Posted by & filed under Asset Protection, Community Property Agreement, Retirement Planning.


Did you know that many real estate professionals who handle the titling of real property assets for same-sex couples many times are ignorant of titling rules for those couples? 

This is a subset of the law in California that same-sex couples must be aware of even if they’ve been cohabitating for many years.  Married same-sex couples who have been together a long time, but only recently legally married, will not have community property and will lose the significant tax benefits on the death of the first spouse unless they make certain decisions to protect their community property assets.

Same-Sex Couples & Community Property Rights


When you are planning your estate you might not think about how your living arrangements may affect it.  For example, if you have lived with someone for a long time and have had a lifetime partnership with them, sharing the expenses and purchasing a home together, you would think that would be the same as a normal married couple. 

However, it’s actually not.  There are different laws that apply for people that have had a long term relationship but are not actually married.  This also, sadly, is how it is for many of our married gay couples.

When you buy a house together you think of it as community property.  Community property means that it is both yours equally.  Community property is everything that is purchased during the marriage. However, if you waited a long time to be married, then the rules are different. 

Because the marriage of gay couples wasn’t even possible until recently under California law, there are many same-sex couples finding out that they, in fact, don’t have the rights they thought they had.  We are seeing more and more of this costly mistake and want to make people aware.  There is a document that you can sign that will make the property community called a “community property agreement”.  This is something that you need to discuss with your estate planning attorney.

Why You Need a Community Property Agreement


So, let’s try to break this down a bit and hopefully help better explain it.  Let’s say you own a rental property with your partner that is now worth $1,000,000.  You both agree to sell the property.  You purchased the property many years prior for $200K, and so upon sale of the property you would have to pay capital gains tax on $800K. (The cost basis is $200,000.  If this was depreciated rental property, the cost basis would be as low as zero.)  When someone dies, their share gets a 100% stepped-up basis.  If the property is jointly owned, such as joint tenancy or tenants in common, 1/2 the property would get a stepped-up basis of $500,000.

But – and this is the important part – for community property, the surviving spouse gets a 100% step-up on the entire property, so this property would be stepped up to $1,000,000.  This means it can (1) be sold without capital gains tax or (2) be depreciated all over again, meaning a huge annual income tax deduction for the surviving spouse.

The concern is that same-sex couples who have been together for many years but only just recently married, will not have their assets properly designated as community property.  This can be fixed by getting a signed community property agreement.

Clearing Up The Confusion of Step-Up Rules


There are a lot of confusing rules about the stepped-up basis.  However, you can have all of your questions answered by speaking with an estate planning attorney who is an expert about these rules. 

Take the time to do some research on this, and if you find it difficult to understand make an appointment with The Law Offices of Joel A Harris.  Don’t leave a tax mess for your spouse or long term partner.

The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel. Joel Harris is an attorney with 30 years of experience and is extremely familiar with how the law affects same-sex couples and their rights. If you are not sure how to begin, or you just want some help navigating the ins and outs of protecting your retirement and estate, feel free to visit us online, in person or call us by phone at (925) 757-4605.

Posted by & filed under 2020 Changes, Asset Protection, Estate planning.

2020 Changes to 401k, SEP and IRA Contribution Limits

How much money can you save for your retirement in 2020? The I.R.S. just increased the annual contribution limits on IRAs, 401(k)s, and other widely used retirement plan accounts for 2020, so we thought it would be a good idea to offer a quick look at some notable changes that you should know for 2020. In 2018, 13% of employees with retirement plans at work saved the maximum amount of $18,500-$24,500. 15% of the employees that were offered the catch-up plan over the age of 50 took advantage of that offer. The announcement by the I.R.S. means that the numbers listed can go up, and if you value your retirement, you should be a part of it!  

Contribution Limit Changes In 2020

    In any type of IRA in 2020, you can put up to $6,000 for your retirement. If you are older than 50 years old anytime in 2020, the limit has been increased to $7,000. Employees that participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will face a $500 increase in the limit of contributions. In 2019, the contribution limit was $19,000, in 2020, there was a boost to $19,500. The catch-up contribution limit for participating employees over 50 years also increased by $500, from $6,000 to $6,500. (This is the first increase in the contribution limits since 2015 when the limit rose to $6,000.) 

SEP IRAs and Solo 401(k)s

Are you self-employed, or do you own a small business? You may have a SEP IRA or a solo 401(k), which allows you to make both an employer and employee contribution. The limit on total SEP IRA and solo 401(k) contributions rises $1,000 in 2020, reaching $57,000. This amount is based on how much employers can contribute as a percentage of their employee’s salary. The compensation limit that is used in the savings calculation also increases in 2020 by $500. In 2019, the limit was $280,000, in 2020 however, the limit boosts to $285,000. 

SIMPLE IRA Limit Changes In 2020

    If you have a SIMPLE retirement account, also known as the Savings Incentive Match Plan for Employees Individual Retirement Account, limitations also have a $500 boost from 2019’s $13,000 to $13,500. But the SIMPLE catch-up plan is still the same as the 2019 limit of $3,000. 

Changes in Phase-Out Ranges in 2020

Are you a single taxpayer covered by a workplace retirement plan? Your phase-out range is $65,000 to $75,000, an increase from $64,000 to $74,000.

Are you married, filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan? Your phase-out range is $104,000 to $124,000. That’s an increase from past years of $103,000 to $123,000. 

If you are a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

If you are an IRA contributor that is not covered by a workplace retirement place and is married to someone who is covered by one, the deduction is phased out if the couple’s income is between $196,000 and $206,000, an increase from $193,000 and $203,000.

For taxpayers making contributions to a Roth IRA’s income phase-out is $124,000 to $139,000 for singles and heads of households. That’s an increase from $122,000 to $137,000. 

If you are a married couple filing jointly, the income phase-out range is $196,000 to $206,000, an increase from $193,000 to $203,000.

What Should I Do Now?   

Planning for your retirement can be a daunting task, and you may still have some remaining questions. The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel pertaining to your planning, execution, or, and any other legal concerns or questions you may have. The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you to the best of their abilities. Joel Harris is an attorney with 30 years of experience and is extremely familiar with this process. If you are not sure how to begin, or you just want some help navigating the ins and outs of protecting your retirement and estate, feel free to visit us online, in person or call us by phone at (925) 757-4605. 

Sources

  1. irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits 
  2. irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500 
  3. forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/
  4. cnbc.com/2019/06/03/these-are-the-new-hsa-limits-for-2020.html  

Posted by & filed under CARES Act 2020.

Key Provisions of the CARES Act You Need to Know for 2020

“CARES” stands for “Cornonavirus Aid, Relief and Economic Security” and was designed to help people whose livelihood was affected by the COVID 19 virus.  It outlined assistance the government is providing for people during these tough times.  The government has implemented provisions within the CARES Act that may benefit retirees as well.  Let’s take a look at some of the areas of the CARES Act that should have an impact on our population, remembering to keep in mind that the rules are changing daily.

Economic Impact Payment Checks Are Coming

Economic Impact Payment aka stimulus checks were to be sent out to every American to help with these tough financial times.  It was in the amount of $1200 per individual and $500 per child within that home that was under the age of 17.  A married couple would receive $2400.  This payment was based on the tax paperwork that was filed in 2018, should the 2019 tax filings not be completed.  Some people did not have their 2019 taxes filed when this all started.  There were some rules for getting this check.  The amount was reduced for those that make more than $75K per year or for a couple that makes $150K per year.  The people that make over $99K will not be getting a stimulus check and couples over $198K will also not be eligible.  Haven’t received your stimulus check yet? Click here to find out your status, but make sure to have your 2019 taxes on hand.

Business Owner Relief is Coming

During COVID 19 businesses have been extremely hard hit.  This assistance was meant to help them get through this.  The CARES act issued $500 billion in loans, investments to businesses, municipalities, and loan guarantees.  According to the Small Business Administration “In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories were able to apply for an Economic Injury Disaster Loan advance of $1,000 per employee up to $10,000, . This advance is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid.” This is an ever-changing situation so it’s best to monitor their website for further updates.

Inherited 401(k) Distributions Waived

For 2020 inherited accounts, IRAs, 401 (ks)s distributions can be waived.  The CARES Act makes it easier to withdraw funds saved in certain tax-advantaged retirement accounts like 401(k)s and traditional Individual Retirement Accounts (IRAs). These changes are temporary and eliminate tax penalties on certain early withdrawals and relax the rules on loans you can take from some types of accounts.  Be warned, however, not all tax-advantaged retirement account holders are able to take advantage of the CARES Act’s relaxed early distribution and loan provisions. You should know that the legislation restricts this form of relief to qualified participants with a valid COVID-19 related reason. You must:

  • Be diagnosed with COVID-19
  • Have a spouse or dependent diagnosed with COVID-19
  • Experience a layoff, furlough, reduction in hours, or inability to work due to COVID-19 or lack of childcare because of COVID-19

Withdrawal Penalties Waived

If you want to remove your money from your IRA in 2020, you may do so without the penalty before the age of 59 1/2.  There are some limits though, you can only withdrawal $100K and you will still have to pay the taxes on the money you withdraw.  Under the CARES Act, the 10% penalty has been waved. Referred to as “coronavirus related distributions,” these penalties are waived only in 2020.

Required Minimum Distributions Suspended for 2020

As you are probably aware of, RMDs are the government’s way of finally getting ahold of some of the money that’s grown tax-deferred for decades in your traditional 401(k) or IRA. From the age of 72, retirees must withdraw a minimum amount from their account each year and pay income taxes on it. For 2020 the CARES Act will help cover those in need by waving the minimum people can withdraw from their 401 (k)s and IRAs.

There are plenty of businesses and individuals that are struggling with COVID-19 and the Shelter in Place that has come with it.  This has brought on financial, emotional, and stressful burdens to many families and businesses.  The CARES Act was enacted to hopefully relieve some of these burdens and help keep the economy going through these tough times.  Many businesses have been fully closed down, the unemployment rates are skyrocketing and the economy is veering towards a recession.  The CARES Act is a sign of hope. 

What Should I Do Now?   

During these unprecedented times, you should know that things will get better.  We are stronger together and will weather this experience like we have weathered many others in our nation’s history. The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel pertaining to your planning, execution, or, and any other legal concerns or questions you may have. The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you to the best of their abilities. If you are not sure if your estate is protected or you just want some help navigating the legal side of planning your estate, feel free to visit us online, in person, or call us by phone at (925) 757-4605. 

Sources

  1. https://www.sba.gov/funding-programs/disaster-assistance/coronavirus-covid-19
  2. https://www.forbes.com/advisor/retirement/cares-act-retirement-account-rules-covid-19/ 
  3. https://www.cnbc.com/2020/05/05/penalty-free-401k-withdrawals-may-be-more-complicated-than-you-think.html
  4. https://money.com/rmd-401k-roth-ira-requirements-2020/