When a U.S. Tax Court judge rules that a tax lawyer can’t rely on an IRS publication in his defense you know the rest of us are in deep trouble. The trouble is that Congress has created more than a dozen different types of retirement plans, each with their own nuances.
Janet Novack at Forbes recently posted 25 Retirement Account Mistakes Smart People Make. In her introduction she noted two areas where most mistakes are made.
Early Withdrawal Blues
There are a number of early withdrawal penalty exceptions. But watch out: if you think you can take money from a 401(k) to pay for college or graduate school bills, or to buy a first home, think again. Those penalty exceptions only apply to IRA withdrawals.
Another common mistake is thinking that because your 401(k) allows you to take a “hardship withdrawal” you’re exempt from the 10% penalty tax – you’re not.
Transfer on Death Traps
The biggest area for mistakes of course is the transfer from the original account holder to the beneficiaries. There are many crucial elections and steps to take. If you get something wrong, 100% of the account could end up as taxable income right away.
This is one reason why we offer the powerful Stand Alone Retirement Trust, which can safeguard that transfer to the next generation.
Erik is the founder of Estate Plan Pros, a leading estate planning practice in Elk Grove. Erik’s practice focuses on Estate Planning Law. In Estate Planning, Erik works with clients to make the process simple, so clients can focus on more important things. He is a local authority for specialized estate planning instruments, like Special Needs Trust, Irrevocable Trusts, or other focused documents. Erik has litigated, negotiated, and mediated the gamut of family law cases. With this unique perspective as a family law and estate attorney he can often spot issues otherwise overlooked. Prior to graduating he worked as a legislative analyst for a non-profit organization, and volunteered as a youth counselor. Erik currently participates in local politics and is an active member of his local church. Erik is very happily married and has two young sons. Together, his family loves to get outdoors and enjoy the varied activities the Sacramento region has to offer.