403(b) Minnesota: A Simple Guide to Investments, Tax, and Withdrawal Rules

403(b) Minnesota: A Guide to Investments, Tax, and Withdrawal Rules

Do you have a 403(b) in Minnesota? The 403(b) is your financial ally in the land of retirement savings. However, there are some complexities that come with having a 403(b). This is a general overview of the topic. But we recommend you seek the advice of a fiduciary financial advisor and a tax professional when doing your retirement planning and tax planning.

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

403(b) Basics for Minnesotans

Think of your 403(b) as a cozy savings nest, specific to certain employees of public schools, tax-exempt organizations, and some ministers. A 403(b) plan allows you to tuck away money from your salary before taxes. This means you don’t pay Uncle Sam on that money… yet.

Now, think of your paycheck as a pie. 

By contributing to a 403(b), you’re essentially choosing to eat a slightly smaller piece of pie now to ensure you have pie slices waiting for you in your golden years. 

And who doesn’t like future pie? 

But there are some complexities to having a 403(b) in Minnesota and elsewhere in the US. In this post, we’ll cover 403(b) benefits, limitations, and rules so that you can manage your money wisely.

If you need help with your 403(b), please reach out to a fiduciary financial advisor who can guide you through the process of ensuring your investments are optimized. 

Table of Contents

  1. 403(b) Basics
  2. What is a 403(b)?
  3. What are the benefits of a 403(b) for Minnesotans?
  4. Minnesota 403(b) Limitations and Plans
  5. Tax Planning and Your 403(b) in Minnesota
  6. What to Do With Your 403(b) When You Retire
  7. 403(b) Example Case Study: Successful Rollover and Pitfall Avoidance
  8. Common Questions about 403(b) Plans in Minnesota
  9. Summary of Key Points

What is a 403(b)?

A 403(b) plan is a retirement savings tool available for certain employees, including those in public education, hospitals, colleges, school districts, and some non-profit organizations, and certain ministers. 

A 403(b) is similar to a 401(k) but tailored for specific sectors. When you contribute to a 403(b), you’re allocating a portion of your income into this plan before taxes are applied. This pre-tax contribution reduces your current taxable income, providing an immediate tax benefit.

Over time, the money in your 403(b) account grows tax-deferred. This means you won’t pay taxes on the earnings as they accrue. Taxes are only paid when you withdraw funds, typically during retirement. 

A 403(b) is an effective way to save for the future, as it not only allows you to grow your retirement savings but also provides potential tax advantages in the present. Understanding and using a 403(b) can be a key component in your overall retirement strategy.

What Are the Benefits of a 403(b) for Minnesotans?

Pre-tax Contributions

The first perk of a 403(b) for those living in the Land of 10,000 Lakes is the pre-tax contributions. By contributing to your 403(b), you’re reducing your taxable income for the year. Think of it as a financial magic trick: by saving for your future self, you’re lowering today’s tax bill. This can be especially beneficial in Minnesota, where state income tax rates are noteworthy.

Employer Matching

Next up is the potential for employer matching. Some employers will match your contributions to a certain percentage. This is essentially free money towards your retirement, boosting your savings without extra effort on your part. It’s like getting a bonus for being smart with your finances! 

Investment Choices

403(b) plans typically offer a range of investment options that cater to different risk tolerances and investment goals. This means you can tailor your retirement savings to suit your personal financial situation and future aspirations.

Long-term Savings Potential

Finally, the long-term savings potential of a 403(b) cannot be understated. Thanks to the power of compound interest, your savings can grow significantly over time. The earlier you start, the more you benefit from this compounding effect, making a 403(b) a smart move for those thinking ahead about their retirement years in Minnesota.

Minnesota 403(b) Limitations and Plans

Like any investment tool designed for retirement, the 403(b) does have some limitations that are important to consider. 

Limited Withdrawal Options

One of the limitations of a 403(b) plan in Minnesota, as with most retirement plans, is the restricted access to funds before retirement age. Early withdrawals can result in penalties and taxes, reducing the overall benefit of the plan. This is designed to encourage long-term saving, but it means you need to consider other options for liquidity in case of emergencies.

Most financial advisors and personal finance experts will recommend that you have a cash cushion or emergency fund to ensure that when you have unexpected expenses, you can easily cover those costs without dipping into your investments. The size of your cash cushion or emergency fund will depend on your lifestyle and family circumstances. But please keep this in mind when contributing to your 403(b).

Potential for Fees

Another point to consider is the potential for fees associated with 403(b) plans. These can include administrative fees, investment management fees, and sometimes, surrender charges if you decide to transfer funds. It’s important to understand the fee structure of your specific plan, as these fees can impact the overall growth of your retirement savings.

Investment Risks

Lastly, all investments carry some degree of risk, and the options within a 403(b) plan are no exception. The risk level depends on the types of investments you choose within your plan. While some options like government securities might be lower risk, others, such as stock-based mutual funds, can be more volatile. It’s crucial to balance your investment choices with your risk tolerance and retirement timeline, possibly consulting with a financial advisor to align your strategy with your long-term goals.

Specific Rules and Guidelines Pertaining to 403(b) in Minnesota

In Minnesota, the rules and guidelines for 403(b) plans are largely consistent with federal regulations, but there are some state-specific nuances. For instance, Minnesota public school districts often have specific rules about the vendors they use for their 403(b) plans. Additionally, state law mandates that public school employees be given the opportunity to participate in a 403(b) plan. It’s important for participants to be aware of the specific rules and guidelines set by their employer, as these can vary.

Employers in Minnesota who Commonly Offer 403(b) Plans

In Minnesota, 403(b) plans are predominantly offered by public education institutions, non-profit organizations, and certain religious institutions. This includes public schools, universities, charities, and certain hospitals. These employers often provide these plans as part of a comprehensive benefits package to attract and retain quality employees in these crucial sectors.

Who Is Eligible for a 403(b) Plan in Minnesota?

Eligibility for a 403(b) plan in Minnesota is generally determined by the type of employer. Employees of public schools, employees of certain tax-exempt organizations and certain ministers are eligible. Part-time and full-time employees may be eligible, but specific eligibility criteria, such as minimum hours worked or length of service, can vary by employer.

How Does a 403(b) Differ from a 401(k)?

While both 403(b) and 401(k) plans are tax-advantaged retirement savings plans, they cater to different types of employees. A 403(b) is primarily for employees of public schools, non-profits, and certain ministers, while a 401(k) is offered by private-sector employers. 

The investment options in a 403(b) are often more limited, typically focusing on annuities and mutual funds, whereas 401(k) plans often have a broader range of investment options. Additionally, the fee structures and employer matching contributions can vary significantly between the two types of plans.

Tax Planning and Your 403(b) in Minnesota

Federal Tax Planning

When it comes to federal tax planning with a 403(b), the primary advantage lies in its tax-deferred nature. Your contributions reduce your taxable income, potentially lowering your tax bracket. 

This tax break can be a significant benefit, especially if you expect to be in a lower tax bracket at retirement. However, it’s important to plan for the taxes you’ll owe upon withdrawal. Since distributions are taxed as ordinary income, understanding your future tax liability is crucial for effective long-term planning.

In other words, it’s important to work with a tax professional or financial advisor who can help ensure that you’re prepared for the taxes you’ll need to pay when withdrawing from your 403(b) in retirement. Tax planning is a critical part of retirement planning. 

State Tax Considerations for Minnesotans

In Minnesota, state tax considerations also play a role. The state follows federal guidelines in terms of tax-deferred status of contributions. However, Minnesota’s progressive tax rates mean that reducing your taxable income now could have more pronounced benefits. It’s wise to consider how your current tax rate compares to what you anticipate it will be at retirement, keeping in mind potential changes in state tax laws.

We recommend that you speak with your tax professional as well as a fiduciary financial advisor about your specific situation. 

Withdrawal Penalties and Rules

Regarding withdrawals, the rules for a 403(b) in Minnesota are aligned with federal standards. Withdrawals before age 59½ typically incur a 10% early withdrawal penalty, in addition to being taxed as income. 

Certain exceptions apply, such as disability or qualifying hardships, but these should be carefully considered. It’s also important to note that starting at age 72, you must take Required Minimum Distributions (RMDs), as dictated by the IRS. 

Planning for these withdrawals is a key part of managing your 403(b) effectively and avoiding unnecessary penalties.

What to Do With Your 403(b) When You Retire?

403(b) to IRA Rollovers

One of the options you have upon retiring is rolling over your 403(b) into an Individual Retirement Account (IRA). This move may offer several advantages. First, it potentially opens up a wider range of investment options compared to what’s typically available in a 403(b) plan. Additionally, IRAs often have more flexible withdrawal rules and can provide more estate planning benefits. However, it’s important to consider factors like the differing fee structures and protection from creditors offered by 403(b) plans and IRAs. Consulting with a fiduciary financial advisor is advisable to ensure this move aligns with your overall retirement strategy.

Benefits of 403(b) to IRA Rollover:

  • Wider range of investments
  • More flexible withdrawal rules
  • Greater estate planning benefits

Minnesota State Tax on 403(b) Retirement Withdrawals

In Minnesota, withdrawals from a 403(b) plan in retirement are subject to state income tax. Since these withdrawals are considered income, they’re taxed at Minnesota’s current income tax rates, which are progressive. 

Planning for these state income taxes is an essential part of your retirement strategy. It’s important to consider how these taxes will impact your retirement income, especially if you have other sources of income that could push you into a higher tax bracket. 

Proper tax planning can ensure you have the income you need in retirement and aren’t paying excessive taxes.

403(b) Example Case Study: Successful Rollover and Pitfall Avoidance

Let’s consider the case of Sarah, a retired school teacher from Minnesota.

After a fulfilling 30-year career, Sarah decides it’s time to retire. She has diligently contributed to her 403(b) plan throughout her career, accumulating a substantial nest egg. As she approaches retirement, Sarah faces the crucial decision of how to manage these funds.

Rollover Decision:

Sarah decides to roll over her 403(b) into an IRA. This decision is driven by her desire for more investment options and flexibility in withdrawals. The rollover process is straightforward, and she makes sure to execute a direct rollover to avoid any tax withholdings and penalties.

Pitfall Avoidance:

One potential pitfall Sarah avoids is acting hastily. She consults with a fiduciary financial advisor to understand the implications of the rollover, particularly regarding tax consequences. The advisor helps her understand that by rolling over to an IRA, she could better control her tax situation, especially with Minnesota’s progressive tax rates. The advisor walks her through all the possible options so that she can make an informed decision.

Since she seeks advice from a fiduciary, she knows that her advisor is legally bound work in her absolute best interest at all times. So she’s not worried about whether she’s getting good advice. She knows that she can trust her advisor. 

Outcome:

Post-rollover, Sarah has a diversified portfolio tailored to her risk tolerance and retirement goals. She is able to plan her withdrawals more strategically, taking into account her other income sources which include Social Security and a small rental property. Working with her advisor and accountant, she has a plan which allows her to minimize her tax liability.

Key Takeaway:

Sarah’s example highlights the importance of careful planning and seeking professional advice when dealing with 403(b) rollovers. By getting advice, planning ahead, and considering taxation and retirement goals, Sarah can make an informed decision that optimizes her retirement savings and minimizes potential pitfalls.

403(b) Options When Leaving an Employer

A plan participant leaving an employer typically has four options. If you have a 403(b) and you’re leaving an employer, you may engage in a combination of these options. Each choice has advantages and disadvantages which you should discuss with your financial advisor and financial planner.

Any of these options might be right for you. So we strongly recommend that you speak with a financial advisor to get advice on what will be best for you based the particulars of your situation.

4 Main Options for Plan Participants Leaving an Employer:

• Leave the money in your former employer’s plan, if permitted.

• Roll over the assets to your new employer’s plan, if one is available and rollovers are permitted.

• Do a rollover to an IRA.

• Cash out the account value.

Common Questions about 403(b) Plans in Minnesota

What are the disadvantages of a 403(b)?

403(b) plans often have limited investment options and can come with higher fees. Early withdrawal penalties and restrictive access to funds before retirement age are also something to consider.

Can you do a 403(b) and a state of Minnesota retirement?

Yes, you can participate in both a 403(b) and a Minnesota state retirement plan, which can enhance your overall retirement savings strategy.

How can I find out if my employer matches my 403(b) in Minnesota?

Check with your HR department or plan administrator. Employer contribution details are outlined in your plan’s summary description.

What is Minnesota state tax on 403(b) retirement withdrawals?

In Minnesota, 403(b) withdrawals are taxed as income at the state’s current income tax rates, which are progressive.

What are Minnesota 403(b) investment limitations?

Investment choices in 403(b) plans are often limited to mutual funds and annuities, with fewer options compared to other retirement accounts like 401(k)s or IRAs.

How much should I contribute to my 403(b)?

Aim to contribute enough to get any employer match, then consider your retirement goals, current financial situation, and tax implications to decide your optimal contribution level.

Summary of Key Points

  • 403(b) plans are for public education, non-profit employees, offering pre-tax contributions and tax-deferred growth.
  • Benefits include pre-tax contributions, employer matching, diverse investments, and long-term savings potential.
  • Limitations include restricted withdrawals, potential fees, and investment risks.
  • Specific eligibility and rules apply in Minnesota, mainly for public sector and non-profit employees.
  • Contributions reduce taxable income, affecting federal and state taxes; withdrawals are taxed as income.
  • Retirement options include 403(b) to IRA rollovers; understanding state tax implications and investment limits is crucial.

Connect with a Fiduciary Financial Advisor

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

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Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 Ł may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 Ł or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

How to Avoid Probate in Minnesota: A Comprehensive Guide

How to Avoid Probate in Minnesota

A Simple Guide to Probate in Minnesota

“How can I avoid probate in Minnesota?”

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

Avoiding Probate Problems in Minnesota

You can avoid probate in Minnesota if you follow a solid estate planning process that includes working with an estate planning attorney, financial advisor, and accountant.

Strategies such as joint ownership, utilizing beneficiary designations, establishing a revocable living trust, and using POD and TOD accounts are popular for avoiding probate.

However, it’s critical that you work with a team of professionals who will give you advice that’s tailored to your specific situation and aligns with your values and wishes.

If you’re concerned about the potential time, costs, and stress involved in the probate process for your loved ones, you’re not alone.

Many Minnesotans are looking for ways to avoid the complexities of probate and ensure a smoother estate distribution for their families. In this overview, we will explore various strategies for how to avoid probate in Minnesota and protect your loved ones.

From joint ownership options to establishing revocable living trusts, this post will cover a range of alternatives that can save time, money, and emotional strain for your beneficiaries.

Read on to discover how you can craft a tailored plan that meets your needs, providing peace of mind for you and your family.

Establishing a revocable living trust to avoid probate in Minnesota

Key Takeaways

  • Gaining an understanding of the Minnesota probate process and its associated strategies can help minimize costs, time, and privacy concerns.
  • Joint ownership options are a popular strategy for avoiding probate in Minnesota while utilizing beneficiary designations is also effective.
  • Establishing a Revocable Living Trust or using POD/TOD accounts may be beneficial. Consider professional assistance to craft tailored estate plans.

Basics of Avoiding Probate in Minnesota

Understanding the Minnesota probate process is crucial for avoiding formal probate in Minnesota.

But what is probate?

Probate is a probate court-administered process that involves several steps, including validating the decedent’s will, appointing a personal representative, and overseeing the distribution of the decedent’s assets. In Minnesota, probate can be a lengthy and costly. A public probate proceeding often takes several months or even years to complete. The role of a probate registrar is essential in this process, as they ensure the proper administration of the probate court’s duties.

Minnesota law requires probate for estates valued at more than $75,000, if the deceased owned real estate solely in their name, or if there is an estate checking account.

Avoiding probate helps to:

  • Reduce costs
  • Save time
  • Ensure privacy
  • Comply with the decedent’s wishes.

Gaining insights into the intricacies of the probate process, including informal probate, allows you to leverage various strategies to bypass probate, expedite estate distribution, and safeguard your family’s future.

The Importance of Avoiding Probate in Minnesota

Avoiding probate in Minnesota is beneficial for both you and your beneficiaries.

First and foremost, avoiding probate can save time and money. It can reduce stress for your loved ones. Probate proceedings can be lengthy and expensive. Probate involves court fees, attorney fees, and other costs. Avoiding probate allows your assets to be distributed as per your wishes, eliminating the need for a time-consuming and costly legal process.

Moreover, avoiding probate can help maintain privacy for your estate and beneficiaries.

Probate proceedings are public records, which means that anyone can access information about your assets, debts, and beneficiaries. Utilizing strategies to bypass probate can help safeguard the privacy of your estate and loved ones, and lessen the likelihood of disputes over assets.

Joint Ownership Options

Joint ownership options are a popular strategy for avoiding probate in Minnesota.

Holding assets jointly with another person means the assets transfer directly to the surviving owner upon your death, thereby bypassing the probate necessity.

Two common types of joint ownership arrangements are joint tenancy with rights of survivorship and tenancy by the entirety. While each option has its own unique features and benefits, both allow for the automatic transfer of ownership to the surviving owner without the need for probate.

Joint Tenancy with Rights of Survivorship

Joint tenancy with rights of survivorship (JTWROS) is a type of property ownership where two or more individuals own the property together. Upon the passing of one owner, their share of the property is automatically transferred to the surviving owner(s) without going through probate. JTWROS is frequently employed to avert probate and ensure a seamless transfer of property upon the death of one owner.

The primary benefit of joint tenancy with rights of survivorship is the avoidance of probate, resulting in a more expedited process and cost savings. However, it is important to note that joint tenancy with rights of survivorship does not offer any protection from creditors or lawsuits.

Tenancy by the Entirety

Tenancy by the entirety is another form of joint ownership that is only available to married couples. Similar to joint tenancy with rights of survivorship, tenancy by the entirety allows spouses to own property as a single legal entity, with the surviving spouse automatically assuming sole ownership upon the death of the other spouse.

The primary advantage of tenancy by the entirety is the protection it offers from creditors and other legal matters, as well as the seamless transition of ownership in the event of one spouse’s death.

However, it is essential to remember that tenancy by the entirety is only accessible to married couples and may not be available in all jurisdictions. Additionally, transferring ownership of the property in the event of a divorce can be challenging.

how to avoid probate in minnesota

Utilizing Beneficiary Designations

Another strategy for avoiding probate in Minnesota is to utilize beneficiary designations for assets such as life insurance policies, retirement accounts, and investment accounts. Designating beneficiaries for these assets ensures their direct transfer to the named beneficiaries upon your death, circumventing the probate process.

Designating a beneficiary for your financial accounts is a simple and effective way to avoid probate, ensuring that your assets are distributed according to your wishes and without unnecessary delays or expenses. However, it is crucial to review and update your beneficiary designations periodically, especially after major life events such as marriage, divorce, or the birth of a child, to ensure your assets are distributed according to your current wishes.

Establishing a Revocable Living Trust

Establishing a revocable living trust is another strategy that may help you to avoid probate in Minnesota.

A living trust is a legal instrument that allows you to transfer your assets to a trust during your lifetime, bypassing probate and ensuring a smooth distribution of your estate upon your death.

Creating a revocable living trust offers several benefits:

  • Retain control over your assets during your lifetime
  • Make changes or revoke the trust as needed
  • Avoid the need for probate upon your death
  • Ensure the privacy of your estate and beneficiaries
  • Save time and cost associated with probate
Payable-on-Death and Transfer-on-Death accounts to avoid probate in Minnesota

Payable-on-Death (POD) and Transfer-on-Death (TOD) Accounts

Payable-on-death (POD) and transfer-on-death (TOD) bank accounts are another excellent option for avoiding probate in Minnesota.

These types of accounts allow you to designate beneficiaries who will receive the assets in the account upon your death, bypassing the probate process. The process of setting up POD and TOD accounts is quite simple. All you need to do is appoint a beneficiary and submit the required paperwork to the associated financial institution. You can modify or revoke the beneficiary designation at any time, providing flexibility and control over your assets.

By utilizing POD and TOD accounts, you can ensure a direct transfer of your assets to your named beneficiaries without the need for probate, saving time and money in the process.

Transfer-on-Death deeds for real estate to avoid probate in Minnesota

Transfer-on-Death Deeds for Real Estate

Transfer-on-death deeds for real estate are another tool for avoiding probate in Minnesota. These deeds allow property owners to designate beneficiaries who will inherit the decedent’s estate, specifically the property, upon their death, without the need for probate.

However this may not be the best option for everyone.

It’s critical that you speak with your financial advisor and estate planning attorney about the pros and cons of using TOD Deeds for Real Estate.

To create a transfer-on-death deed, you must complete a form and submit it to the county recorder’s office, detailing the property owner’s name, the beneficiary’s name, and a description of the property. Upon your death, the property will be transferred directly to the named beneficiary, bypassing the probate process and ensuring a smooth and efficient transfer of ownership.

Transfer-on-death deeds may not be apt for all property types.

Gifting Assets Prior to Death

Gifting assets prior to death can be an effective way to avoid probate and ensure that your assets are distributed according to your wishes. By transferring assets to your beneficiaries before your death, you can reduce the size of your estate and potentially minimize estate taxes.

Although gifting assets before death can help to avoid probate, it’s important to consider potential tax implications and comply with gift tax laws.

Small Estate Affidavit Procedure

For estates below a certain value, the small estate affidavit procedure can provide a simplified estate settlement, helping to avoid the full probate process. In Minnesota, the affidavit for the collection of tangible personal property is applicable for estates worth less than $75,000, allowing heirs to bypass the complexities of probate if the estate is valued below this threshold. (+)

Utilizing the small estate affidavit procedure can provide significant time and cost savings for your beneficiaries, as well as ensuring a more streamlined estate settlement process. However, being aware of the monetary threshold and requirements for this procedure is vital because it may not fit all estates, especially those subject to federal estate tax.

Seeking Professional Assistance

Avoiding probate in Minnesota can be challenging, especially for those unfamiliar with the legal and financial aspects of estate planning. Seeking professional assistance from estate planning attorneys, financial advisors, and estate planners can provide invaluable guidance and expertise to help you craft a tailored plan that meets your unique needs and objectives.

Professionals can help you with the following:

  • Evaluate your specific situation
  • Recommend strategies such as creating living trusts or utilizing beneficiary designations
  • Help you navigate potential legal pitfalls

By enlisting the support of experienced professionals, you can ensure the protection of your assets and loved ones, as well as a seamless and efficient estate distribution process.

Summary

Avoiding probate is an essential aspect of estate planning in Minnesota. It can save your family time, money, and emotional strain. By employing strategies such as joint ownership options, beneficiary designations, revocable living trusts, and more, you can ensure a seamless estate distribution process that protects your assets and your loved ones.

As you begin the estate planning process, remember that seeking professional assistance from attorneys, financial advisors, and estate planners is key. They will help you create a tailored plan that meets your unique needs and objectives.

Frequently Asked Questions

Can probate be avoided in Minnesota?

In Minnesota, probate can be avoided in many ways such as by establishing a living trust for your assets or by ensuring that certain assets, like property owned as joint tenants, have designated beneficiaries. Additionally, it is possible to avoid probate for life insurance proceeds, jointly held bank accounts, and pension benefits with a designated beneficiary.

To avoid probate in Minnesota for real estate, you can set up joint tenancy with co-owners, establish a living trust, or complete a Transfer on Death Deed and file it with the relevant county. Each of these options is an effective way to keep your real estate out of probate. However it’s important that you speak with your estate planning attorney and financial advisor before you take action as they can help you with your specific situation.

Does an estate have to go through probate in Minnesota?

In Minnesota, if the estate is worth less than $75,000 at the time of death, it may not need to go through probate. Assets worth more than $75,000 will have to go through probate unless a beneficiary or joint holder is named.

What assets are subject to probate in Minnesota?

Assets owned solely in the deceased’s name without a named beneficiary usually go through probate. This can include real estate, bank accounts, and personal property.

How long does the probate process typically take in Minnesota?

The duration varies but often lasts several months to over a year, depending on the estate’s complexity and potential disputes.

How much does it typically cost to set up a living trust in Minnesota?

Costs vary based on complexity but generally range from a few hundred to several thousand dollars. It’s best to consult with attorneys for precise estimates.

Can I avoid probate in Minnesota if I have a will?

A will doesn’t avoid probate; it guides the probate process. To sidestep probate, you’d need tools like trusts and beneficiary designations.

Estate Planning and Wealth Management in Minnesota

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor or wealth advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch.  

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Financial Planning Articles and Guides

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Estate Planning in Minnesota

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Living Trust Minnesota: How to Create a Living Trust in Minnesota

Living Trust Minnesota: How to Create a Living Trust in Minnesota

Whether you’re in Minnesota or elsewhere, a living trust is different than a will. A living trust offers privacy, helps your estate to avoid probate, and ensures your assets are managed according to your wishes, even if you become incapacitated.

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

Living Trust Minnesota: How to Create a Living Trust in Minnesota

Do You Need a Living Trust in Minnesota?

As a Minnesotan, considering a living trust is a great step towards making sure your assets are protected. 

A living trust is different than a will. A living trust offers privacy, helps your estate to avoid probate, and ensures your assets are managed according to your wishes, even if you become incapacitated. 

This is crucial in Minnesota as well as many states in the US. Why? Because probate can be lengthy and costly. Most people don’t want their loved ones to have to deal with a probate mess after they pass.

If your primary concern is safeguarding your assets for your beneficiaries while making sure your estate doesn’t pay way too much in taxes or have to deal with legal complications, a living trust could be a good choice. 

A living trust is particularly useful if you have substantial assets including investments and real estate.

Remember, putting together a living trust isn’t just about avoiding taxes or probate. You may find that having a living trust gives you greater confidence because you’ll know that your legacy will be preserved and passed on seamlessly.

If you’re wondering how to create a living trust in Minnesota, this post will help.

However, it’s critical that you seek the advice of a good estate planning attorney as well as consulting with your wealth management team.

Table of Contents

  1. Do You Need a Living Trust in Minnesota?
  2. What Is a Living Trust?
  3. Revocable Living Trusts
  4. Irrevocable Living Trusts
  5. What Can You Protect with a Living Trust?
  6. How to Create a Living Trust in Minnesota
  7. Living Trust Pitfalls
  8. Who Shouldn’t Use a Living Trust
  9. Estate Planning and Living Trusts
  10. Should Your Financial Advisor Help You with Your Estate Planning?
  11. Estate Planning Basics
  12. Final Thoughts about Living Trusts for Minnesotans
  13. ​​Advantages in Estate Planning and Probate Avoidance
  14. Asset Protection and Planning Flexibility
  15. Financial and Tax Considerations
  16. The Importance of Legal Guidance

What Is a Living Trust?

Living trusts, particularly revocable trusts, have become a vital component of estate planning in Minnesota (MN).

A Minnesota living trust offers a comprehensive approach to managing and transferring assets.

But what is a living trust? A living trust is a legal arrangement that provides a framework for managing your assets during your lifetime and after death.

It involves three key parties: the grantor (you), the trustee (who manages the trust), and the beneficiaries (your loved ones). When you establish a living trust in Minnesota, you transfer the ownership of your assets to the trust. However, you can continue to use and control the assets of your trust as the trustee. After you die—or if you’re incapacitated—a successor trustee, whom you’ve appointed, takes over the management or distribution of these assets. 

In other words, when you create a living trust, you still have control over your assets while alive.

But when you die, someone that you’ve appointed will control the assets. 

When you have a living trust, you’re able to bypass the public and often time-consuming probate court process. This gives your estate privacy and the benefit of less hassle. Essentially, you’re saving your loved ones time and money.

Moreover, a living trust can be structured to minimize estate taxes, ensuring that more of your assets go to your beneficiaries rather than to the IRS. 

A living trust is about control and protection—control over your assets now and protection for your legacy later.

What Is a Living Trust?

Revocable Living Trusts

You may prefer to set up a revocable trust. 

A revocable living trust is often preferred for its flexibility. As a Minnesotan, establishing a revocable trust allows you to maintain absolute control over your assets while you’re alive. You can change, amend, or even revoke the trust at any point. This adaptability is useful if your circumstances or intentions change, which can often happen over a lifetime. 

But what happens when you die? 

Revocable trusts becomes irrevocable upon your death. This is good because it ensures that your assets are distributed according to your wishes, without the need for probate. This saves your family or other beneficiaries time and money. And it ensures the privacy of your estate. A revocable trust is an ideal choice for anyone who wants a balance between future planning and present-day control. 

You’ll know that your assets are protected and will be efficiently transferred to your beneficiaries, but you still maintain full control while you’re alive.

Understanding Revocable Living Trusts

A revocable living trust is a legal entity created to hold ownership of an individual’s assets. 

The creator of the trust, known as the grantor, can alter or revoke the trust at any time during their lifetime. This flexibility is a key feature, allowing for adjustments as your life circumstances change. In contrast to irrevocable trusts, revocable trusts provide the grantor with the freedom to manage their estate while they are alive and competent.

Irrevocable Living Trusts

An irrevocable living trust, in contrast to its revocable counterpart, is a more permanent arrangement. 

Once established, it cannot be easily altered or revoked. This might seem like a bad idea, but an irrevocable living trust offers significant benefits, particularly in terms of asset protection and tax advantages. 

By transferring assets into an irrevocable trust, you legally remove them from your estate. 

This means your assets are typically not subject to estate taxes and can be shielded from creditors in Minnesota. Using an irrevocable living trust is an effective way to manage and protect assets for future generations, potentially providing long-term financial stability. 

However, due to its inflexibility, it’s important that you’re absolutely certain about the trust’s terms and the assets you include.

This type of trust is often favored by individuals with substantial assets who are looking to reduce their taxable estate and ensure a secure financial legacy for their heirs.

We recommend speaking with an estate planning attorney as well as your wealth management team about whether a trust is right for you. If you aren’t currently working with a fiduciary financial advisor and wealth manager to do your estate planning, we recommend that you put together that team sooner rather than later.

Your wealth management team can facilitate family meetings, that are an important part of estate planning.

They can guide you through the tax planning and wealth preservation steps that are critical to leaving a positive legacy.  

Revocable Living Trusts

The Role of the Trustee and Grantor

In a living trust, the grantor (creator of the trust) typically acts as the trustee, managing the property and assets within the trust.

Upon the grantor’s death or incapacity, a successor trustee, designated in the trust, assumes this role. This seamless transition is a significant advantage, ensuring the continuous management of the estate without interruption.

What Can You Protect with a Living Trust?

A living trust in Minnesota is a versatile tool, capable of protecting a wide range of assets and addressing the common fears of asset mismanagement and undue taxation. 

If you’re worried that your family will spend all the money within 6 months of receiving their inheritance, then a trust may be the right move. Or perhaps you just want to preserve your estate from probate and the long arm of the IRS.

You can preserve the following with a living trust: 

  • Real Estate: A living trust effectively shields real estate, ensuring direct transfer to beneficiaries without probate delays and costs.
  • Bank Accounts and Investments: You can put bank accounts and investments into a living trust streamlining the transfer process after passing.
  • Family Heirlooms: You can include family heirlooms in a living trust, ensuring their safe and intended transfer.
  • Business Interests: You can safeguard business interests and intellectual property in a living trust. This may be vital for business owners planning for smooth succession.

Other benefits of a living trust:

  • Complex Asset Management: Manages complex assets according to specific wishes, maintaining control over distribution.
  • Provision for Minors and Dependents: Offers financial security and responsible management for minor children or dependents with special needs.
  • Confidence: Guarantees confidence with the knowledge that diverse assets are protected from probate and will be handled as intended, minimizing legal complications.
5 assets you can preserve with a living trust

How to Create a Living Trust in Minnesota

Creating a living trust in Minnesota involves a few key steps.

Each step is important because it will ensure your trust is valid and effective. Working with an attorney is critical when creating a living trust.

However, we also recommend that you seek the advice of your wealth manager when doing your estate planning. 

  1. Decide on the Type of Trust: Choose between a revocable or irrevocable trust based on your financial goals and needs.
  2. Review Your Assets: Identify and list all property, accounts, and valuables you plan to include in the trust.
  3. Choose a Trustee: Select a trustee to manage the trust. This could be yourself, a trusted individual, or a professional entity.
  4. Select Beneficiaries: Determine who will benefit from the trust – your beneficiaries.
  5. Draft the Trust Document: Work with an attorney to create the trust document, ensuring it meets legal standards and reflects your wishes.
  6. Sign the Document: Sign the trust document in the presence of a notary to authenticate it.
  7. Fund the Trust: Transfer your assets into the trust to officially fund it, thereby establishing the trust’s control over the assets.
How to Create a Living Trust in Minnesota

Living Trust Pitfalls

While a living trust may be a great option for many families, it’s not the right choice for everyone.

These are some of the pitfalls that people may encounter when creating a living trust. It’s important to ensure you don’t make any of these mistakes.

Improper Funding of the Trust

A living trust is effective only if your assets are properly transferred into it. Failure to title your assets in the name of the trust means they may still go through probate.

Choosing the Wrong Trustee

The trustee has significant control and responsibility. Choosing an unreliable or inappropriate trustee can lead to mismanagement of the trust.

Ignoring the Need for a Pour-Over Will

A pour-over will ensure that any assets not included in your trust at the time of your death are transferred into it. Without one, these assets may be subject to probate.

Assuming a Trust Completely Avoids Taxes

While trusts can provide tax advantages, they do not completely eliminate taxes. It’s a misconception that placing assets in a trust will free them from estate taxes.

Living Trust Pitfalls

Who Shouldn’t Use a Living Trust

While a living trust may be useful for anyone with substantial assets, it’s not right for everyone. This is a shortlist of who should think twice about using a living trust.

1. Individuals with Simple Estates: If your estate is straightforward and below the threshold for estate taxes, the cost and complexity of a living trust may not be justified.

2. Those Who Can’t Maintain a Living Trust: A living trust requires ongoing maintenance and attention. If you’re not prepared to manage it, a trust can become more of a burden than a benefit.

3. Young Families with Limited Assets: For young families just starting out, the cost of setting up and maintaining a living trust might not be the best use of limited resources.

4. People Who Prefer Court Supervision: Some individuals might prefer the oversight that probate court provides, especially if they have concerns about a trustee managing their estate without external checks.

Who Shouldn't Use a Living Trust

Estate Planning and Living Trusts

When it comes to estate planning, living trusts are a cornerstone strategy. 

They offer a blend of flexibility, control, and protection. A living trust works with other estate planning tools, like wills and powers of attorney, to create a strong plan based on your needs. A living trust allows for more detailed instructions around asset distribution.

But why does this matter?

Having more detailed instructions will potentially avoid family disputes and esnure your wishes are respected. Moreover, living trusts can be designed to address specific estate tax concerns, to ensure more of your wealth goes to your beneficiaries rather than to the IRS. 

In the context of estate planning, living trusts are not just about distributing assets; they’re about creating a legacy. Most likely, you want to ensure that your life’s work and values continue to benefit your family and causes that are important to you, even after you’re gone. 

A living trust is just one tool that allows you to leave a positive legacy.

When it comes to estate planning, living trusts are a cornerstone strategy. 

Should Your Financial Advisor Help You with Your Estate Planning?

Involving your financial advisor in your estate planning is a wise decision.

In Minnesota where financial and estate laws can be complex, it’s critical that you work with your wealth management team to create an estate plan that protects your family.

Your financial advisor plays a crucial role in understanding your overall financial picture, which is essential for effective estate planning. They can offer valuable insights into how your estate plan might impact your financial goals and retirement planning. 

Additionally, a financial advisor can help identify potential tax problems and suggest ways to reduce estate taxes. 

For the legal drafting of documents such as a living trust, you should work with an estate planning attorney. The collaboration between your financial advisor and your attorney can ensure that your financial strategy and estate plan are integrated. This will ensure your assets are preserved and you get the benefit of confidence regarding your assets and legacy. 

No more tossing and turning at night or worrying about what will happen in the future. 

Involving your financial advisor in your estate planning is a wise decision.

Estate Planning Basics

Estate planning is a critical process for ensuring that your assets are managed and distributed according to your wishes after your passing. However, it’s a complex field, and mistakes can be costly. Understanding these pitfalls, especially regarding living trusts, is essential for effective estate planning.

Common Estate Planning Mistakes

1. Not Having an Estate Plan: One of the most common mistakes is not having any estate plan at all. This oversight leaves the distribution of your assets up to state laws and can result in unintended beneficiaries.

2. Failing to Update the Estate Plan: Life changes such as marriage, divorce, the birth of children, or the acquisition of significant assets necessitate updates to your estate plan. Failing to do so can lead to conflicts and confusion.

3. Overlooking Potential Tax Implications: Many people fail to consider the tax implications of their estate plan. Without proper planning, a significant portion of the estate might go towards paying taxes rather than to your intended beneficiaries.

4. Not Planning for Disability or Incapacity: A comprehensive estate plan should include provisions for your own care and management of your affairs if you become unable to do so yourself.

Common Estate Planning Mistakes

Final Thoughts about Living Trusts for Minnesotans

A revocable living trust offers a flexible and efficient way to manage and protect your assets, both during your lifetime and after your death.

It provides a strategic solution for estate planning, allowing for the smooth transfer of assets while minimizing legal complications and tax implications. Whether you are planning for your own future or for the security of your beneficiaries, a living trust can be a key element of a well-structured estate plan.

​​Advantages in Estate Planning and Probate Avoidance

One of the primary benefits of a living trust in estate planning is its ability to bypass the probate process.

Probate can be lengthy and costly, with legal fees consuming a portion of the estate. Assets held in a living trust transfer directly to the beneficiaries, avoiding probate and ensuring privacy. This is particularly important in Minnesota, where probate laws can be complex.

Asset Preservation and Planning Flexibility

Living trusts provide a structured way to transfer assets like real estate, financial accounts, and personal property.

This not only simplifies the distribution process after death but also offers protection against potential legal challenges or creditors. For estate planning, it is crucial to have a thorough understanding of how to effectively use a trust to safeguard assets.

Financial and Tax Considerations

While a living trust offers many benefits, it’s important to review its impact on your financial situation.

Consultation with an attorney and financial advisor is recommended to ensure the trust aligns with your overall financial goals, including tax planning. A trust can be designed to minimize estate taxes, providing a tax-efficient way to transfer assets to beneficiaries.

The Importance of Legal Guidance

Creating a living trust requires legal expertise.

An experienced estate planning attorney can guide you through the process, from drafting the trust document to funding it with your assets. This legal guidance is crucial to ensure that the trust is valid and meets your specific needs.

Assets held in a living trust transfer directly to the beneficiaries, avoiding probate and ensuring privacy.

Summary of Key Points:

  • A revocable living trust in Minnesota allows flexible management of assets, aiding in efficient estate planning and asset protection.
  • It bypasses the often lengthy and costly probate process, directly transferring assets to beneficiaries while maintaining privacy.
  • Living trusts offer a structured way to transfer diverse assets, providing protection against legal challenges and creditors.
  • Regular financial reviews and consultations with professionals are essential to align the trust with overall financial and tax goals.
  • Creating a living trust requires the expertise of an estate planning attorney to ensure legality and alignment with specific needs.

Connect with a Financial Advisor Online or In Person

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years experience. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

What Happens to a Family Trust in a Divorce

Family Trusts During Impending Divorce in Minnesota

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

403b Rollover to IRA: Tax Treatment and Steps When Doing Rollovers

403(b) Rollover to IRA: Tax Treatment and Steps When Doing Rollovers

Considering Doing a 403(b) to IRA Rollover?

Rolling over your 403(b) to an IRA can be like upgrading from a trusty old bike to a sleek new car. But before we go into the details, please know that this post is not meant to replace advice from a fiduciary financial advisor or financial planner. 

By Written by Will Grant, CFP®, CPWA®, 360 Financial

Will helps clients create their ideal life through values-based financial planning. His process is designed to pursue each client’s objective, whether it’s preparing for retirement, ensuring smooth business succession, funding for education, implementing wealth transfer strategies, and navigating other impactful financial events.

What is a 403(b) Rollover?

What is a 403(b) Rollover?

When thinking of a 403(b) rollover, imagine you’re re-potting a plant into a bigger pot for more room to grow.

That’s kind of what a 403(b) rollover is for your retirement savings. A 403(b) rollover involves moving funds from a 403(b) plan, typically offered by non-profit organizations, schools, and hospitals, into an Individual Retirement Account (IRA) or another retirement plan.

Why do this?

It’s all about growth and flexibility.

Rolling over to an IRA often gives you access to a wider range of investment options compared to a typical 403(b) plan. This means more opportunities for your investments to grow. It’s likely that you’ll be able to get a more optimized investment strategy based on your risk tolerance and financial goals.

Additionally, if you’re changing jobs or retiring, a rollover can help keep your retirement savings consolidated and manageable, rather than scattered across different accounts. Think of this as keeping all your plants in one garden rather than having them scattered randomly across the county. When you keep all your investments in one retirement account, you can have them optimized for your goals. Whereas if they are all over the place, it will be hard for you to ensure that you’re not overexposed and at risk.

Table of Contents

  1. What is a 403(b) Rollover?
  2. 403(b) Rollover Tax Treatment
  3. Potential Reasons for a Rollover
  4. How Does a 403(b) Rollover Affect Income Taxes?
  5. The Difference Between a Direct Transfer and an Indirect Transfer
  6. 403(b) Rollover Alternatives
  7. How to Rollover a 403(b) to an Individual Retirement Account
  8. Steps to Set Up an IRA Account for Your 403(b) Rollover
  9. 403(b) vs. IRA: What Can You Invest In?
  10. Evaluating Retirement Savings Options: 403(b) vs. IRA Account
  11. Traditional IRA vs Roth IRA
  12. 403(b) Required Minimum Distributions
  13. 403(b) Rollover Considerations for Investors in Higher Tax Brackets
  14. Basic IRS Guidelines for Eligible Retirement Account Transfers
  15. The Role of a Financial Advisor in Retirement Planning
  16. Common Questions about 403(b) Rollovers

403(b) Rollover Tax Treatment

First, let’s talk tax treatment. Good news – if done correctly, a 403(b) rollover can be a tax-free event. However, if it is mishandled, you could be paying more in tax than is needed. This is where our team comes into play to help you facilitate a successful rollover. 

Here’s how to avoid that:

1. Direct Rollover: Ask your 403(b) provider to directly transfer your funds to the IRA which is often called a “trustee-to-trustee” transfer. The rollover check would be made payable to the custodian of where your account and for the benefit of you with your account number listed on the memo line of the check. This way, you never touch the money, sidestepping the risk of triggering taxes.

2. 60-Day Rule: If you receive the funds, you have 60 days to deposit them into your IRA and the rollover check would be made payable to your name.  Miss this deadline, and Uncle Sam might expect a cut as taxes.

Remember, this isn’t a race. Take your time to understand each step, ensuring a smooth, tax-efficient transition. Ready to roll? Let’s dive deeper! 

403(b) Rollover Tax Treatment

Potential Reasons for a Rollover

Limited Investment Options in a 403(b) May Motivate You to Do a Rollover

Rolling over your 403(b) isn’t just about shuffling money around. It’s a strategic move with specific goals in mind.

Here are a few reasons why you might consider this financial move:

1. Broader Investment Choices: Your 403(b) might feel like a small pond. An IRA is like an ocean, offering a wider variety of investment options. More choices can lead to a more tailored investment strategy.

2. Financial Planning and Wealth Management: Rolling over to an IRA would allows us to provide professional portfolio management and align this account with your overall LifeWealth Plan.

3. Consolidation: If you’re a professional job-hopper, you might have accumulated multiple retirement accounts. Rolling them into one IRA can make managing your retirement savings easier, more efficient, and allow for better asset allocation aligned with your risk tolerance.

4. Estate Planning Benefits: IRAs often provide more flexibility for estate planning purposes. This can be crucial in ensuring your legacy is managed as you wish. For high income earners this is critical.

Remember, a rollover isn’t a one-size-fits-all solution. It’s about finding the right fit for your specific needs and goals. In fact, a rollover may not be the right more for you. Keep reading to learn more, or schedule a call with a 360 fiduciary financial advisor to get help with your specific situation.

Estate Planning Benefits

How Does a 403(b) Rollover Affect Income Taxes?

How a 403(b) rollover affects your taxable income and thus your income taxes is crucial to understand to avoid any unwanted surprises.

1. Direct Rollover: By directly rolling over your 403(b) to an IRA, you typically don’t touch the funds, and therefore, it doesn’t count as income. No income, no tax – simple as that!

2. Indirect Rollover: Here’s where it gets tricky. If you receive the funds directly and then deposit them into an IRA, you could run into trouble. The fund could be treated as taxable income if they are not deposited within 60 days. And if you’re under 59½, brace yourself for a potential 10% early withdrawal penalty if that happens. If 20% of your rollover was withheld for taxes, you’ll need to cover that to avoid it being counted as income.

3. The Fine Print: Always check for nuances. For example, if you have after-tax contributions in your 403(b), these don’t count as taxable income when rolled over.

So, while a rollover can be a smart move, it’s important to understand its tax implications. I recommend you speak with a CPA or other tax professional as well as your fiduciary financial advisor.

How Does a 403(b) Rollover Affect Income Taxes?

Indirect Rollover Tax Penalties and Risks

While we’ve already covered the risks of indirect rollovers, here’s a more detailed breakdown. Indirect rollovers are little bit risky. Here’s why:

1. Taxes on Distribution: If you opt for an indirect rollover, the amount you withdraw from your 403(b) can be considered taxable income. This could bump you into a higher tax bracket for the year.

2. Mandatory Withholding: Often, 403(b) plans withhold 20% for taxes on distributions. If you don’t replenish this amount in your IRA rollover, it’s considered a distribution and will be taxed.

3. The 60-Day Rule: You have 60 days to complete the rollover. Miss this deadline, and you have triggered a taxable event.

4. Early Withdrawal Penalty: Under 59½? You might face a 10% early withdrawal penalty on the distributed (withdrawn) amount.

Indirect Rollover Tax Penalties and Risks

The Difference Between a Direct Transfer and an Indirect Transfer

Deciding between a direct and indirect transfer is like choosing between a direct flight and a layover. Both get you to your destination, but the journey and convenience vary greatly.

1. Direct Transfer: This is the non-stop flight of retirement rollovers. Your funds travel directly from your 403(b) to your IRA without ever landing in your personal account. It’s smooth, efficient, and there’s no tax turbulence because the IRS doesn’t view it as a distribution.

2. Indirect Transfer: Here’s your flight with a layover. You receive the funds from your 403(b), and then you have 60 days to deposit them into your IRA. But be cautious – if you don’t re-deposit the funds within 60 days, or if you miss redepositing any part of the distribution, it’s considered taxable income. And, if you’re under 59½, you might face early withdrawal penalties.

A direct transfer is typically the smoother, safer route, while an indirect transfer requires more attention to avoid potential pitfalls.

The Difference Between a Direct Transfer and an Indirect Transfer

403(b) Rollover Alternatives

While a 403(b) rollover might be the best option, it’s important to consider the alternatives as well. You should make the best choice for you and your financial situation. Take your time and speak with a financial professional about your situation.

Here are four options you may consider as alternatives to a 403(b) rollover:

1. Stay Put: Sometimes the best move is no move. Keeping your savings in your current 403(b) might make sense if you’re happy with your investment choices and the fees are reasonable.

2. Rollover to a New Employer’s 401(k): Got a new job with a 401(k) plan? You might be able to roll your 403(b) into this new plan.

3. Cash Out: This is typically not the most recommended route, but it is an option. Cashing out means paying income taxes and potentially a 10% penalty if you’re under 59½.

4. Annuities: For those seeking steady income, converting to an annuity could be an option. However, tread carefully – annuities can be complex and often come with higher fees.

403(b) Rollover Alternatives

How to Rollover a 403(b) to an Individual Retirement Account

Rolling over a 403(b) to an IRA requires careful planning. It’s important to follow the steps correctly if you want to ensure that you don’t end up with a tax hit.

Below is a simple guide to doing a rollover. However, if you have access to a fiduciary financial advisor, we recommend seeking professional advice before taking action.

1. Consult a Professional: If you feel like you’re trying to read a map in a foreign language, don’t hesitate to reach out to a financial advisor.

2. Choose Your IRA: First, decide where your retirement savings will call home. This could be a traditional IRA or a Roth IRA, depending on your financial goals.

3. Contact Your 403(b) Plan Administrator: Inform them of your decision to rollover into an IRA. They’ll guide you through their process and provide necessary forms.

4. Determine the balances in your Pre-Tax (Traditional) vs. Post-Tax (Roth) 403(b): It is often misunderstood that employer contributions to your 403(b) are often pre-tax contributions. Therefore, if you make Roth 403(b) contributions as an employee, you may have pre-tax and post-tax account balances. If so, you would need to open an IRA and Roth IRA with the rollover.

5. Direct vs. Indirect Rollover: Decide if you want a direct transfer (where funds go straight from 403(b) to IRA) or an indirect transfer (where you receive the funds and then deposit into IRA within 60 days). Remember, direct is usually simpler and avoids tax complications.

6. Complete the Paperwork: Fill out all the required forms. Double-check details like account numbers – a simple typo can lead to a game of financial hide and seek.

7. Follow Up: After initiating the rollover, keep an eye on both accounts to ensure everything transfers smoothly.

How to Rollover a 403(b) to an Individual Retirement Account

Steps to Set Up an IRA Account for Your 403(b) Rollover

Before you do a rollover, you need to set up your IRA account. Here’s what to do:

1. Choose the Right IRA: Decide between a Traditional IRA and a Roth IRA.

2. Select a Financial Institution: Look for a reputable bank, brokerage, or financial services company. Consider factors like investment options, fees, customer service, and ease of account management.

3. Open Your IRA Account: Complete the application process. This will typically involve providing personal information, setting up funding options, and agreeing to the account terms.

4. Understand the Investment Options: Each IRA comes with different investment choices, like stocks, bonds, mutual funds, and ETFs. Choose based on your risk tolerance and retirement timeline.

5. Fund Your IRA: Once your IRA is open, you’re ready to roll over your 403(b). If you’re worried about taxes and penalties, initiate a direct rollover.

6. Set Up Beneficiaries: Don’t forget to designate beneficiaries for your IRA. This step is crucial for estate planning purposes.

7. Regular Review and Adjustments: Once your IRA is set up and funded, review it periodically to ensure it aligns with your changing financial goals.

Steps to Set Up an IRA Account for Your 403(b) Rollover

403(b) vs. IRA: What Can You Invest In?

When diving into the investment pools of 403(b)s and IRAs, it’s essential to know what swim lanes are available. Each offers unique investment options:

1. Mutual Funds: Common in both 403(b) and IRA plans. 403(b)s often focus on mutual funds, particularly those managed by insurance companies. IRAs offer a broader selection of mutual funds from various fund families. Make sure you know what kind of management fees or other costs you’re paying when invested in mutual funds.

2. Exchange-Traded Funds (ETFs): Mainly available in IRAs. These are popular for their low costs and flexibility.

3. Bonds: Both plans allow investments in bonds. However, IRAs provide access to a wider range of individual bonds and bond funds.

4. Stocks: Here, IRAs take the lead. They allow for investment in individual stocks, offering more control and customization of your investment strategy. You can have a more diversified portfolio without high management fees when you work with a fiduciary financial advisor who is able to build your portfolio without relying on high-cost packaged products.

5. Certificates of Deposit (CDs): Generally an option in IRAs, offering a low-risk investment choice with fixed interest rates.

6. Annuities: More common in 403(b)s, especially those offered by insurance companies. They provide a stream of income in retirement.

7. Real Estate and Alternative Investments: Some IRAs, particularly self-directed IRAs, allow investments in real estate, precious metals, and other alternative assets. This option is not typically available in 403(b) plans. Due to the risk and illiquidity it is common that you need to meet accredited investor requirements to be eligible for these types of investments.

As you can see there are more investment options when your money is in an IRA as compared to a 403(b). That doesn’t mean you should necessarily do a rollover. But it is something to consider as you create your retirement plan.

403(b) vs. IRA: What Can You Invest In?

Evaluating Retirement Savings Options: 403(b) vs. IRA Account

When it comes to retirement savings, it’s not just about saving money; it’s about choosing the right vessel for your money. Let’s compare the 403(b) and IRA accounts:

Benefits of an IRA Account:

  1. Wider Investment Choices: IRAs often offer a broader range of investment options than 403(b) plans.
  2. Tax Diversification: You can choose between traditional (pre-tax) or Roth (post-tax) contributions, offering flexibility for managing future tax liabilities.
  3. Accessibility: Anyone with earned income can open and contribute to an IRA, regardless of their employer.

Pitfalls of an IRA Account:

  1. Lower Contribution Limits: IRAs have lower annual contribution limits compared to 403(b)s.
  2. No Employer Match: Unlike many 403(b) plans, IRAs don’t offer employer matching contributions.
  3. Income Limits for Roth IRA: High earners may be limited or ineligible to contribute to a Roth IRA.

Benefits of a 403(b) Account:

  1. Employer Match: Many employers offer matching contributions in a 403(b), which is like getting free money towards your retirement.
  2. Higher Contribution Limits: Generally, 403(b)s have higher contribution limits than IRAs, allowing you to save more each year.
  3. Loan Options: Some 403(b) plans allow you to take loans against your savings, which can be a useful option in financial emergencies. That said, it’s advisable to have an emergency fund or cash cushion rather than being reliant on loans.
  4. Pre-Tax Contributions: Contributions to your 403(b) lower your taxable income, providing tax benefits now.

Pitfalls of a 403(b) Account:

  1. Limited Investment Options: 403(b)s often have fewer investment choices, which may limit diversification and growth potential.
  2. Potentially Higher Fees: Some 403(b) plans, particularly those with insurance products, have higher fees.
  3. Early Withdrawal Penalties: Withdrawing funds before age 59½ can lead to penalties and taxes.

In summary, both 403(b)s and IRAs have their unique advantages and drawbacks. It’s like choosing between a sedan and an SUV – each has its purpose, and the best choice depends on your exact needs and your financial situation.

Traditional IRA vs Roth IRA

If you’ve decided that want to do a 403(b) rollover, you’ll need to decide whether to rollover to a traditional IRS or a Roth IRA. Here, you can consider the differences:

Traditional IRA:

  1. Tax-Deferred Growth: Contributions are typically made with pre-tax dollars, reducing your taxable income now. Taxes are paid when you withdraw in retirement.
  2. Upfront Tax Break: If eligible, contributions can be tax-deductible, giving you an immediate tax benefit.
  3. Required Minimum Distributions (RMDs): You must start taking distributions at age 72, which can affect your tax situation in retirement.
  4. Income Limits: No income limits for contributions, but there are limits for tax-deductibility if you or your spouse have a retirement plan at work.

Roth IRA:

  1. Tax-Free Growth: Contributions are made with after-tax dollars, but withdrawals in retirement are tax-free.
  2. No RMDs: There are no required minimum distributions, allowing your money to grow tax-free for longer. You won’t be forced to start withdrawing funds.
  3. Income Limits: Eligibility to contribute phases out at higher income levels.
  4. More Flexibility: Contributions (but not earnings) can be withdrawn at any time without penalty, offering more liquidity.
Traditional IRA vs Roth IRA

403(b) Required Minimum Distributions

What are RMDs?

RMDs are the minimum amounts you must withdraw from your 403(b) account annually, starting at age 72 (as per the current rules). Think of it as the government’s way of saying that it’s time to start using your retirement savings!

In the words of the IRS: “You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).”

Calculating RMDs:

The amount is calculated based on your account balance and life expectancy. There are IRS tables to help you determine this.

1) RMD Worksheets to calculate the amount.

2) Uniform Lifetime Table – for IRA owners who are not married, IRA owners whose spouses are not more than 10 years younger, and married IRA owners whose spouses aren’t the sole beneficiaries of their IRAs.

3) Single Life Expectancy is used when the beneficiaries are not the IRA owner’s spouse.

4) Joint Life and Last Survivor Expectancy is for IRA owners when their spouse is more than 10 years younger AND are the IRA’s sole beneficiary.

When to Start:

Keep in mind that these dates may change. Currently, you must take your first RMD by April 1 of the year following the year you turn 72. But, be strategic! Taking two distributions in one year (your first and second RMDs) could push you into a higher tax bracket.

Subsequent RMDs:

After the first RMD, you must take them annually by December 31. Missing an RMD may result in hefty penalties of 50% of the amount that should have been withdrawn. Yes, you read that right, 50%!

Notes From the IRS:

“If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn is subject to a 50% excise tax. SECURE 2.0 Act drops the excise tax rate to 25%; possibly 10% if the RMD is timely corrected within two years. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year in which the full amount of the RMD was required, but not taken.”

Multiple Accounts:

If you have more than one 403(b) account, you must calculate and withdraw RMDs from each account separately. It’s not a mix-and-match situation.

403(b) Required Minimum Distributions

403(b) Rollover Considerations for Investors in Higher Tax Brackets

A rollover to a Traditional IRA might maintain the tax-deferred status of your savings. But remember, the funds will be taxed as ordinary income upon withdrawal, possibly at a high rate if you remain in a high tax bracket in retirement.

Alternatively, converting to a Roth IRA could offer tax-free growth and withdrawals, but this requires paying taxes upfront. This conversion can be significant for those in higher brackets, akin to paying a steeper entry fee for a potentially tax-free financial journey later on.

It’s also important to consider the timing of a rollover in relation to your overall income for the year, as the added income from a rollover could push you into an even higher tax bracket. Strategic planning with a tax advisor would be a good idea. You’ll want to ensure that your rollover decision aligns with your long-term financial goals and tax planning strategies.

403(b) Rollover Considerations for Investors in Higher Tax Brackets

Basic IRS Guidelines for Eligible Retirement Account Transfers

1. One-Year Waiting Rule: The IRS limits you to one tax-free indirect rollover from an IRA to another (or the same) IRA in any 12-month period. However, this doesn’t apply to rollovers from other types of retirement plans, such as a 403(b), into an IRA.

2. Mandatory Withholding in Indirect Rollovers: For indirect rollovers from a 403(b) or a 401(k) to an IRA, the plan administrator may withhold 20% for taxes. To complete a tax-free rollover, you’ll need to add funds from other sources to make up the 20% withheld.

3. No Age Restriction for Rollovers: Unlike contributions, there’s no age limit for rolling over funds into an IRA.

4. Rollovers to and from Roth Accounts: Rollovers from a traditional retirement account to a Roth IRA (Roth conversions) are taxable events. Conversely, rollovers from a Roth 403(b) to a Roth IRA are not taxable.

5. Required Minimum Distributions (RMDs) Cannot be Rolled Over: If you’re at the age where RMDs are mandatory, you can’t roll over these amounts.

6. Direct Rollovers: The IRS allows for direct rollovers from one retirement account to another, like moving funds from a 403(b) to an IRA. This method is tax-free, as the money moves directly between accounts without you taking possession of the funds.

7. 60-Day Rule for Indirect Rollovers: If you receive the funds directly (indirect rollover), you have 60 days to deposit them into another eligible retirement account. Failing to meet this deadline can result in the funds being treated as a taxable distribution.

Basic IRS Guidelines for Eligible Retirement Account Transfers

The Role of a Financial Advisor in Retirement Planning

If you’re starting to feel overwhelmed by all the choices, you’re not alone.

While there’s nothing wrong with doing your retirement planning alone, if you prefer to have a guide who will help you plan for retirement and manage your investments, it would be wise to seek out a fiduciary financial advisor.

But what exactly is the role of a financial advisor in retirement planning?

Having a fiduciary financial advisor to help you with your financial planning and investing is no different than an elite athlete working with a performance coach. You’re doing the critical work of earning and saving your money. Meanwhile, your advisor will ensure that you’re invested in way that matches your risk tolerance and goals so that you don’t have to worry about retirement and future income streams.

Your advisor also helps you to prevent financial losses in two critical ways:

1) Your advisor helps ensure that you don’t lose money by triggering a taxable event (aka. a surprise tax hit) that costs you much more than you anticipated. In addition, your financial advisor optimizes your investments and retirement plan so you don’t overpay your taxes.

Most people’s biggest lifetime costs are actually taxes. Often your taxes cost you more than your mortgage. This is why tax planning is such a huge part of financial planning and retirement planning.

2) Your advisor is there to make sure you don’t take risks that could cause a catastrophic loss. Keeping money and making money are two different skills. Even the most conservative individuals have made errors with their money management when faced with what seems like the “deal of a lifetime.”

Your advisor is there to walk you through the risks and benefits of any big money decision you make so you can rest assured that you’ve invested wisely.

If you have a holistic wealth management team, your advisor will also help you with estate planning and insurance planning. They’ll make sure you don’t have too much or too little insurance. And they’ll ensure your estate plan is up to date.

The Role of a Financial Advisor in Retirement Planning

Common Questions about 403(b) Rollovers

Can you rollover a 403(b) to a Roth IRA?
Yes, you can rollover a 403(b) to a Roth IRA, but it will be treated as a taxable event.

What are the benefits of 403(b) plan in tax-exempt organizations?
The benefits of a 403(b) plan in tax-exempt organizations include pre-tax contributions and tax-deferred growth.

Is a Roth IRA conversion an alternative worth considering?
A Roth IRA conversion is worth considering for tax-free growth and withdrawals in retirement, despite the upfront tax payment.

Why should you consider multiple retirement accounts?
You should consider multiple retirement accounts for diversification of tax treatments and investment options.

When do you have to pay taxes during a 403(b) rollover?
You have to pay taxes during a 403(b) rollover if it’s an indirect rollover or when rolling over into a Roth IRA.

How can I judge if a traditional IRA is the right choice for me?
You can decide if a traditional IRA is right for you by considering your current tax bracket and expected tax rate in retirement.

How can I file a distribution request form for a 403(b) rollover?
You can file a distribution request form for a 403(b) rollover by contacting your 403(b) plan administrator for the appropriate paperwork.

Connect with a Financial Advisor Online or In Person

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years experience. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

William Grant

Mike Rogers

Will Grant enjoys empowering people to make informed decisions and seeing the positive impact his guidance can have on their lives.

Prior to joining 360, he spent seven years serving hundreds of clients at a boutique RIA focused on healthcare executives with equity compensation and then at a large, independent RIA. He earned a Bachelor of Science degree in Finance from Miami University and holds his Series 7 and 63 licenses through LPL Financial and his 65 license through 360 Financial.

Will lives in Minneapolis with his fiancée, Melissa. In his free time, he enjoys competing in triathlons, golfing and is an active member of the Minnesota Leadership Council for the Chick Evans Scholarship Foundation, which he was a recipient of.

Schedule a 15-minute Call with Will

Other Articles and Guides 

403(b) Minnesota: A Guide to Investments, Tax, and Withdrawal Rules

Retirement Planning for Self-Employed People

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 Ł may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 Ł or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Does Minnesota Have an Inheritance Tax?

Does Minnesota Have an Inheritance Tax?

Whether there is a capital gains tax on inherited property in Minnesota depends on how the money is inherited.

By Michael Urch, CFP® Senior Wealth Manager

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning.

INHERITANCE IN MINNESOTA

Does Minnesota have an inheritance tax?

No, at this time, Minnesota doesn’t have an inheritance tax.

Could that change? Will Minnesota have an inheritance tax in the future?

Laws could always be changed, but MN is one of the few states with an estate tax. It would be surprising to have both an estate tax and an inheritance tax.

Is there a capital gains tax on inherited property in Minnesota?

Whether there is a capital gains tax on inherited property in Minnesota depends on how the money is inherited.

If the money inherited is part of someone’s estate, it usually receives a step-up in basis. This means there would be no capital gains realized if the property were sold on the date of death. 

However, if the money inherited is in some kind of irrevocable trust, such as a marital trust, then it may not be eligible for a step up in cost basis. In this case, there would be capital gains on the inherited property – but not until it is sold.

ESTATE TAX

What is the difference between estate tax and inheritance tax?

Different entities are taxed by an estate tax versus an inheritance tax. An estate tax is paid by the estate of the deceased. An inheritance tax is paid by the heirs of the estate.

Does Minnesota have an estate tax?

Yes. $3,000,000 of your estate is excluded from estate tax.

However, money above and beyond $3,000,000 is taxed at between 13% and 16%.

Unlike the Federal estate exclusion, the MN estate exclusion is not portable. If one spouse does not use up their $3,000,000 exclusion, the surviving spouse doesn’t get to use it – it is just $3,000,000/individual.

How can one avoid Minnesota estate tax?

With trust planning, MN residents can reduce the size of their estate either by placing it in trusts outside of their estate while living.

This can be with irrevocable trusts or potentially charitable trusts. Life insurance can also be used as a tool when estate planning for large estates.

You can also just move to a state without estate taxes, which is a more straightforward strategy that I see often.

Connect with a Financial Advisor Online or In Person

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years of experience. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Michael Urch

Michael Urch

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products. This is one of the reasons he was attracted to 360 Financial’s client-focused culture. Michael likes to start with each client’s “why.” By understanding what’s truly important to them, the “what” of investment and planning strategies can be custom-designed to support their long-term ambitions.

Other Articles and Guides 

Is An Inheritance Marital Property in Minnesota?

How Many Steps Are in the Financial Planning Process?

Retirement Planning for Self-Employed People

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Financial Planning for Retirement: Steps, Plans, and Rules

Financial Planning for Retirement: Steps, Plans, and Rules

Financial planning for retirement is crucial for anyone who wants a successful retirement or work-optional lifestyle.

By Michael Urch, CFP, Senior Wealth Manager of 360 Financial

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products.

 

Tips on Essential Financial Planning for Retirement

Surprisingly, some people spend more time planning their annual vacation than they spend planning their retirement. We want to make sure that our clients have a plan in place and that they are confident that they will be able to retire knowing they will not run out of money.

Financial Planning Topics Covered:

  1. How to Plan for Retirement
  2. How to Save for Retirement
  3. Top 5 Retirement Planning Tips to Maximize Your Employment Benefits
  4. How to Invest for Retirement
  5. Why Diversification Is Important
  6. Why You Need to Know Your Risk Profile
  7. Working with a Fiduciary Financial Advisor
  8. Tax Planning and Retirement
  9. Estate Planning and Retirement
  10. Common Questions about Financial Planning for Retirement:
  11. Work with a Financial Advisor Online or In Person

How to Plan for Retirement 

There are two essential financial summaries to put together at the beginning of retirement planning. 

1) A net worth statement. This is a summary of all of the things you own (assets) and all of the money you owe (liabilities). It is a snapshot of your financial resources available for retirement.

2) A cash flow statement or budget. This is a summary of the annual income you expect to receive in retirement from social security and other sources, as well as your annual retirement expenses. (+)

Generally, you will have more expenses than income in retirement. You will then want to work with an advisor to create a plan to replace the rest of your income stream using the assets from your balance sheet.

How to Save for Retirement

It is important to regularly set-aside money for retirement.

The most common way to do this is by contributing to a 401(k) plan or 403(b) plan. IRAs and Roth IRAs can also be used as well as contributing to brokerage accounts. HSA’s are becoming a more common form of retirement savings as well. A general rule of thumb is to contribute 10% of your personal income to retirement, but we like to customize savings plans for our clients based on their specific situation. Schedule a 15-minute call if you want to talk to an advisor about personalized retirement savings strategies. (+)

Top 5 Retirement Planning Tips to Maximize Your Employment Benefits

  1. Contribute enough to get the employer match on your retirement accounts.
  1. Consider contributing to a Roth 401(k)/403(b) if you expect to have your income increase in the future.
  1. Evaluate whether you should choose a health insurance plan that allows you to contribute to an HSA. If yes, maximize your HSA for retirement
  1. Review your benefits packet for any deferred compensation benefits and make sure you are utilizing them.
  1. Make sure that you are utilizing all tax benefits (health insurance is pre-tax, FSA and dependent FSA accounts, etc.)
retirement planning

How to Invest for Retirement

Equities (stocks) are an asset class that has historically beaten inflation for the long-term.

The longer someone’s time-frame for investing and the further that they are from retirement, the more they should allocate to stocks. As retirement approaches, it may make sense to add more bonds to your overall allocation. These are the general rules of thumb, but it would be best to discuss your specifics with an advisor. (+)

Why Diversification Is Important

Risk cannot be eliminated when investing.

However, investment risks can be reduced through diversification. By having exposure to multiple companies and asset classes, our clients are able to have more confidence that if any one company or sector of the economy performs poorly, other investments in the portfolio can help sustain the investments.

Why You Need to Know Your Risk Profile

Knowing your risk profile is critical.

One of the most disastrous scenarios possible would be for someone to make a poor investment choice and sell out of their investments during the first market downturn in retirement.

It is extremely important to understand the level of risk that you are comfortable with and then to create an investment policy statement that guides portfolio decisions.

Working with a Fiduciary Financial Advisor

Is your financial advisor held to a legal standard of acting in your best interest in managing your investments and providing financial planning advice?

A registered investment advisor must manage investments as a fiduciary, and a CERTIFIED FINANCIAL PLANNER™ professional must give advice while acting as a fiduciary. We recommend working with a fiduciary whenever possible.

Your retirement plan should reflect your goals and vision for your life.

Tax Planning and Retirement

One of the largest expenses in retirement is taxes.

Why not work with an advisor that can help you avoid tipping the IRS? Roth conversion strategies, RMD strategies, charitable giving strategies, gain/loss realization strategies – all these and more should be on the table for discussion every year in retirement.

Estate Planning and Retirement

Are you planning to leave an inheritance?

Or do you want to plan on spending as much as possible while you are living? Should you have trusts in place to help manage your assets in the event that you are incapacitated? As with all financial planning topics, everything is related and it is important to think about your estate plan while putting your retirement plan together.

estate planning

Common Questions about Financial Planning for Retirement:

How do I prepare my finances before retiring?

Create a budget based on your spending today.

Then imagine yourself as being retired. Based on what you are spending right now, how much do you want to be spending in retirement? Finding out the right number here is important. With it in mind, you can work with an advisor to see whether it is achievable.

 

What is the safest place to put my retirement money?

Asset allocation in retirement is extremely important.

You have to balance different risks. One of the risks is market risk. This is the risk of stocks decreasing in value due to market volatility. Inflation is another significant risk. If you are only considering market risk, it may seem “safer” to have all of your money in treasury bonds, but it is important to not forget the long-term risk of inflation, which stocks are well suited to overcome.

What are most retirement plans missing?

The one thing that I see as most impactful in a retirement plan is a sense of purpose.

It is important to go beyond the numbers and the money that makes retirement possible and ask: what is this money for? Retirement can be more than simply “not working.” I recommend sitting down with a blank page of paper and asking: “what is going to give me a sense of purpose in retirement.”

Work with a Financial Advisor Online or In Person

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

 

About the Author

Michael Urch

Michael Urch Senior Wealth Manager and CFP

Michael Urch is a Senior Wealth Manager at 360 Financial. Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning.

Prior to joining 360, he spent nine years honing his skills first at a Fortune 100 Financial Services Company and then at independent, planning-centric firms. He graduated magna cum laude from Bethel University with a BA in economics and finance, as well as a minor in mathematics.

Michael lives in Golden Valley, Minnesota with his wife, Bri and their three children. When he is not working, he enjoys exploring parks and reading books as a family, hiking, and playing guitar.

Schedule a Call with Michael Urch, Senior Wealth Manager

 

Other Articles and Guides 

Financial Planning vs. Financial Advisor – What’s the Difference?

Financial Planning in Minnesota

401k Retirement Planning Essentials

 

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

 

Financial Planning in Minnesota

If you need financial planning assistance and a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Family Trusts During Impending Divorce Minnesota

Family Trusts During Impending Divorce in Minnesota

If you’re dealing with family trusts during an impending divorce, it’s important to understand the basics of how Minnesota law treats these trusts in divorce scenarios. Being well informed will help you to protect your assets and ensure a fair division. Please note that this article is general in nature, and it’s important to seek professional financial and legal advice when going through a divorce.

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor, wealth manager, and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

How does a divorce affect a family trust in Minnesota?

Navigating the complexities of a divorce can be challenging, and understanding the interplay between family trusts and divorce proceedings in Minnesota can add another layer of intricacy. 

Before we dig into the details, please note that this post isn’t a substitute for professional advice. We recommend you speak with an attorney about your trust. In addition, please make sure you have a financial advisor who can help you through this difficult financial transition.

Table of Contents

  1. How do I protect myself in the division of assets in a Minnesota divorce?
  2. Is my spouse entitled to my inheritance in Minnesota?
  3. What are non-marital assets in a divorce in Minnesota?
  4. Navigating Family Trusts and Assets During Divorce in Minnesota

Navigating the Complexities of a Divorce Can Be Challenging

Marital or Non-marital Property

In Minnesota, a family trust’s susceptibility to divorce proceedings largely hinges on whether the trust’s assets are categorized as marital or non-marital property. Generally speaking, family trusts that were established before marriage and funded with assets owned before the marriage (or with gifts and inheritances received individually during the marriage) are typically considered non-marital. This means they often remain untouched during a divorce.

However, if marital funds or assets were contributed to a trust during the marriage, then those contributions and any growth associated with them might be considered marital property. In such cases, they could be subject to division during the divorce process.

Who Controlled the Trust May Matter

Another crucial factor is the discretion and control over the trust. If one spouse has significant control or discretion over the trust’s distributions or operations, a court might look more closely at its assets, even if it was originally intended as a separate property trust.

It’s also worth noting that, in some situations, the income generated by a trust (even if the trust itself is considered non-marital) could be considered when calculating spousal maintenance or child support obligations.

Given these complexities, it’s essential for individuals in Minnesota facing a divorce to consult with an attorney well-versed in both family law and trusts. They can provide guidance tailored to one’s unique situation, ensuring the most equitable and fair outcome.

Family Trusts Minnesota

How do I protect myself in the division of assets in a Minnesota divorce?

Protecting your interests during the division of assets in a Minnesota divorce involves both understanding the state’s laws and adopting proactive strategies.

Here are 7 ways you can safeguard your assets before you get divorced:

1. Understand Marital vs. Non-Marital Assets

In Minnesota, assets acquired during the marriage are generally considered marital property and are subject to division. However, assets acquired before marriage or received as gifts or inheritances during the marriage are usually deemed non-marital and typically remain with the original owner. Familiarizing yourself with these definitions can help you identify which of your assets may be at risk.

2. Maintain Clear Documentation

Keeping clear and thorough records of your assets is vital. This includes documentation that proves when and how you acquired an asset, especially for those you consider non-marital. Bank statements, purchase receipts, or inheritance documents can serve as valuable evidence.

3. Avoid Commingling of Assets

If you have non-marital assets, try to keep them separate from marital assets. For instance, if you inherit money, avoid depositing it into a joint bank account. Once non-marital assets are mixed or “commingled” with marital assets, distinguishing them can become challenging, and they may become subject to division.

4. Prenuptial and Postnuptial Agreements

If you’re already married and didn’t sign a prenuptial agreement, it’s not too late to consider a postnuptial agreement. These legally binding documents can specify how assets will be divided in the event of a divorce and can offer significant protection.

5. Engage a Knowledgeable Attorney

A seasoned family law attorney, particularly one familiar with Minnesota’s specific regulations, can be your most valuable asset. They can offer tailored advice, ensure you don’t overlook any critical details, and represent your interests during negotiations or court proceedings.

6. Stay Transparent and Honest

While it’s natural to want to protect your assets, attempting to hide or undervalue them can backfire significantly. Courts do not look favorably upon dishonesty, and you could end up in a worse position if caught.

7. Consider Mediation

Mediation, where a neutral third-party assists the couple in reaching a mutually satisfactory agreement, can be a constructive way to address asset division. It often results in more personalized solutions and can be less adversarial than traditional court proceedings.

Family Trusts During Divorce in MN

Is my spouse entitled to my inheritance in Minnesota?

In Minnesota, inheritances are generally viewed through the lens of marital and non-marital property distinctions.

Typically, an inheritance received by one spouse, whether before or during the marriage, is considered non-marital property. This means that it is usually not subject to division during a divorce and remains the sole property of the spouse who received it.

However, there are situations where this clarity can blur:

1) Commingling of Assets: If the inheritance is mixed or “commingled” with marital assets, its designation as non-marital can be jeopardized. For instance, if you deposit your inheritance into a joint bank account or use it to purchase joint property, it might become difficult to distinguish it from marital assets, and it could then be subject to division.

2) Contribution to the Marital Estate: If your inheritance was used in a manner that benefits both spouses or the marital estate such as renovating a jointly-owned home, it might be argued that at least a portion of the inheritance has become marital property.

3) Growth and Income from the Inheritance: While the principal amount of the inheritance (the initial amount) might remain as non-marital property, any income or growth generated from it during the marriage might be viewed as marital, depending on how it’s managed or invested.

To ensure your inheritance remains protected in a divorce:

  • Keep thorough and clear documentation of the inheritance’s source and any related transactions.
  • Consider keeping the inheritance separate from marital assets.
  • If you wish to use the inheritance for joint purposes, consider discussing it with an attorney to understand potential implications.
  • Regularly consult with a knowledgeable family law attorney in Minnesota, especially if you foresee potential disagreements or complications regarding the inheritance during divorce proceedings.

What are non-marital assets in a divorce in Minnesota?

In Minnesota, as in many states, the distinction between marital and non-marital assets plays a pivotal role during divorce proceedings, determining how property is divided between the spouses. Here’s a breakdown of what constitutes non-marital assets in the context of a Minnesota divorce:

1 – Pre-Marital Ownership 
Any asset that a spouse owned before entering the marriage typically remains that spouse’s non-marital property. For example, if you had a savings account or a piece of real estate before marrying, those would be considered non-marital assets.

2 – Inheritances 
Assets that one spouse inherits, whether before or during the marriage, are generally considered non-marital property. This remains true as long as the inherited assets are kept separate from marital assets.

3 – Gifts 
Gifts given to one spouse, excluding gifts between spouses, usually fall under non-marital assets. For instance, if a friend or a family member gifted you a piece of jewelry or a sum of money, it’s typically considered your non-marital property.

4 – Exclusions Defined by Agreements 
Prenuptial and postnuptial agreements can specifically define certain assets as non-marital. These agreements, when legally sound and valid, can be powerful tools in keeping specified assets outside the marital pool.

5 – Certain Personal Injury Settlements 
If one spouse receives a settlement for personal injuries, the portion meant to compensate for pain, suffering, or personal losses (rather than lost wages or medical expenses) may be considered non-marital property.

6 – Property Acquired After a Legal Separation
If assets are acquired after a couple legally separates (but before the divorce is finalized), those assets might be deemed non-marital, depending on the specifics of the legal separation agreement.

A significant point to remember is the potential for non-marital assets to become “commingled” with marital assets, making them difficult to distinguish and potentially transforming them into marital property. For instance, if you deposit an inheritance (a non-marital asset) into a joint bank account, it can become commingled with marital funds.

To protect the status of non-marital assets during a divorce in Minnesota, it’s crucial to maintain clear documentation and separation of these assets from the marital pool. Consulting with a Minnesota family law attorney can provide insights tailored to your situation, ensuring a fair and clear division of assets.

Protecting yourself and ensuring a fair division of assets during a Minnesota divorce might seem overwhelming. 

The key is understanding your rights and being well-prepared. One approach is to maintain clear records of your financial assets and contributions. Legal counsel is invaluable in these circumstances, providing insight into the state-specific nuances of asset division. It’s beneficial to be proactive and consult an attorney early on to avoid potential pitfalls.

In the realm of divorces in Minnesota, the term “non-marital assets” carries significant weight. These assets, in general, remain with the original owner after the divorce is finalized. However, it’s vital to maintain documentation proving the origin of these assets, as challenges can arise. Instances where non-marital assets get mixed with marital ones can complicate matters, making their clear distinction all the more crucial.

Remember, every situation is unique, and having expert guidance can be invaluable in navigating the complexities of inheritance during a divorce.

Connect with a Financial Advisor

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

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Retirement Planning for Self-Employed People

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Last Will and Testament Minnesota: A Simple Guide to the Basics

Understanding Your Last Will and Testament in Minnesota: A Simple Guide

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

 

Last Will and Testament Minnesota

This post will give you a brief overview of what you need to know about your last will and testament in Minnesota.

 

Table of Contents:

  1. Basics of Minnesota Wills
  2. The Role of Executors in Minnesota Wills
  3. Minnesota Inheritance Laws
  4. How to Include Minor Children in Your Will in Minnesota
  5. The Importance of Witnesses in Minnesota Will Creation
  6. Disputing a Will in Minnesota: Grounds and Processes
  7. Minnesota Estate Taxes and Wills
  8. Including Digital Assets in Wills
  9. Attorney’s Role in Drafting Wills
  10. Changing or Revoking Wills in Minnesota
  11. Checklist for Creating Your Last Will and Testament in Minnesota
  12. Financial Planning and Estate Planning in Minnesota

 

Basics of Minnesota Wills

A will is a legal document that outlines how you’d like your assets distributed after your death. In Minnesota, anyone who is at least 18 years old and of sound mind can make a will. To be valid, it must be in writing, signed by you or another person at your direction and in your presence, and witnessed by two people.

 

The Role of Executors in Minnesota Wills

The executor is the person you nominate in your will to carry out your wishes after your death. Their responsibilities include collecting your assets, paying off debts and taxes, and distributing the remainder of your estate as you specified in your will.

If you need help with estate planning in Minnesota, we recommend you speak with your financial advisor and estate planning attorney, particularly if you have a complex situation. 

 

Minnesota Inheritance Laws

If you die without a will in Minnesota, your assets will be distributed according to state intestacy laws. Generally, your spouse and children will inherit your estate. If you’re unmarried and childless, your parents or siblings may inherit. (+)

If you die without a will, MN courts will be tasked with determining who receives your assets upon your death.

 

How to Include Minor Children in Your Will in Minnesota

In Minnesota, you can’t directly leave assets to children under 18. You can, however, appoint a guardian and establish a trust in your will to hold and manage the assets until they reach adulthood. (+)

 

The Importance of Witnesses in Minnesota Will Creation

In Minnesota, your will must be witnessed by two people. They must see you sign your will or be told by you that it’s your signature. The witnesses must be “disinterested,” meaning they’re not beneficiaries in the will.

To ensure that your will is set up properly and legally, work with an Estate Attorney to complete it.

 

Related Post – A Simple Guide to Intestate Succession Minnesota

 

Disputing a Will in Minnesota: Grounds and Processes

Wills can be disputed on several grounds, such as the testator not being of sound mind or the presence of undue influence or fraud. Disputes must be filed in probate court after the will is admitted to probate. (+)

When you list a beneficiary on a retirement account, that asset will skip the probate process. This is also true of listing transfer on death instructions on a brokerage account and a payable on death instructions on a bank account. In addition to a will, consider listing these beneficiaries to have the advantage of skipping probate.

 

Minnesota Estate Taxes and Wills

Minnesota has an estate tax, and it applies to estates valued over a certain amount. It’s important to consider potential estate taxes when creating your will and planning your estate. The estate tax rate in Minnesota ranges from 13% to 16%, and as of 2022, it applies to estates worth more than $3 million.

If you have an estate that is currently (or is expected to be) worth more than $3,000,000, speak with a financial advisor and estate attorney about how to best structure the inheritance.

 

Including Digital Assets in Wills

Digital assets like social media accounts, emails, and digital currencies can be included in your will. You should provide detailed instructions about what should happen to these assets after your death.

It is a best practice to keep the information about how to access these accounts in a secure place, where trusted individuals can access them after your death.

 

Attorney’s Role in Drafting Wills

An attorney can provide valuable guidance when drafting your will. They can ensure your will complies with Minnesota laws, advise on complex situations, and help prevent disputes after your death.

A financial advisor can be helpful in guiding the conversation about your legacy and helping with your estate attorney. When you are creating the legal documents that are part of your estate plan (wills, trusts, power of attorneys and healthcare directives), you will want to consult with an attorney.

 

Changing or Revoking Wills in Minnesota

You can change or revoke your will at any time while you’re of sound mind. Changes can be made by creating a new will or making a codicil, which is an amendment to your will. To revoke a will, you can create a new will that states that it revokes the old one or physically destroy the old will.

While this article should give you a basic understanding of the will-making process in Minnesota, it’s always advisable to consult with an attorney when creating, amending, or revoking a will to ensure all legal requirements are met.

 

Checklist for Creating Your Last Will and Testament in Minnesota

1 Determine your assets:
List all your assets, including real estate, bank accounts, investments, retirement funds, insurance policies, and personal property like jewelry or vehicles.

2 Identify your digital assets:
Include digital assets like social media accounts, digital currencies, and digital copyrights.

3 Decide on beneficiaries:
Your beneficiaries can be individuals, charities, or organizations.

4 Select a personal representative:
Choose a trustworthy person to execute your will. You can also use a professional executor.

5 Appoint a guardian (if applicable):
If you have minor children, decide who will care for them if you die while they’re still minors. You can also choose contingent guardians if your primary choice is unable or unwilling to fulfill the role for some reason.

6 Set up a trust for minor children (if applicable):
If you have minor children or grandchildren, consider setting up a trust for their inheritance.

7 Understand Minnesota Inheritance Laws:
Ensure your will complies with Minnesota’s inheritance laws, especially if you’re disinheriting a spouse or child.

8 Consult an attorney:
It’s very important to consult with an attorney if you’re creating a will with any level of complexity. You want to ensure all legal requirements are met and your wishes will be accurately represented.

9 Sign your will:
Sign your will in front of two disinterested witnesses who must also sign the document.

10 Secure your will:
Keep your will in a safe place and let your executor know where it is.

11 Review and update regularly:
Life changes or significant changes to your assets may mean it’s time to update your will. Regularly review and update your will to ensure it accurately reflects your current wishes.

Remember, while you can create a will independently, working with an attorney can provide you with a more thorough and legally sound document.

 

Financial Planning and Estate Planning in Minnesota

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

 

About the Author

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Schedule a 15-minute Call

 

Other Estate Planning Guides: 

Intestate Succession Minnesota: A Simple Guide

Estate Planning in Minnesota

How to Avoid Probate in Minnesota

 

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Intestate Succession Minnesota: A Simple Guide

Intestate Succession Minnesota: A Simple Guide

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor, wealth manager, and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

 

Table of Contents

  1. An Overview of Intestate Succession Laws in Minnesota
  2. What Happens When There’s No Will?
  3. Understanding Your Inheritance Rights Under Minnesota Intestate Succession
  4. How Minnesota Probate Courts Handle Intestate Succession
  5. Impact of Marital Status
  6. The Role of Descendants
  7. Legal Rights of Half-Relatives and Adopted Children in Minnesota’s Intestate Succession
  8. The 120-Hour Rule
  9. Avoiding Intestate Succession: Importance of Estate Planning in Minnesota
  10. Financial Advisors in Minnesota

 

An Overview of Intestate Succession Laws in Minnesota

Intestate succession laws in Minnesota apply when a person dies without a will. These laws dictate how the deceased’s property gets divided among surviving relatives. The closer the relative, the higher the priority.

 

What Happens When There’s No Will?

When there’s no will, Minnesota intestate laws dictate property distribution. The estate goes to the closest relatives. These include the spouse, descendants, parents, siblings, or more distant relatives.

 

Understanding Your Inheritance Rights Under Minnesota Intestate Succession

Inheritance rights vary based on your relation to the deceased. Spouses usually receive the estate first. If there are descendants, they share the estate with the spouse. If there is no spouse or descendants, parents or siblings are next in line.

 

How Minnesota Probate Courts Handle Intestate Succession

Minnesota’s probate courts oversee the intestate succession process. They ensure the fair distribution of the deceased’s property according to the state’s laws. The court assigns an administrator to manage the estate.

 

Related: How to Avoid Probate in Minnesota

 

Impact of Marital Status

Marital status greatly affects intestate succession in Minnesota. The spouse usually receives the entire estate if there are no descendants or parents alive. If there are descendants, the spouse receives the first $225,000 and half of the balance.

 

The Role of Descendants

Descendants play a significant role in intestate succession. Descendants include children, grandchildren, and great-grandchildren. If a spouse survives the deceased, the descendants share the estate with them.

 

Legal Rights of Half-Relatives and Adopted Children in Minnesota’s Intestate Succession

Half-relatives and adopted children have legal rights under Minnesota law. Half-relatives receive half of what full relatives would get. Adopted children receive the same share as biological children.

 

The 120-Hour Rule

Minnesota applies a 120-hour rule in cases of simultaneous death. If an heir doesn’t survive the deceased by 120 hours, they are deemed predeceased. The estate is then distributed as if the heir died first. 

 

Avoiding Intestate Succession: Importance of Estate Planning in Minnesota

To avoid intestate succession, it’s essential to create a will. A will allows you to dictate the distribution of your property. Estate planning ensures your wishes are followed, providing peace of mind for you and your loved ones. According to Gallup, only 44% of Americans indicate that they have a will. (+)

The need for estate planning cannot be overstated.

But estate planning is a lot more than just creating a will. Your financial advisor in Minnesota should be helping you with your retirement and estate planning. They can include reviewing your estate in their annual review meeting. 

 

Wealth Management and Estate Planning in Minnesota

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

 

About the Author

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

 

 

Other Minnesota Estate Planning Articles and Guides

Estate Planning in Minnesota

How to Create Your Last Will and Testament in Minnesota

 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

How a Fiduciary Financial Advisor in Minnesota Can Help

How a Fiduciary Financial Advisor in Minnesota Can Help

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

What is a Fiduciary?

A fiduciary is an individual or organization legally required to act in the best interest of another party. Fiduciaries must prioritize the interests of their clients above their own, which eliminates potential conflicts of interest and ensures you receive the highest standard of service and care.

 

Table of Contents:

  1. What is a Fiduciary?
  2. What is a Fiduciary Financial Advisor?
  3. How to Find a Fiduciary Financial Advisory in Minnesota
  4. Is it Better to Have a Fiduciary Financial Advisor?
  5. Understanding the Fiduciary Standard in Financial Advising
  6. Ethical Responsibilities of a Fiduciary Financial Advisor
  7. Impact of Fiduciary Duties on Investment Strategies
  8. Regulatory Compliance for Financial Advisors
  9. Conflict of Interest Management for Financial Advisors with Fiduciary Duty
  10. Fiduciary Responsibility in Retirement Planning
  11. The Consequences of Breaching Fiduciary Duties
  12. Fiduciary Duties in Estate Planning and Wealth Transfer
  13. Evaluating the Performance of a Financial Advisor
  14. Work with a Fiduciary Financial Advisor in Minnesota

 

What is a Fiduciary Financial Advisor?

A fiduciary financial advisor is a finance professional who is obligated to act in their client’s best interest. They provide financial advice and recommendations based on the client’s specific needs, goals, and circumstances rather than focusing on products or strategies that might benefit the advisor more than the client. 

For example, a fiduciary financial advisor can’t recommend a mutual fund that gives them a nice commission unless this mutual fund is the absolute best product for their client. When you work with a fiduciary, you don’t have to worry about being “sold” products you don’t need. Your advisor is legally required to act in your best interest at all times. 

 

How to Find a Fiduciary Financial Advisory in Minnesota

To find a fiduciary financial advisor in Minnesota, search for advisors with certified designations such as Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC). You can use online resources like the National Association of Personal Financial Advisors (NAPFA) or the Financial Planning Association’s (FPA) database. 

Always verify the fiduciary status by asking directly or checking the advisor’s Form ADV.

At 360 Financial, we are financial advisors, financial planners, wealth managers, and fiduciaries. 

 

A woman considering her retirement plan.
Always verify the fiduciary status of an advisor by asking directly or checking the advisor’s Form ADV.

 

Is it Better to Have a Fiduciary Financial Advisor?

Opting for a fiduciary financial advisor can be beneficial as they are required by law to act in your best interest. This obligation reduces the risk of conflicts of interest and ensures that your advisor’s recommendations align with your financial goals. However, it’s also important to consider an advisor’s qualifications, experience, and fees to ensure they are a good fit for your financial situation.

 

Understanding the Fiduciary Standard in Financial Advising

The fiduciary standard in financial advising refers to a strict code of conduct to which advisors must adhere. This standard requires advisors to act in a client’s best interest, avoid conflicts of interest, and disclose any potential conflicts. It’s a higher standard of care compared to the suitability standard, which only requires advisors to recommend suitable products.

 

Ethical Responsibilities of a Fiduciary Financial Advisor

Fiduciary financial advisors are bound by ethical responsibilities, including good faith and trustworthiness. They must provide accurate and complete information and diligently monitor and manage a client’s assets. They are also responsible for maintaining confidentiality and avoiding conflicts of interest.

 

Impact of Fiduciary Duties on Investment Strategies

Fiduciary duties significantly influence investment strategies. Advisors must consider the client’s financial goals, risk tolerance, and time horizon when making investment recommendations. They cannot recommend any investments that are not the absolute best fit for a client. This typically results in strategies tailored to each client’s unique situation rather than a one-size-fits-all approach. 

 

Regulatory Compliance for Financial Advisors

Like other U.S. states, financial advisors in Minnesota are subject to regulatory compliance. They must adhere to the rules set forth by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA). Compliance includes accurate record-keeping, transparent fee structures, and regular audits.

 

Conflict of Interest Management for Financial Advisors with Fiduciary Duty

Fiduciary financial advisors are required to manage conflicts of interest effectively. They must disclose any potential conflicts to their clients and take necessary steps to mitigate them. This ensures transparency and maintains the trust between the client and the advisor.

 

Fiduciary Responsibility in Retirement Planning

In retirement planning, a fiduciary’s responsibility is to provide advice that best suits the client’s retirement goals. This may involve suggesting suitable investment options, ensuring the client is maximizing their retirement benefits, and planning for a sustainable income during retirement.

 

The Consequences of Breaching Fiduciary Duties

Breaching fiduciary duties can have severe consequences. If a financial advisor does not act in the best interest of their client, they could face legal repercussions, potentially involving financial restitution and damage to their professional reputation. 

In some cases, advisors may lose their licenses or be banned from practicing. Clients who believe their advisor has violated their fiduciary duties can report their concerns to regulatory bodies such as the SEC or FINRA.

 

Fiduciary Duties in Estate Planning and Wealth Transfer

A fiduciary financial advisor’s role extends to estate planning and wealth transfer. They are expected to guide clients through the complex process of planning for the distribution of their assets upon their death. This includes understanding the client’s wishes, recommending appropriate estate planning tools (like wills or trusts), and potentially coordinating with attorneys or tax professionals. Moreover, they have to ensure a smooth, efficient transfer of wealth with minimal tax implications, always acting in the client’s best interest.

 

Evaluating the Performance of a Financial Advisor

Evaluating the performance of a financial advisor is not just about assessing the financial returns. It also includes reviewing how effectively they communicate, their responsiveness to your needs, and their ability to proactively address changes in your financial situation or the market. Advisors should provide clear, regular updates on your investments and be willing to discuss their decisions. Additionally, an advisor’s performance should align with your financial goals, risk tolerance, and investment timeline.

Remember, a fiduciary financial advisor’s primary obligation is to put your interests first.

 

 

Connect with a Fiduciary Financial Advisor in Minnesota

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial. 

Founder and CEO of 360 Financial, Mike Rogers, has been a financial advisor for over 30 years. As a fiduciary, he always puts his clients’ best interests first and is dedicated to helping them achieve their big-picture financial and life goals. With his growing team, Mike is committed to providing outstanding financial services to successful professionals and business owners so they can live their lives on their own terms and leave a positive legacy. 

360 Financial is one of Minnesota’s best independent wealth management firms. 360 works with clients in Minnesota and across the US. If you’d like to work with a team that always puts you first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

 

 

Read More: 

Human vs. Robot: Is an Online Advisor or a Human Advisor Right for You?

40(k) Retirement Planning Essentials Everyone Should Know

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.