Financial Changes Affecting Retirees

Along with the volatility in the economy there have been significant changes to the rules regarding retirement benefits. The government has changed rules on retirement taxation and will not likely provide a cost-of-living increase for social security recipients this year.  Pre-planning is important to take advantage of these changes. Here is important information to know if you are retired or planning to retire within the next year.

1. No cost-of-living adjustment in Social Security – One-third of all retired Americans live on social security. Each of the last two-years Congress approved a cost-of-living adjustment, but is unlikely to do so this year because inflation is expected to very low.

2. Change in Roth IRA Rules – In the past you were limited by your income whether or not you could convert a regular IRA to a Roth IRA.  However those limited are scheduled to be eliminated on January 1, 2010. You can convert on January 1, 2010 and the government will allow you to pay any taxes due over two years. After that, the money grows tax free.

3. If you are 70 and 1/2 you are not required to take a distribution from your retirement account in 2009. Since distributions can be subject to income tax, do not take the distribution if you do not need it.

4. No Estate Tax in 2010 – We each have the ability to pass $3.5 million tax-free to our heirs during our lifetime or after our death. In 2010 there will be no estate tax for one year before the rules revert back to those established in 2001. However, Congress can always make changes to these rules, so talk with your financial advisor about the current status and the impacts on your estate.

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