YOUR MONEY: Self-employed can set up retirement plansSetting up retirement accounts. Making financial gifts to minors. Creating a living trust. This week certified financial planner Cynthia S. Meyers and estate attorney Mark S. Drobny tackle those topics.
By: Claudia Buck, McClatchy Newspapers
Setting up retirement accounts. Making financial gifts to minors. Creating a living trust. This week certified financial planner Cynthia S. Meyers and estate attorney Mark S. Drobny tackle those topics.
Question: My wife and I gross about $180,000 a year with minimum deductions. We contribute to the limit on our 401(k)s and qualify to contribute to a Roth IRA. I started some consulting work on the side and will earn about $20,000 this year. Are there other retire-ment vehicles I can use to save for retirement and shelter some taxes?
Answer: Congratulations on your goal to take advantage of all available retirement plans! A retirement vehicle you could consider is a Simplified Employee Pension, or SEP IRA. As a self-employed individual, you could contribute to a SEP IRA, regardless of age. You can make tax-deductible contributions of as much as 20 percent of your net self-employment income, up to a maximum of $49,000 per year. You have until your tax filing deadline (including extensions) to open and fully fund a SEP IRA. You will receive a tax deduction for your contributions, and taxes on SEP earnings are deferred until withdrawals begin. Once you begin withdrawals, they are 100 percent taxable as ordinary income. In general, with-drawals cannot be made without penalty until age 59 1/2. These plans are easy to admin-ister, and maintenance costs are typically low. Most mutual fund companies offer SEP IRA plans.
For more information on SEP IRAs and 401(k)s, go to: www.401khelpcenter.com.
Q: I live in California and set up Uniform Transfer to Minors Accounts (UTMA) for each of my three grandchildren in Missouri. I am the custodian until the children reach age 18, when the money is to be used for college. My former daughter-in-law, who has custody in Missouri, has filed for welfare. The Missouri Welfare Department recently asked me for current statements of these UTMA accounts. Is it possible they can seize this money? Am I legally obligated to provide the information? So far, they have made the request via phone. Should I ask for written documentation before complying? Any advice will be ap-preciated!
A: The UTMA stands for Uniform Transfer to Minors Act, which essentially replaced the Uniform Gift to Minors Act (UGMA). Both created custodial accounts, whereby any desig-nated adult could act as custodian of funds for any designated minor.
Under the UGMA, the funds are held until the minor's 18th birthday, at which time the child would gain control of the funds. The UTMA was created to allow funds to be held until age 21-25, depending on whether the funds were gifted by parents or non-parents.
Each state has adopted its own versions of the UGMA and UTMA. I would encourage you to contact qualified legal counsel in Missouri.
From California's perspective, the UTMA custodian (you) can pay as much or as little as you deem proper for the child's health, education, support and maintenance. If your intent is to accumulate funds for the grandchildren's education, that is your prerogative. Whether that impacts the Missouri Welfare Department's decision to provide welfare assistance is beyond the scope of a California attorney's advice.
I would not release confidential financial records to anyone alleging to be a government official without verifying they work for the government and have the legal authority to ask for documentation. Such a request would certainly begin with a letter, not a phone call.
Q: My husband and I own our home, cars, 401(k)s, etc., as community property. I also own stocks, a separate rental property and a Roth IRA, which will pass to our two sons when I die. Do we need to set up one or two living trusts?
A: If everything is community property, it would be highly unusual to do separate trusts. Similarly, even couples with separate property (acquired by gift, inheritance or prior to mar-riage) usually do a joint trust and identify which assets are community property and which are separate.