San Jose, CA Retirement Account Tax Lawyer

Attorney Helping Clients Realize Tax Benefits of 401(k)s and IRAs in Santa Clara County

Planning for retirement is an important step that everyone should take throughout his or her career. However, understanding the different types of retirement accounts that are available can be a complex matter, and things become even more complicated when considering how these accounts can affect tax liabilities and deductions. When determining your best options for saving for retirement, it is crucial to work with an experienced tax law attorney.

At John D. Teter Law Offices, our tax attorney has more than 30 years of experience working with both individual taxpayers and businesses. We will take the time to gain a full understanding of your financial situation and help you determine the best ways to use tax deductions and credits when saving for your retirement.

Tax Benefits of Retirement Accounts

Retirement accounts provide financial security, ensuring that you will have a steady source of income after you have reached the age where you can stop working. In many cases, these accounts are tax-deferred, meaning that taxes will not be paid on contributions to these accounts or the interest earned until you begin withdrawing funds after your retirement.

Traditional retirement accounts usually fall into one of two categories:

• 401(k) accounts - These types of accounts are offered by many employers, and employees can choose to withhold a certain percentage of their income and save it for retirement. In addition, many employers match a certain percentage of their employees' contributions. An employee's contributions are tax-deductible, allowing them to reduce their tax liabilities on the income they earn. In 2019, an employee can contribute up to $19,000, and those who are at least 50 years old can contribute up to $25,000.
• Individual Retirement Accounts (IRAs) - Employees may open this type of account on their own, although some employers offer IRAs for their employees. As with a 401(k), contributions to an IRA are tax-deductible. In 2019, a person can contribute up to $6,000 to an IRA, or up to $7,000 for those who are at least 50 years old.

In addition to traditional 401(k)s and IRAs, you may choose to contribute to a Roth IRA or Roth 401(k). Contributions to these types of accounts are not tax-deductible, but the account's earnings and the withdrawals you make after retirement are generally not taxable. This may provide tax savings if you expect your tax rates to increase in the future.

Executive Compensation Benefit Plans

While 401(k)s and IRAs provide benefits for many people, they are not always able to meet the needs of executives or those who earn a higher income, due to the limits on contributions to qualified benefit plans. Executive benefit plans can provide tax benefits for both employers and executives. These plans may include:

• Nonqualified Deferred Compensation Plans (NQDCs) - Employees may use this type of plan to defer a portion of their income from being taxed and save it in an account until it can be withdrawn after their retirement. These plans are exempt from the Employee Retirement Income Security Act (ERISA), and there are no limits on the amount of contributions or rules about when distributions can be taken from the plan.
• Supplemental Executive Retirement Plans (SERPs) - Similar to a pension or annuity, this type of plan can provide an executive with a percentage of the income they were earning at the time of retirement, paying these benefits over a number of years. SERPs may take into account all income earned by an executive, such as bonuses or other forms of compensation. This type of plan is usually funded by the employer to ensure that executives can receive benefits similar to those available to other employees.

When setting up and administering these types of plans, it is important to work with a skilled tax attorney who can help avoid any potential tax penalties that may arise.

Retirement Accounts and Divorce

One issue that retirement account holders should be aware of is how these assets are handled during divorce. Funds contributed to a 401(k) or IRA during a marriage are considered community property that must be divided between divorcing spouses. However, if funds are withdrawn from an account before the account holder reaches retirement age, they may incur penalties and/or be subject to taxes. To avoid this, a qualified domestic relations order (QDRO) may be used to distribute funds in an account to an ex-spouse, who can then roll over these funds into his or her own retirement account.

Contact a San Francisco Bay Area Tax Attorney

John D. Teter Law Offices can help you determine the best ways to make use of the available tax benefits when you are planning to save for your retirement. We can also assist in drafting QDROs and addressing tax-related issues when distributing retirement accounts between divorcing spouses. Whatever your needs, we can help you ensure that you are prepared for financial success both now and in the future. To schedule a consultation, contact us at 408-866-1810.