Blog   Tagged ‘retirement planning’

Individual retirement trust: a new way to save for retirement

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An individual retirement trust allows you to maintain the tax advantages that come with saving and investing in an individual retirement account (IRA), while providing you with the long-term control of a trust. You may be familiar with the uses and benefits of an IRA, and you may have a good understanding of trusts, but this unique solution can be the best of both worlds.

Individual retirement trust: a new way to save for retirement

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The basics

An IRA, whether Roth or traditional, is a savings mechanism that allows you to invest funds for your future retirement. The sooner you begin putting money into an IRA, the more time your money has to grow before you reach 70½, the age at which you are required to begin taking distributions from the account. IRAs prepare you for retirement and provide tax advantages, allowing you to choose whether to make contributions tax-free (traditional) or receive your distributions tax-free (Roth).

A trust is an estate planning tool that allows you to set aside funds for specific beneficiaries to receive when you pass away. Trusts can be managed by a third party called a trustee. The trustee handles management of the trust, including things like managing trust investments, making distributions to beneficiaries and taking care of trust assets, both during your lifetime and after your death.

An individual retirement trust combines the tax advantages of an IRA with the long-term control of a trust. This type of account allows you to save for retirement while maximizing tax advantages and ensures your IRA funds are distributed according to your wishes. Simply select your beneficiaries—whether people, organizations or charities—and the percentage of funds each beneficiary should receive, plus any conditions you have in mind. Once you have selected beneficiaries and determined percentages of distribution, the trustee oversees all of the distributions, including adjustments you may direct over time.

Using an individual retirement trust allows you to bypass the complicated IRS requirements involved in naming a trust as an IRA beneficiary, which is an alternative option. The trust portion of the account also helps protect your legacy from asset seizure by the potential creditors of your beneficiaries. If your heirs inherit your IRA assets without the protection of a trust, funds can be taken by a beneficiary’s creditors in the event of a beneficiary’s bankruptcy.

Also, individual retirement trusts can be set up with disability provisions that ensure your accounts are maintained in the event of your illness or long-term incapacitation. In this case, the trustee will take over the management of your retirement fund investments, coordinate bill pay and administer distributions as set forth in the document—all without the need for a separate guardian or conservator.

Who can benefit from an individual retirement trust?

Individual retirement trusts offer a unique structure that may not work for everyone. Most importantly, this structure is best for those who already have significant retirement assets and are concerned about the future management of those assets.

If you are particularly tax-sensitive, you may benefit from an individual retirement trust because it allows you to maximize the tax deferment available through the stretch payout option, whether the IRA is a traditional or Roth account.

If you have divorced and remarried, this solution can help you streamline the inheritance process by allowing you to select a variety of beneficiaries with varying inheritance percentages. Step-children can be included, as can organizations of your choice. For blended families, individual retirement trusts are beneficial in that they provide extensive control over the distribution of assets. Specifically, beneficiary designations will not be changeable, even after your passing, which ensures the heirs you have chosen are provided with exactly what you have determined for them regardless of later marriages or life changes.

Individual retirement trusts are also good vehicles for those concerned with the use of the funds by heirs and seek to include limitations. Any amount set aside for a beneficiary that is more than the required minimum distribution (RMD) can be subject to the trustee’s discretion.

Bottom line:

An individual retirement trust can help you achieve the tax advantages of an individual retirement account paired with a comprehensive asset management plan for your heirs–now and in the future. You will be able to build and customize your legacy with multiple beneficiaries, long-term control and detailed asset distribution options. Combining an IRA with a trust can streamline your legacy administration and simplify the process in one efficient document.
 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Conley is a vice president and legal counsel for UMB Private Wealth Management. He is responsible for reviewing estate planning documents and working with attorneys, clients, trust and bank associates regarding various legal issues that arise in the creation of trusts and estates. He joined UMB Private Wealth Management in 2000. Mr. Conley is an attorney and Certified Public Accountant. He is licensed to practice law in Kansas and Iowa.



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A smooth road to retirement

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Are you ready to begin the next stage of your life? Retirement is still an option despite the current slow-growth economy. If you’re considering or approaching retirement, there are several items to keep in mind when nearing this important milestone. If you are planning to leave the working world in the next 18 to 24 months, here are a few considerations in the current economy:

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  • Understand your actual timeline.

    Your “time horizon” may be longer than you realize. Life expectancy is also a big factor. A retirement date is an initial benchmark, but you need to keep in mind that your money can still “work for you” while you are enjoying your newly discovered free time.

  • Make sure to have a cash reserve.

    You should build up a reserve large enough to carry you through six to 12 months of retirement expenses. This can provide a cushion in case of an unexpected downturn or a major unplanned expense.

As markets can vary year to year, those with more than two years until retirement can plan for either situation in the following ways:

  • Increase contributions.

    Invest extra cash. Consistent dollar-cost averaging can help reduce the worry of when and how much to invest. You may also want to direct some of those extra contributions into a cash reserve, just in case of unexpected declines.

  • Diversify, diversify, diversify.

    Don’t put all your eggs in one basket. Throughout market cycles, different classes, styles and assets with diverse market capitalizations perform differently. Actively managing your portfolio diversification can have a greater impact on performance than individual investments.

Most of all, flexibility and patience are virtues in the world of portfolio management.  Don’t fall in love with a retirement date, and don’t be frustrated with market activity. If you have questions or concerns, it may be advantageous to seek the advice of an experienced professional.

Professional advisors can offer objective, educated and customized guidance. They are also an objective and knowledgeable resource that can provide a valuable perspective. While an advisor may not be able to provide every person with the news they want to hear, a good financial advisor can help maximize and leverage the assets individuals have against their personal timelines, risk tolerance and goals.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Diederich serves as managing director of portfolio management. He is responsible for managing the portfolios of high net worth clients and select institutional relationships. He joined UMB in 2003. Mr. Diederich earned a Bachelor of Science in Finance from Missouri State University in Springfield, Mo., and a Master of Business Administration from the University of Missouri – Kansas City. He is a Certified Financial Planner®, a member of the Financial Planning Association and has more than 15 years of experience in the financial services industry.



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How to generate income during retirement

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Senior Couple WalkingWith the baby boomer generation already in or quickly approaching retirement age, it is important for current and soon-to-be retirees to determine the best approach to collecting the money from their 401(k), IRA, Roth IRA, pension plan, 403(b)  or social security.

You don’t want to spend your retirement years worrying about money. You should spend the time enjoying your family and hobbies or traveling! Planning ahead and working with a professional can help alleviate your anxiety.

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Here are some important things to remember about saving and spending during retirement:

  • Generate income using assets and investments

    Discuss with your financial planner how to generate income during retirement with the money you’ve set aside for this time in your life. Your planner can help you separate your assets into three groups: taxable, tax-favored and tax-free. If you take a blended approach to meeting your required minimum distributions, your money can last significantly longer.

  • Diversify your portfolio

    It is always recommended to have a portfolio of assorted investments. You don’t necessarily have to rely completely on safe, income-producing investments. Adjust your rate to your needs when necessary and don’t be afraid to spend capital from your retirement portfolio. Traditional IRAs, 401(k)s, 403(b)s, and self-employed plans are structured for you to withdraw from it over your lifetime. You might be nervous spending down these accounts, but a financial advisor can help you distribute these funds appropriately over the course of your retirement so that you can live comfortably.

  • Remember: taxes, timing, spending

    These three items are the most important factors to creating income during your retirement. You should understand your tax obligations because tax rates could help determine acceptable savings withdrawals.It’s also important to carefully time your retirement. The point at which you begin taking money from your retirement accounts can make a significant difference in the amount that is available several years into your retirement. Remember that some retirement funds charge a penalty if you withdraw before a certain age.Finally, it’s vital to spend wisely during this time in your life to ensure that you will have enough funds to last throughout your retirement. Do you want to splurge on a Hawaiian vacation during your retirement? If so, this is something you should plan for in advance. Talk to your advisor about any major spending you would like to do in your retirement. You might not be on a completely fixed income, but you need to be mindful of how much money you have to spend.

  • Educate

    Take the time to educate yourself before and during your retirement. Start planning early so you can enjoy this time in your life. Do your best to educate your children about saving for retirement and encourage them to start saving at an early age.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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