The Retirement Savings Time Bomb: And How to Defuse It

Want to read this on your NOOK? Request as NOOK Book from the publisher

Thank you for requesting this book as a NOOK book from the publisher.

Customers Who Bought This Also Bought

More About This Book

Overview
Editorial Reviews
Product Details
Related Subjects
Read an Excerpt
Table of Contents

Overview

We think that if we put our money away in IRAs, 401(k)s, 403(b)s, and other retirement plans that it will be there for us when we and our families need it. Right? Wrong. The IRS is waiting to grab up to 90 percent of it. How you distribute, roll over, withdraw, and secure your IRA (and your inherited nest egg) is critical in preventing it from being gobbled up by taxes and penalties. In The Retirement Savings Time Bomb ... and How to Defuse It, "America's IRA expert" (Mutual Funds magazine) and renowned tax advisor Ed Slott will show you how to avoid losing up to 90 percent in taxes and how to preserve your hard-earned savings for generations to come. For years, the tax code has seemed impenetrable to the everyday working American. But by implementing his simple 5-Step Action Plan, readers will be well on their way to protecting themselves, their families, and their investments from the government. The Retirement Savings Time Bomb ... and How to Defuse It is the perfect guide to transform the country's tax uneducated into the tax savvy.

Read More Show Less

Editorial Reviews

Publishers Weekly

As if the stock market hadn't been bad enough lately, sinking and taking the nation's retirement funds along with it, now IRA expert Slott has news of an additional nightmare: the IRS is eager to take a monstrous chunk out of whatever's left. Slott asserts the importance of recognizing what he calls playing the back nine, or understanding that however much you've saved over the years, it won't matter much if you haven't protected it from the taxman. Indeed, the author shares the story of one schoolteacher whose heroic efforts to stash away $1.2 million for her two children went for naught when the IRS claimed all but $150,000 for each child. A few of Slott's prescriptions: take your required distributions so you don't get hit with additional taxes; buy life insurance to offset the estate taxes that will bite into your IRA upon your death; and take advantage of the Roth IRA, which hands you your money tax-free upon retirement. Though 401(k)s, IRAs and taxes in general are notoriously complicated subjects, Slott distills the morass of information into useful strategies while striking a note that's alarmist enough to scare anyone with a retirement fund.

Read More Show Less

Product Details

ISBN-13: 9780670032365
Publisher: Viking Adult
Publication date: 2/27/2003
Pages: 368
Product dimensions: 6.26 (w) x 9.36 (h) x 1.30 (d)

Read an Excerpt

P>

INTRODUCTION 
PLAYING THE "BACK 9"

"Combined, income and death taxes could boost what your kids pay on the remainder of your 401(k) [and IRA] to more than 80 percent."
<blockquote>-The Wall Street Journal, editorial page, February 25, 2002</blockquote>

In the not so distant past, the issue of protecting retirement savings rather than investing for retirement might have been considered putting the cart before the horse.

Not any longer.

Today, Americans have invested trillions of dollars in retirement plans, turning them into the biggest, most valuable asset they own-often worth more than even their homes. As a result, savings protection has become the name of the retirement plan game.

Most, if not all, retirement planning strategists, however, focus on why you should save for retirement and how to grow your money through a variety of investment vehicles.

That's valuable information, but it's not enough.

Look at it this way. What good is making even a 50 percent return on an investment if, at the time of withdrawal, taxes will step in to claim 70, 80, or maybe even 90 percent of it?

Think of it like coming down the stretch of the U.S. Open Golf Championship. The "Front 9" is where you position your lead by building up your assets; holding onto your lead-i.e., protecting your assets from excessive taxation-is the "Back 9" where, ultimately, you win or lose.

Crucial Component

This book addresses the critical issue that every other retirement-related and tax-related book on the market ignores: protecting the assets you've spent a lifetime building from excessive taxation. No single factor is more significant to your living the lifestyle you've been saving all of your life for, or to passing your hard-earned savings on to those you love.

Why is this component so crucial?

Due to a complex combination of distribution and estate taxes that kick in at retirement or death, millions of you are at risk of losing much-perhaps even most-of your retirement savings.

Already happening now, this dire turn of events will put a huge financial burden on you, your children, and on society as the ranks of the retiring and already retired swell to historic proportions in the coming years when the retirement savings time bomb explodes (see Chapter 1).

And so, the overriding purpose of this book is to give savers such as you the knowledge and the tools to defuse that bomb on your own-or with the help of your professional financial advisor-before detonation occurs.

Complex Web

I'll expose the complex web of dark secrets and traps in the tax code governing retirement savings in layman's terms, and I'll present, for the first time, an easy-to-use plan for helping the millions of you who are at risk to save a fortune in retirement income-income that might otherwise be lost to you and your families forever.

I'll deal with all aspects of IRA distribution planning, which encompasses virtually any type of retirement account you might have-401(k), 403(b), 457 Plan, SEP-IRA, SIMPLE IRA, Keogh, corporate pension plan-since virtually all retirement money is distributed according to what is commonly referred to as the "IRA distribution rules." These are among the most complicated rules in the entire U.S. tax code.

I'll go beyond the tax rules to provide easily understood explanations of the planning opportunities available and clear answers to some of the most perplexing and frequently asked questions ("I know the rule says X, but how can I accomplish Y without problem Z?").

I'll cut through the complexities of these rules and make them easy to grasp so that you'll be able to secure your retirement nest egg from being decimated by taxes, and you can keep your savings in the hands of your family, not the IRS.

In addition, if you're already a knowledgeable professional financial advisor, I will give you the tools to better guide and communicate with your clients, thereby attracting and retaining more assets under management, the key to growing your business.

A Total Solution

This book will help you devise and implement a simple, workable strategy to protect your retirement assets and keep your hard-earned money in the family-and growing-for generations.

My strategy grew out of my more than 20 years of experience "in the trenches" as a CPA preparing tax returns, and has evolved over my years on the circuit as a keynote speaker, teacher, and coach to consumers and professional financial advisors. I have conducted more than 500 seminars and workshops during the past five years, honing my action plan into one that works for anybody with an IRA, 401(k), or other retirement account-from hardworking folks such as teachers, doctors, and CPAs who have accumulated modest but still substantial retirement assets, to high-net-worth corporate executives and entertainers.

The result of my efforts is a total solution, one that you don't have to be a tax expert to achieve or to benefit from, regardless of what the stock market and economy are doing. It is a solution that will show how to

* Protect company stock owned in a 401(k). 
* Make the most of retirement savings. 
* Save a fortune in excessive, often needless taxation. 
* Pass more assets on to loved ones and other beneficiaries. 
* Keep retirement assets in the family for decades, even generations, with minimal or no taxes. 
* Get more bang for your buck from your financial advisor. 
* Expand knowledge of retirement distribution planning. 
* Tap retirement funds for emergency cash-without paying a big tax penalty. 
* Take advantage of the latest tax law and IRA rule changes. 
* Integrate a retirement account with an overall estate plan to create the perfect estate plan. 
* Avoid falling into tax traps with inherited IRAs or other retirement accounts. 
* Protect retirement accounts from creditors, divorce, bankruptcy, lawsuits, or other problems that could expose them to confiscation.

As you read each chapter, keep in mind what I wrote at the outset of this introduction: Retirement planning is like a golf tournament. Building assets is just part of the game-and only the "Front 9," to boot.

There are nine more holes left to go in the equally, and perhaps even more, tortuous "Back 9"-the final holes where holding onto the assets you've built up becomes the biggest challenge of all.

Remember, where taxes are concerned, it's what you keep that counts!

ONE 
The Crime of the Century

"There was a time when a fool and his money were soon parted, but now it happens to everybody."
<blockquote>-Adlai E. Stevenson (1900-65), presidential candidate and U.S. representative to the United Nations</blockquote>

Let me tell you about Ann, a woman with a nest egg consisting mainly of her 403(b), a tax-deferred retirement account for employees of nonprofit entities such as schools and hospitals. A widow, she was retired from her job of 30 years as a New York City schoolteacher. Ann's sole wish at the end of her life was to leave her entire savings to her two children: Jessica and Tom.

When Ann died suddenly in 2000, just two years into her retirement, Jessica and Tom came to me for advice. They explained how they'd been brought up in a modest, middle-class home where the emphasis was on living within one's means and always saving for a rainy day. They were amazed that although their mom, being a teacher after all, was clearly not a rich woman, she had, during 30 years of disciplined saving, accumulated more than $800,000 in her retirement account!

As Jessica and Tom both had good jobs with decent incomes, I suggested that they try to delay receiving that money since any distributions taken now would be subject to income tax, and they were both in high brackets. I explained that by "stretching" the distributions from their mom's 403(b) over their own lifetimes (Jessica was 40, and Tom was 36), the $800,000 could compound tax-free into an even bigger fortune as I'm sure Mom would have liked.

That was the good news.

However, as I learned more about the arrangements their mother had made-or, rather, had not made-I then had to give them the bad news: They wouldn't be able to take advantage of this option.

From Bad to Worse

Although Ann had never lived like a wealthy woman, according to our tax system, her combined estate of $1.2 million (her house, some minor savings, and other personal property, plus the $800,000 retirement plan) was large enough to be subject to estate tax.

Furthermore, as in all high-tax states (she was a New Yorker), her retirement plan distributions were subject to estate and income taxes on both the federal and state levels, as well as a city income tax!

Once I revived Jessica and Tom, I had to give them even more bad news.

As the estate tax exemption was only $675,000 (today it's $1 million) and their mother's estate was worth $1.2 million, they would have to pay a combined federal and New York State estate tax of $207,000, or almost 40 percent, on the $525,000 balance ($1.2 million - $675,000 = $525,000) of the inheritance. Neither Jessica nor Tom was in a position to shell out such a hefty amount, so Ann's retirement account itself would have to be tapped since there were few other liquid assets in the estate besides the account.

But it got worse.

Once the money was withdrawn from their mom's retirement account to pay the estate taxes, the withdrawal itself would be hit with federal, state, and city income taxes of another $80,000!

Then came the worst news of all.

Under the best payout option offered by their mom's 403(b) plan, they would have to empty the account within five years, even if they didn't need the cash.

Thus, there would be no lifetime stretch option, no 40-plus years of additional tax-free compounding-which, even at a modest rate of interest, might conceivably have grown the account as high as $10 million.

Instead, their mom's retirement account, which represented a lifetime of sacrifice and saving, would be reduced by a snowball effect of taxation on taxation to less than $150,000 for each child.

Moral: Ignorance is not always bliss.

If Ann had known enough to roll her 403(b) over into an IRA when she retired, and had protected her account with sufficient life insurance, this terrible tax trap could easily have been avoided-and Jessica and Tom could have parlayed Mom's retirement account into $10 million for both of them-maybe even more.

Imagine that.

Worst Rollover Attempt Ever

Horror stories occurring to average people just like you abound. Here's another:

In a notorious 1993-98 tax case, a Mr. Albert Lemishow decided to take advantage of the IRS rule that allows you to withdraw funds from one retirement account and roll them over into another within 60 days without incurring taxes and penalties. His purpose was to use the cash to buy some shares of stock, and roll over the stock in what he thought would be a tax-free transaction.

Unfortunately, Mr. Lemishow missed the fine print.

He took the following distributions from his Keogh self-employment plan and IRA accounts to buy the stock:

Federal tax was withheld on the $50,130 and $153,828 Keogh withdrawals, but for some reason was ignored on the $250,651 Keogh. The combined tax withholding was $43,297. Therefore the net amount of the Keogh and IRA distributions was $437,117.

Since Mr. Lemishow withdrew the funds on December 14, 1993, he had until February 12, 1994, to complete the rollover within the required 60 days.

In the meantime, Mr. Lemishow completed a subscription to buy $450,000 worth of the stock he had his eye on. However, he was only able to buy $377,895 worth of that stock, which, on February 11, 1994, he deposited into a new IRA. He did not roll any of the other cash into the IRA.

When he filed his 1993 federal tax return, Mr. Lemishow reported no taxable Keogh or IRA distributions and claimed credit for the $43,297 tax withheld. However, the IRS assessed, and the tax court held, that all of the Keogh and IRA distributions were taxable, and disallowed any tax-free treatment on the stock that was rolled over to the IRA.

As a result, Mr. Lemishow got hit with a staggering tax bill of $170,968 plus penalties and interest that effectively wiped out his pension!

Why? Here's what was in the fine print.

When withdrawing cash from an IRA or other plan for the purpose of rolling it over to another IRA, only the same property (i.e., cash) can be rolled over tax-free. If a different property (in this case, stock) is rolled over, the distribution is taxable, as well as subject to early withdrawal and other applicable penalties (see Chapter 3).

Time Bomb

There are almost as many variations to these two horror stories as there are run-on sentences in the tax code. But the common denominator among them is this: The number of such stories is growing because of two unprecedented events in our nation's history that are converging: the passing away of the World War II generation and the retirement of that generation's offspring, the so-called baby boomers.

The convergence of these two events is fostering the greatest transfer of wealth our planet has ever seen as all the people of the WWII generation, who've spent their lives saving, bequeath their savings to their children, the baby boomers, who are just now beginning to retire in record numbers and starting to take distributions from their own retirement accounts.

This is resulting in two scenarios:

Many pre-retirees of the baby boom generation who are inheriting money from their parents are suddenly finding themselves well fixed (perhaps even wealthy) and are running up against some hard, costly estate taxes not taken into account by their parents, and they're going into shock ("How did this happen? My folks saved 40 years, and you say it's all gone? How is that possible? How is that fair?").

Simultaneously, retiring baby boomers are leaving their jobs with the biggest check they've ever had (and biggest asset they own)-their retirement savings-and thus potentially opening themselves up to a big financial problem.

Having been so busy chasing investment returns all their working lives, they've probably neglected the distribution part of the equation, and thus risk losing a whopping amount of what they've saved to the taxman.

As this greatest transfer of wealth in human history reaches its apex in the coming years, there will be an explosion of excessive taxation that will reach epidemic proportions (especially given the population affected), an explosion that will give millions of ill-prepared and underprotected American savers like yourself the financial shock of their lives.

The fallout from this "retirement savings time bomb" will continue to affect you, your children, the economy, and society for years and years to come.

How much at risk are YOU personally?

Turn the page and see.

END

Read More Show Less

	Introduction: Playing the "Back 9"	xi
	Talking the Talk: A Foolproof Primer to Essential But Often Confusing Tax Terms and Definitions	1
Part 1	What to Do with the Biggest Check You'll Ever Get	17
1.	The Crime of the Century	19
2.	What's Your Risk IQ?	25
3.	Roll Over, Stay Put, or Withdraw?	34
Part 2	Five Easy Steps to Protecting Your Retirement Savings from the Taxman	79
4. Step #1	Time It Smartly	81
5. Step #2	Insure It	146
6. Step #3	Stretch It	163
7. Step #4	Roth It	203
8. Step #5	Avoid the Death Tax Trap	230
Part 3	When Things Don't Go As Planned	255
9.	What to Do When S*** Happens	257
	Resources	307
	Appendices
I.	IRS Joint Life Expectancy Tables	313
II.	IRS Tax Forms and Publications You Should Have (and Where to Get 'Em)	339
III.	Sample Beneficiary Designation Forms and "Stretch IRA" Beneficiary Information Sheet	343
	Acknowledgments	349
	About the Author	355
	Index	359

Read More Show Less

Customer Reviews

Be the first to write a review

( 0 )

5 Star

(0)

4 Star

(0)

3 Star

(0)

2 Star

(0)

1 Star

(0)

Your Rating:

Poor

Below Average

Good

Very Good

Exceptional

Review Guidelines

Tell the world what you think of this product.

Add Recommendations

Your Name: Create a Pen Name or Leave Anonymously

Barnes & Noble.com Review Rules

Our reader reviews allow you to share your comments on titles you liked, or didn't, with others. By submitting an online review, you are representing to Barnes & Noble.com that all information contained in your review is original and accurate in all respects, and that the submission of such content by you and the posting of such content by Barnes & Noble.com does not and will not violate the rights of any third party. Please follow the rules below to help ensure that your review can be posted.

Reviews by Our Customers Under the Age of 13

We highly value and respect everyone's opinion concerning the titles we offer. However, we cannot allow persons under the age of 13 to have accounts at BN.com or to post customer reviews. Please see our Terms of Use for more details.

What to exclude from your review:

Please do not write about reviews, commentary, or information posted on the product page. If you see any errors in the information on the product page, please send us an email.

Reviews should not contain any of the following:

- HTML tags, profanity, obscenities, vulgarities, or comments that defame anyone
- Time-sensitive information such as tour dates, signings, lectures, etc.
- Single-word reviews. Other people will read your review to discover why you liked or didn't like the title. Be descriptive.
- Comments focusing on the author or that may ruin the ending for others
- Phone numbers, addresses, URLs
- Pricing and availability information or alternative ordering information
- Advertisements or commercial solicitation

Reminder:

- By submitting a review, you grant to Barnes & Noble.com and its sublicensees the royalty-free, perpetual, irrevocable right and license to use the review in accordance with the Barnes & Noble.com Terms of Use.
- Barnes & Noble.com reserves the right not to post any review -- particularly those that do not follow the terms and conditions of these Rules. Barnes & Noble.com also reserves the right to remove any review at any time without notice.
- See Terms of Use for other conditions and disclaimers.

Anonymous

Posted October 28, 2003

A Must Have Before Retirement Arrives

Went to barnes & noble to get a different book. Saw this one on IRS traps and had to read it. Need to protect my little nest egg. This book is absolutely the information source you must read before making any decisions on your IRA's. It also gives info on financial planning. Don't be foolish read it!
Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Anonymous

Posted March 9, 2003

The Tax Man Cometh - Unless you tkae this advice

Teaching the reader how to keep the IRS from taking almost all of his reirement savings. That is the goal of this important book. This danger is no idle threat, as Ed Slott provides the scary story of what can happen when people do not adequately prepare to fend off the goverment tax collectors. Almost all of us need the advice offered, but there are two main problems: Most are not aware of the dangers. Many would deny that need, claiming they have already been careful in providing for their heirs. By carelully explaing the pitfalls that lie in wait, the author gives us the simple steps to take to make certain that it is our heirs, and not the IRS, who collect the money we have carefully saved for so long. He breaks his advice into 5 strategies and tells the reader how to accomplish the desired goal of salvaging his nest egg. Slott is a big fan of the Roth IRA, calling it the best gift the government has ever given to taxpayers. Protect your assets and read this book. It is appropriate for all ages, and not just those nearing retirement. Early planning is the best strategy of all.
Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Anonymous

Posted January 26, 2003

A clever way to cover a complex subject! A must read.

"If you have an IRA, 401k, or 403b, read this book to protect yourself from making unnecessary tax mistakes," says Julie Jason, JD, LLM, financial columnist and author of You & Your 401(k), The 401(k) Plan Handbook, and Strategic Investing After 50. "The Retirement Savings Time Bomb does two things: 1) it teaches you the essentials you need to know about how taxes affect your retirement plans. 2) It tells you what to do through a simple five step plan. A clever way to cover a complex subject."
Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Anonymous

Posted January 27, 2003

READ THIS BOOK , IT'S THE BEST YET

I CONSIDERED MYSELF A PERSON WHO WAS NOT AT ALL QUALIFIED TO DEAL WITH MY 401(K) PLAN OR IRAs, ETC., HOWEVER, AFTER THIS BOOK, NOT ONLY IS IT EASY TO UNDERSTAND BUT, IT ALSO VERY FUNNY AND ENJOYABLE TO READ...NOT LIKE A TEXT BOOK........IT TAKES THE FEAR OUT OF IT I THANK MR SLOTT FOR WRITING THIS BOOK AND SHARING HIS KNOWLEDGE WITH US THE LITTLE PEOPLE.....THANK YOU MANY TIMES AGAIN AND AGAIN......
Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.

If you find inappropriate content, please report it to Barnes & Noble

The Retirement Savings Time Bomb: And How to Defuse It

Overview

Customers Who Bought This Also Bought

More About This Book

Overview

Editorial Reviews

Publishers Weekly

Product Details

Related Subjects

Read an Excerpt

Table of Contents

Customer Reviews

5 Star

4 Star

3 Star

2 Star

1 Star

Your Rating:

Your Recommendations:

Barnes & Noble.com Review Rules

Reviews by Our Customers Under the Age of 13

What to exclude from your review:

Reviews should not contain any of the following:

Reminder:

Recommend other products that relate to your review. Just search for them below and share!

A Must Have Before Retirement Arrives

The Tax Man Cometh - Unless you tkae this advice

A clever way to cover a complex subject! A must read.

READ THIS BOOK , IT'S THE BEST YET