Estate planning for retirement assets is vital-and so complex that a short article can just barely scratch the surface. So we've picked a handful of issues that your clients are likely to misconstrue, or which might have particular relevance in our turbulent economy.

CALCULATE MINIMUMS

Calculating required minimum distributions (RMDs) from a client's individual retirement account is pretty easy. You need to know your client's age and the balance of the plan. Then, look up the divisor in the appropriate IRS table. But mind the mismatch of asset and age calculations: Use the age your client will be on the last day of the current year, but for the balance you use the value at the prior year-end. (For 2008, you'd use the Dec. 31, 2007, account balance.)

DELAY DISTRIBUTIONS

For different retirement plans, your client might have different required beginning dates (RBDs). If your client has a corporate plan 401(a), 401(k) or 403(b), and is working past age 701/2, he can use his actual retirement date or age 701/2-whichever is later-to determine the RBD. But if your client merely consulted a few hours a week for his former employer (to keep some income coming in), can he continue to defer taking the RMDs? It's not clear how to define "retired" for the purposes of this test, so there's no concrete answer. (Unless your client owns more than 5% of the entity. In that case, he must use age 701/2, regardless of when he retires.)

KNOW WHO PAYS

If your client dies before taking the RMD for that year, who takes it? The executor may assume it's the estate's responsibility, but it's actually the beneficiary of the IRA that must withdraw the RMD, and do so before Dec. 31 of the year of death.

TAX INHERITED DISTRIBUTIONS

If your client dies and his IRA is included in the taxable estate, that could subject it to a 45% estate tax. Worse yet, estate tax legislation introduced in January would freeze the estate tax rate at 45%, phase out the $3.5 million exemption for estates over $10 million and eliminate the credit for the state "death-tax" credit. So clients living in high estate tax states such as New York and Connecticut could face a marginal estate tax rate of 60% or higher.

But in an IRA representing income on which the decedent never paid income tax (ignoring nondeductible contributions), this is called income in respect of a decedent (IRD). And IRD that is subject to income tax as the heirs withdraw it. So even after the estate tax hit, whatever's left is then subject to an income tax rate as high as 35% (which may even increase once the U.S. economy registers a discernible pulse).

CASH IN THAT IRA

There's another potential option for heirs inheriting plan assets with large IRD tax deductions: cashing in an entire inherited plan or IRA, and using the IRD deduction to offset the current income tax.

Yes, it's counterintuitive. But forget about the Holy Grail of the stretch IRA. The IRD deduction might well offset most of the tax cost. And once taxes are paid, the heir-your client-has total flexibility to invest the assets and generate capital gains.

If you think that the federal government's bailout and stimulus bills will be paid for with much higher income tax rates in the future, the best course of action may be to generate capital gains that will be favorably taxed 10 years from now. This orthodox move will generate ordinary income, which could well be taxed at rates much higher than those in force today. Don't get snookered into the mindset that stretching is the only answer.

MARTIN SHENKMAN, CPA, is an estate planning lawyer in Paramus, N.J. He sponsors the Law Made Easy Press Web site (www.laweasy.com).