When it comes to estate planning, one of the primary goals is to transfer as much of a person’s assets to their intended beneficiaries at the lowest cost or, in other words, by paying the least amount of tax.Today, the federal estate tax exemption is $5,430,000 per person. It is also portable (can be transferred) between spouses, giving them a maximum exemption of $10, 860,000 per couple and the maximum rate is 40%. That is a far cry from where we’ve been. In the not-too-distant past, the federal exemption was at $1 million, it wasn’t portable and the top rate was 50%.
Due to the massive amount of assets that could have been lost to federal estate tax, people looked for any way to avoid it. Oftentimes, that included gifting away assets during life, which, while providing an estate tax edge, probably wasn’t the better move when it came to the income tax side of things. As a result, in order to maximize the value of one’s estate, a careful analysis of estate tax costs vs. income tax costs was necessary.
What is the 10% early IRA distribution penalty?
A 10% early IRA distribution penalty applies to taxable distributions made before age 59 ½. Distributions made after age 59 ½ are not subject to the 10% early distribution penalty.
Exceptions: Age 55 for employer plans when you separate from service in the year you turn 55 or later; age 50 for public safety employees in governmental defined benefit plans who separate from service; for SIMPLE IRAs, the penalty is 25% for the first two years in the plan, then reverts back to the 10% penalty in following years.
When global equity markets enter periods of elevated volatility like we’ve experienced recently, it’s wise to take a breath and gain some perspective. If equity markets were perfectly rational and priced new information efficiently, we would not see such periods of heightened volatility. In reality, equity markets can be quite inefficient and irrational over short-term time horizons as stock price volatility exacerbates intrinsic business value volatility. As investors, we focus more on intrinsic business value volatility, which is the present value of cash that a business is expected to generate in the future. Although market participants emphasize company earnings over the next quarter or year, we estimate that a years’ worth of company earnings represent about 5-7% of a company’s intrinsic business value. Short-term equity market volatility and inefficiencies exist because investors over-react to news that has little correlation to long-term intrinsic business value.