The real estate market is red hot, and plenty of folks nearing retirement and holding investment property see now as an excellent time to offload their real estate assets and reap the profits. If you’re one of them, then – tempting as it may be – make sure that you talk to your tax advisor before making that move.
Purchasing rental properties has become an extremely popular investment strategy. In fact, experts say that those nearing and past retirement age have accumulated about $6.4 million in net worth tied to those holdings. As attractive as that income is, it can also create responsibilities around rent collection and property management that lose their appeal pretty quickly. It’s no wonder that, between those responsibilities and skyrocketing valuations, many people are looking to get out.
You have probably heard others discussing living trusts but may not understand the reasons for them or whether you should have one.
Living trusts are an estate-planning tool, and there is not a one-type-fits-all living trust. Each one is customized to suit the special circumstances of the individual for whom it was created. The vast majority of the population can get by without using a living trust, and a simple will is perfect for most people, unless their estate is large or there are some special circumstances to deal with.
There actually are two types of these trusts: revocable and irrevocable. As the names imply, an irrevocable trust generally cannot be undone once made, while the provisions of a revocable trust can be changed or rescinded as long as the grantor (the individual who established the trust) is still living. A living trust becomes irrevocable when the grantor passes.
Birth and Adoption Exception – The tax law provides for several exceptions to the early-withdrawal penalty, and Congress has added another one as part of the Appropriations Act of 2020 (SECURE Act). The new exception provides for penalty-free plan withdrawals for births or adoptions, for distributions taken from IRAs, qualified employer plans (such as 401(k)s) and government retirement plans after Dec. 31, 2019. However, the maximum aggregate amount of a qualified birth or adoption distribution by any individual with respect to any birth or adoption is $5,000, applied individually (so each spouse may separately receive $5,000 of qualified birth or adoption distributions).
A qualified birth or adoption distribution is one made during the one-year period beginning on the date when a child of the individual is born or when the legal adoption of an eligible adoptee by the individual is finalized. An eligible adoptee means any individual (other than a child of the taxpayer’s spouse) who has not attained age 18 or is physically or mentally incapable of self-support. In addition, such qualified birth or adoption distributions may be recontributed to an individual’s applicable eligible retirement plan, subject to certain requirements. But remember that if the withdrawn funds are not recontributed to the plan, the distribution will be taxable.
Taxpayers are frequently blindsided when their filing status changes because of a life event such as marriage, divorce, separation or the death of a spouse. These occasions can be stressful or ecstatic times, and the last thing most people will be thinking about are the tax ramifications. But the ramifications are real, and the following are some of the major tax complications for each situation.