Withdrawing From a SEP IRA or a Tax Deferred Annuity

The EAT can take title of either the new property or the relinquished property. It is imperative that the investor arranges the 1031 reverse exchange with the EAT prior to the replacement property closing or the IRS will disallow the tax deferred exchange.

First, your beneficiaries that receive your tax-deferred accounts will be subject to making at least RMDs for their remaining life expectancy at your death. Those RMDs or any more money withdrawn each year will be taxed at your beneficiary's highest tax bracket rate since he'll probably have a working income too. So, if you use much or all of your tax-deferred funds before you die, then you're leaving less tax liability for him since your remaining taxable accounts (with their tax basis and lower taxation rates) hold less tax liability to him.

Suppose several years after completing the 1031 exchange, the investor elects to move or retire full-time to the beach (or the mountains, lake, or golf community.) At the time the investor moves into the previously rented investment property, no tax obligations are due. The investor simply converts a property held for investment into his or her primary residence. The ultimate opportunity comes several years down the road, if and when the investor decides to sell the newly converted residence. At the time of that sale if the homeowner meets the residence requirements of ownership, occupies the property for at least two years, and held that previously 1031 exchanged property for at least five years, he will qualify for the $250,000 or $500,000 residential sale exclusion.

The ability to re-invest your entire property equity without tax erosion can significantly enhance the amount of capital that stays invested and can make it easier to upgrade into higher value properties with greater cash flow.

So I was in the drug store the other day, trying to get a cold medication. You ever try and pick one of these out? It's not easy. It's a wall. It's an entire wall of cold medication, you stand there, you're going, "Alright, alright, alright, okay, what the hell? This is quick acting, but this is long lasting. When do I need to feel good, now or later?" It's a tough question. - Comedian Jerry Seinfeld

A financial representative will help determine if tax deferred savings can be a good fit for your lifestyle. If you do some financial retirement planning now, you can pave the way to your golden years with ease.

However, we can thank the Starker family for the rise of the "deferred exchange", the way a majority of exchanges are handled today (as opposed to simultaneous swaps). In 1979, a taxpayer named T.J. Starker, transferred timber property (which was free and clear of debt) to Crown Zellerback Corporation in exchange for a promise by Crown to transfer to him like-kind property chosen during a five-year period. At the end of this five-year period, Mr. Starker would receive any outstanding balance in cash. A trust agreement was formed so that all sale proceeds were held in a separate bank account, and clear terms of the trust stated that the funds could only be used to purchase replacement property for the Starker family, and for no other purpose. In fact neither Crown nor Starker even had access to the money except for buying replacement investments. The IRS, upon seeing the arrangement, denier the tax deferral arguing that a 1031 mean a simultaneous swap, which was how the IRS interpreted the code to this time. In a monumental decision, one important for every investor since, the Ninth Circuit Court ruled in favor of Starker and against the IRS, saying the Code did not require simultaneous transactions as a requirement and that the exchange did not fail.

The final example, an indexed annuity, earns interested based on an external financial index, such as the S&P 500. Index annuities offer tax deferral benefits equal to variable annuities. In other words, annuities offer tax deferral, but when the tax is paid, it is paid at ordinary income rates. Index funds do not offer tax deferral, unless they are held within an IRA, but income is taxed at a lower capital-gains tax rate. If the index fund is held within an IRA, the IRA is subject to contribution limits which do not apply to indexed annuities.