and pay that bill first every month. But when you're faced with
a stack of bills that includes your mortgage payment, your car
lease, and groceries to feed the kids, you're likely to skip paying
yourself for at least another month. Unfortunately, those months
can add up with little in the way of savings.
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