IRA

Navigating the various rules that affect your finances is stressful for every couple, but it’s harder when only 12 states recognize your marriage. In the other 38 states, if one of you dies, there are big problems.

Several federal and state laws that are essential to personal finance do not apply to those in same-sex relationships. For same sex couples, solving one’s financial life can be oppressively convoluted. But this additional layer of complexity should not be an excuse to avoid planning for your future.

Individual retirement accounts and qualified plans like 401(k)s can be wonderful assets to leave to your heirs. But you need to do some extra planning to make sure the money goes to the right family members and minimize their tax bill.

You might think you have the beneficiary designation form filled out just the way you want it. Too often, that is not the case. Fix this now, while you are alive.

When it’s too late and you are gone, your heirs discover that the form is outdated and the designation is not what you hoped for.

Congress recently made it easier to convert to a Roth individual retirement account. But unless your tax rate increases in retirement, converting your traditional IRA to a Roth IRA may not actually save you any money.

Roths are popular because, unlike traditional IRAs, distributions in retirement are tax-free. In other retirement plans, the initial contribution is tax-deferred, and the distributions are treated as ordinary income. So when you convert to a Roth, you opt to pay taxes now rather than later. Our cash-strapped government is in favor of that.

The Obama Administration’s plan to cap tax-favored retirement accounts puts a ceiling of around $3 million on IRAs and other investment vehicles. If enacted, it likely will curb how well people – not just the ultra-rich – can retire.

What if you die while your individual retirement account still has funds in it? Craft a document that specifies who receives your IRA. Name various classes of beneficiaries yourself, to prevent a confusing mess for your heirs. This foresight can help distribute the inheritance smoothly.

You name beneficiaries by setting up a trust to handle your IRA or by designating them with the IRA, which involves filling out a form.

Many people hesitate to strike out on their own as consultants, freelancers and entrepreneurs because they don’t want to lose their employer-sponsored retirement benefits. But self-employed individuals can now tap a very advantageous plan that lets them set up their own 401(k)s.

This alternative is a relatively new one, known as a Single-Participant or Solo 401(k). There are other options, yet this plan lets an independent worker save more than the others do.

Annuities, insurance contracts that pays a steady stream of income, are often sold to people that don’t need them. The more complex ones are the worst.

This tax season, remember to take the long view as you reduce your final bill. Short-term focus might reduce total taxes in the present year, but at the cost of higher taxes in the future.

Advisors look at your financial picture over many years and decades, sometimes recommending that you give up current tax savings to target bigger savings over the long-term. This is why an advisor's suggestions are often at odds with that of your tax preparer, who focuses on the past and current years.

The Web has loads of free retirement calculators, and you can buy software that purports to chart how things may work out. Even some professional advisors swear by them. Don’t put your trust in these tools.

With all of the independent variables that go into a financial plan, they aren’t likely to play out as we hope.

I recently revisited the subject of modeling software while teaching an economics course. Someone in my class criticized advisors that do not use supposedly advanced software to project hypothetical outcomes for clients.