How Your Accounting Firm Can Help You Plan for Retirement

Whether your goal is to travel the world, move closer to your grandchildren, help your child start a business, or just to live comfortably, you need to have a retirement plan in place. What will your expenses look like after retirement? Will you owe on any outstanding mortgages, loans, or debts? How much will you be able to spend monthly on things like entertainment and travel? If an unforeseen home repair is needed, you need to know it’s covered when you are no longer receiving pre-retirement income streams. Retirement planning takes a careful balance of precision and flexibility to meet your goals and be prepared for the unexpected. There are several ways your accounting firm can help you find that balance and plan for a successful and happy retirement. 

Leveraging Retirement Account Opportunities

If you are part of an employer-sponsored benefit plan, such as a 401(k) or Roth 401(k), an analysis of your pension benefits and rollover options can help you plan for retirement. Traditional 401(k) and Roth 401(k) account holders are not subject to income phase-out limits. In 2021, across all 401(k) accounts, you can contribute the lesser of your income or $19,500, plus an additional $6,500 if you are 50 or older. While distributions are subject to be taxed at ordinary income rates in the future, maximizing your pre-tax contributions can reduce your taxable income. At the same time, earnings grow on a tax-deferred basis. At Livingston & Haynes, we help clients ensure they are deferring enough to attract their employer's maximum-offered match whenever possible.  

Roth IRAs are tax-free investment accounts and do not have required minimum distributions, but, your income may limit your ability to make direct contributions to a Roth IRA. The maximum contribution you and your spouse can make in 2021 into a traditional IRA or Roth IRA (subject to income limitations) is $6,000 each, and the catch-up amount for those 50 and older is $1,000. For 2021 Roth IRA contributions, the adjusted gross income (AGI) phase-out begins at $125,000 and ends at $140,000 (begins at $198,000 and $208,000 if married, filing jointly). 

Because there is no income limitation for a Roth conversion, your income, no matter how high, does not exclude you from rolling some or all funds from a Traditional IRA into a Roth IRA. Since higher income tax rates are expected in the future, you should consult with your accounting firm to find out if converting is a good strategy. For example, we perform tax calculations and projections for clients ahead of these conversions to help them weigh the tax implications and benefits for their specific circumstances.

Estate Planning, Gifting Assets & Establishing Trusts

As you plan for retirement, you’re likely also considering the affairs of your estate. You want to ensure your assets are properly transferred to your heirs in a tax-friendly way for everyone involved. Whether you’re transferring wealth through a will, a trust, or by gifting assets, analyzing estate, fiduciary, and inheritance tax implications is an integral part of the planning process.

While there are a few exceptions, in general, the IRS does not require recipients to report gifts as taxable income, and gifts made between spouses are unlimited. In 2021, the annual per-person federal gift tax exclusion remains at $15,000, and the lifetime unified gift and estate tax exemption is $11.7 million. The estate & gift exemptions are set to revert to significantly lower levels in 2026, so gifting substantial assets now while the higher exemptions are in effect, may be advantageous.

Creating trusts may prove beneficial in your retirement and estate planning. For example, Charitable Remainder Trusts allow for a charitable income tax deduction at the time they are funded and a charitable estate tax deduction for your estate once you pass away. Consult with your accounting firm to understand how establishing a particular type of trust may differ from establishing another.  

At L&H, we help clients understand the potential tax implications and benefits of gifting assets and establishing various trust types, such as irrevocable, revocable, grantor, non-grantor, spousal lifetime access, charitable, and others.

Contact Livingston & Haynes 

For both individuals and families,, seeking the guidance and services of a reputable, trusted accounting firm is a crucial part of meeting your family’s collective financial goals, including those for retirement. Our seasoned certified public accountants provide all the financial, accounting, retirement, estate, and tax advice and services you need from one trusted source. 

Contact me today to find out how the professionals at L&H can help you and your family reach your financial goals. 

by John P. McGonagle, CPA 

John McGonagle, CPA, began his career in 1980 with Ferngold Company, a CPA firm. John became a partner in Ferngold in 1986 and remained with the company when it merged with Livingston & Haynes in 2002. He works with privately-held companies, specializing in tax services related real estate, family wealth transfers, and trusts.