Page 29 - Investment Advisor - Jan/Feb 2021

Women with over $20 million in net UNEXPECTED EVENTS shoes and start managing the assets
worth should be making gifts and trans- COVID-19 has been the ultimate les- right away, independent of waiting for
ferring assets now. Not only is the gift son in “expecting the unexpected.” One the courts.
tax lifetime exemption at an all-time unexpected impact of the pandemic was Though difficult to face, death and
high of $11.7 million, but if no additional the pause in surrogate courts. Even fam- divorce are events that everyone must
legislation passes, that high-water mark ilies that had a plan in place and were plan for, especially women. An election
reverts to $5 million on Jan. 1, 2026. faced with an unexpected death had or even a pandemic might make one
Furthermore, it’s expected that under a assets locked up for months while wait- notice that they should be planning, but
Biden tax plan, the lifetime exemption ing for an executor to be appointed. by then, it is usually too late.
will be reduced to only $3.5 million. In some cases, surviving spouses
In addition, as real estate asset prices (mostly women) had no way to pay Mela Garber, a certified divorce financial ana-
in some areas of the country have taken their bills, let alone begin transferring lyst, is tax leader of Anchin Private Client and
a substantial plunge, it has created a assets. To prevent this hardship situ- its Trust & Estates and Matrimonial Advisory
unique opportunity to transfer wealth to ation, all HNW families should have a Groups. Anchin, an accounting and advisory
the next generation without triggering a revocable trust in place, which allows firm founded in 1923, focuses on privately held
steep tax. the trustee to step into the decedent’s businesses and high-net-worth clients.

4 Facts Retirees Need to Know for 2021
Vanguard’s head of Wealth Planning Research, Maria Bruno, tax-deferred balances, and while there is a benefit to not
recently spoke with Christine Benz, Morningstar’s director touching [those because clients can] continue to enjoy tax-
of personal finance, about what retirees — and advisors — deferred growth, some individuals, given the size of their IRA
should watch for in 2021. Here are four of Bruno’s suggestions: or 401(k), can be subject to pretty large mandated distribu-
tions, which would then come with what they call the ‘tax
1. RMDs are back and must be taken yearly. Due to the pan- torpedo’ — large tax liabilities.”
demic, required minimum distributions — the purpose which Potentially leading up to age 72, retirees “could start to
is to spread out a retiree’s savings over an expected lifetime — withdraw from those assets,” Bruno explains.
were waived in 2020. Withdraws from those assets before age 72 may mean a
Also, the age level was raised (due to the SECURE Act), so for higher tax rate now, but would reduce the required RMD later
those who turn 72 this year have until April 1, 2022 to take their because of the smaller amount in the IRA. Another option is
RMD. Those older than 72 must take their RMDs by Dec. 31. converting some of those assets to Roth IRAs, which are not
Bruno cautions that the cost of not taking the distribution is subject to lifetime distributions, she said.
significant: a 50% excise tax for the amount that should have
been taken. 3. Taxes matter, so work with a tax or financial professional.
Therefore if a retiree is mandated to take a distribution — This is key because there are strategies about when to start
“and again the distributions are from traditional IRAs, 401(k)s taking Social Security as well as determining the right “asset
and Roth 401(k)s, although they are not taxed,” they are man- pool” to withdraw from that have tax consequences other
dated to take withdrawals on an annual basis, Bruno told Benz. than RMDs.

2. Start thinking about withdrawal strategies before the 4. Although the 4% yearly withdrawal rate has been the
RMD age. Bruno says that retirees should think about RMDs rule, clients should be flexible. She notes that in Vanguard’s
as an “asset pool.” long-term forecast, investment “returns are muted.” A pro-
Plus, pre-72- year-olds who are withdrawing from IRAs and jected median return is 4.5% with inflation potentially around
401(k)s should consider this, she explains: “If [retirees] have 2.5% to 3%, Bruno adds.
pim pic/Shutterstock assets, [they] can be surgical on a year-by-year basis to think in terms of what conditions we’re looking at today and over
“That doesn’t mean the 4% rule is dead … just be mindful
flexibility in having taxable assets or tax-deferred or Roth
the next couple of years; [retirees] might need to be a little
about: How can I minimize both the liability this year, but
bit mindful in terms of ratcheting back [spending] a bit,” she
then also what I might be looking at in the future?”
She adds that “a lot of individuals are sitting on large
explains. —Ginger Szala

JANUARY/FEBRUARY 2021 INVESTMENT ADVISOR 27