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Planning for retirement is important for people who want to ensure comfortable living during the final years of their lives. However, changes in estate administration laws can make planning for retirement more challenging in Maryland and elsewhere. The recent budget proposal from the White House which would cap contributions to tax-deferred accounts and financial vehicles may significantly change the estate planning landscape for many approaching retirement age.

If the proposed legislation is enacted into law, the maximum amount that people could contribute to tax-deferred accounts for retirement would be $3.4 million. This cap would apply to 401(k) plans, profit sharing plans and individual retirement accounts (IRAs). Although this would likely require adjustments to many people's estate planning strategies, there are already two alternate strategies being promoted by financial experts in order to deal with these potential changes to the law.

One alternative strategy is for parents to suggest that their children invest in Roth IRA accounts. When people put money into Roth IRA accounts they pay tax upfront, while withdrawals are usually exempt from taxation. Experts say this will allow the investment accounts to grow over a longer period of time. The other strategy is to empty Roth IRAs into a trust account.

No matter what estate administration strategies one decides to employ in Maryland, it is necessary to properly draft the legal documents to appropriately put these plans into place. Each estate planning document must be legally enforceable, while many of them have significant format requirements to be valid. Making sure to follow the proper legal procedure will help to avoid having to litigate in probate court.

Source: advisorone.com, "IRA Cap Gives Rise to New Funding Strategies," John Sullivan, April 17, 2013

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