Time is measured for many of us from events in our lives that have meaning and strong remembrances. To each and every one of us, those special times may vary depending upon our individual experiences. However, there are those events that resound with the majority because of the history shaking significance that touches all of our lives at the same time. Such an event was September 11th, 2001. It seems almost impossible that event was nearly twenty years ago. Yet, we still measure many of our life experiences from that date forward.
The recent pandemic underscores the truth of that last statement. By necessity, we have reshaped our lives and not necessarily always to our liking. For a majority of us, our homes became our offices. The home front was our boardroom and workshop for assembling the tools necessary to achieve our business and personal goals.
Four different Presidents have led our country since 9/11– George W. Bush; Barack Obama; Donald Trump and Joe Biden. The significance of each of their accomplishments underscores the impact they have had on our collective lives.
We have seen the Stock Market soar beyond our imagination, and bottom-out almost as quickly to our amazement. We have witnessed men and women’s achievements in space even reaching Mars, and then a lack of ability to sustain harmony here on earth. The closing of our favorite haunts and the impact of the dismissal of class study on our children is still to be assessed. Yes, there have been many “ups and downs” in the past twenty years. The question is then, “What do we have to look forward to?”
When I was a young man, there was a motion picture series entitled “THE MARCH OF TIME” which centered on the days’ events that shaped the future of mankind. I looked forward to each one of those features on the movie screen because, with few exceptions, they pointed to a brighter more fulfilling lifetime ahead. Maybe I’m an incurable optimist, but I see and feel that we have much to learn from the past history of our country. We are a people who desire to create and to succeed.
Thus, it is easy to realize that we have just begun to envision a brighter, more enlightened time ahead. The “long day’s nights” that we have experienced are coming to an end. We are starting to breathe the fresh air of personal freedoms again – planning vacations and family gatherings that will have new and many happy, emotional returns. We are opening the doors to our treasured past and are finding new avenues of expression that will pay personal dividends in a quest for happiness and security. Hopefully we have learned from past mistakes and will take our combined experiences to heart and heal wounds that have divided us.
There is still much to be achieved and plenty of time if we will be patient and stay strong to accomplish all we desire. We are a people who are noteworthy in our strengths to remember our pasts, but with the foresight to not overlook our future. It is that reflection that helps us to remember that the “past is merely a prologue.” Enjoy today and keep your eyes wide open to what lies ahead. Let’s make the next twenty years the best remembered of them all!
TIME MARCHES ON!
Chicken farmers say not to put all of your eggs in one basket. Investment analysts renamed this diversification. It amounts to the same thing – spreading out your assets in different baskets or investments is supposed to reduce the risk of loss. However, putting your eggs in different baskets doesn’t truly reduce the risk if one truck is carrying all the baskets and it gets in a wreck.
The financial pros say you should blend together stocks of different industries, non-stock assets and bonds to reduce the risk of loss. However, there’s a problem. Especially in bad times, stock returns tend to move together, or correlate. Consider the Crash of 2008. Even if you diversified between stocks of large companies, small companies and foreign companies you lost big. Going into non-stock “alternative” investments didn’t help either. Whether you owned real estate, oil or gold, you had less in December 2008 than you had in June.
That leaves bonds. Although bond yields went up at that start of the Crash – meaning the value of existing bonds went down – by the end of the year bond values had recovered and even had a small gain. However, bond yields are around half of what they were back in 2008. What that means is there is a lot less upside potential if interest rates fall and more downside risk of loss if rates go up.
Bank instruments such as money market accounts and certificates of deposit avoid market risk to principal, but the interest paid today is so low. Fixed annuities are another choice. Fixed rate annuities can lock in yields that are one to two percent higher than bank rates. Fixed index annuities provide the opportunity to earn even higher interest. Both types protect principal from market loss.
No one knows when the next crash is coming or how long it will last. Even so, it doesn’t make sense to be Chicken Little and take all of your money out of stocks. However, it does make sense to set aside some egg money so that you know it will be protected from market loss. And when you’re looking for a protected basket, fixed annuities might well produce the biggest eggs.
Copyright 2021. For educational purposes only. Does not provide investment, tax or legal advice. Information believed accurate, but is not warranted. Fixed annuities typically have penalties for early withdrawal, known as surrender penalties, which may cause a loss of principal if the annuity is cashed in prematurely. Past performance is not an indication of future results. No index sponsors, promotes, or makes any representation regarding any index product. Both investments and fixed annuities involve certain risks; a consumer should consult with their advisor. Fixed annuities are not bank instruments and are not insured by FDIC.
Okay Baby Boomers, I am in your camp and I am sorry to announce that there are more yesterdays than tomorrows in our lives. Where did all the time go? Even though life is uncertain and every day is a gift, we felt okay saying… ”I will get to that tomorrow.” But, regarding our financial lives, we need to get on it today. It is time for all of us to take a financial inventory and review our game plan. It’s time to sit down with your spouse, family or any people that could be affected by your passing. Look at life insurance policies, wills, trusts, investment accounts, annuities and bank accounts. It’s also a great time to review your final instructions.
It’s never too late to fine tune your income accounts and plans. Do you have the appropriate amount of income to stay in the world that you have planned and become accustomed to? What about final expense money and policies? Is it time to consider additional life insurance? Do you know that life insurance is easier to buy, and you probably won’t need a medical exam? Do you need to take a look at your “Safe Money Portfolio?” What about sitting down with your financial professional to do a review? Don’t you have a visit with your physician every year? Visit the dentist? What about keeping your car serviced? It’s time to take action. If you don’t have a financial professional, let us know and we will connect you with a licensed insurance agent that is a member of The Safe Money Places Agent Network. Remember, don’t put off till tomorrow what you can do today. Tomorrow might not come. Stay safe and do it.
While flying the other day, I looked up at the fasten seatbelt sign as the pilot said to stay in our seats as we may be hitting some turbulent air. So, of course I complied. But it got me thinking about a message we might want to be giving our clients and prospects... “Fasten seat belts while invested, as we may be hitting some market turbulence and volatility over the next several months.” But, instead of advising them that an oxygen mask will drop or that you can use the cushion as a flotation device, we can tell them the following, “During this turbulence, all monies in a fixed index annuity will be protected from loss of principal and previous gains.”
Now, can I continue to talk about airline experiences? A few months ago, we were flying back to Hilton Head from Indianapolis and ran into some rough weather. The pilot was a pro, but we circled quite a bit. He then advised the passengers that we were going to make a stop in Savannah to get some fuel as he was afraid that we might run out of gas. So, we landed, gassed up and were on our way without a hiccup. Well, let's remind the client that they won't run out of gas with a fixed index annuity. The gas we’re are talking about is the lifetime income. Doesn't matter how long you live or the weather situation, your income is guaranteed until the day you die.
So, for the passengers with the fixed index annuity, sit back, enjoy the flight as we will be landing shortly. Like to know more about fixed indexed annuities? Ask your licensed member of the Same Money Places Agent Network
There are so many items in our lives that require regular maintenance. Let’s think about this for a second. Don’t we take care of our cars? Yes, change the oil, make sure tires are rotated and make sure that everything is functioning well before a trip? What about your heating and cooling systems? Of course we stay on top of this. We don’t want to lose heat when the weather turns cold nor lose the A/C when the sun starts to bake us in the summer. We go to the dentist on a regular basis, get regular check ups from our physicians and also make sure that our eyes are working well. I could go on and on. But, are you performing regular maintenance on your retirement income accounts? Sadly, I find that many Americans don’t. And, that can cause some real problems in American’s lifestyles. Let’s examine…
If you are retired, or soon to be retired, you have hopefully divided your income needs into a couple of categories. The first being the essential income that you will need to stay in the desired income life that you have planned on. You take those expenses and subtract social security income, pension income if you are lucky enough to have one, and other guaranteed forms of income. That is when you find the shortfall. Then, there is the discretionary income that you desire. You know, vacations, trips with the kids or grandkids, educational assistance for your loved ones, etc. And, many Americans find this to be a little nerve racking. Maybe I can suggest something to make your retirement a little more safe and serene.
I suggest an annuity that can provide a guaranteed flow of income for as long as you live might just allow you to spend more, relieve stress and protect this nest egg from losses. Isn’t it great to know that there is an additional check sent to you each month. It is a great way to “plug the gap” and provide the essential income that you need. Now, there are various forms of annuities to choose from. And, I feel pretty confident that you will find one to help you achieve the retirement dreams that you have. Contact a licensed insurance agent that is a member of “The Safe Money Places Agent Network” and have that maintenance review that I am talking about. Great for peace of mind. What do you have to lose? I feel pretty confident that you will start gaining better sleep at night. I love annuities and know that you will to. Stay Safe.
You have a legacy plan. If you say, “I haven’t set up a legacy plan,” I say, yes you have. Without proper planning, you allow the government, nursing home facilities or others to do it for you. Of course, you need a good will and possibly thoughtful trusts to get you headed in the right direction. You also need health directives to make sure your wishes are followed through. And, you need an executor to make sure things are handled properly. As an insurance professional, I can help take care of some basic planning that can help you avoid the pitfalls of not having a plan in place. I can take care of legacy planning, income needs and planning for long-term care needs. Please allow me to explain…
Today I am going to focus on life insurance with accelerated benefits for long term care needs, and products that have accelerated benefits. In short, accelerated benefits on life insurance products mean that the death benefit would be paid out to you while living if you can’t perform two of the six activities of daily living.
Let’s look at a real-life scenario. You may have some dollars set aside that won’t be needed for retirement income. You purchase a life insurance policy (this could be a single premium life policy or a periodic premium plan) with the accelerated benefits as described in the paragraph above.
Let’s assume that a health issue develops, and you can’t perform two of the six activities of daily living. Let’s say that you opted for a single premium life policy with $100,000 of premium.
That premium would generate for a 65-year-old female anywhere between $180,000 and $300,000 of tax-free death benefit (the more underwriting… the greater the death benefit). So, let’s assume this policy has a $200,000 death benefit.
If a health issue occurs and you cannot perform two of the six activities of daily living – then, the entire $200,000 death benefit is paid out to you in tax-free payments. These payments are generally tax-free because they are an acceleration of the death benefit. These payments are paid directly to you, and you are able to use them to cover your health care costs.
But what happens if I don’t need those accelerated benefits and I pass away? The proceeds are paid tax-free to a named beneficiary. What happens if you have an emergency and need the money? These products accumulate cash value and you have access to the cash value when and if you need it.
Some life insurance policies offer a return of premium feature. This means if you decide to quit the policy, the insurance company will give you the premium you paid back.
Your financial professional can provide you with information on this type of product. What do you have to lose? This is a tax friendly approach to an important part of your retirement plan. Let me know if you would like more information about this type of legacy planning.
In more than eight decades of my life, I have experienced many down turns as well as positives enough to fill many essays and dreams. If there is anything I have learned over time, nothing lasts forever. In a flick of an eye, situations – good as well as bad – will change, and normalcy will reclaim our lives, and we will survive and be better for it.
Trying to compare our recent year of the covid 19 virus with past experiences can be difficult. The year 2020 has few comparisons unless you go back to 1917 and the Spanish Virus. Obviously, there are very few people who remember those dreadful days. In the over one hundred years since then, there have been many times when we have faced difficult disease outbreaks, and even wars, yet we have survived and found means to overcome adversity. The American Spirit prevails in the darkest of days. Our faith and country go hand in hand meeting the challenges and brushing aside negatives that try to lead astray.
The only comparison that I feel is realistic in my family goes back to the early and darkest days of early World War II. Families were split apart with fathers, brothers and other relatives being shipped far away; the print mediums and radio broadcasts highlighted negative news from various fronts, rationing of essentials such as gasoline and rubber prevented people traveling to visit family and friends. Mom found her pantry shelves void of the sugar and spices - many of the essentials necessary to bake the many holiday surprises we were fond of enjoying.
I remember how my sister and I felt as young children. Would there ever be another other Christmas like the ones we remembered from our limited past? We were separated from family and friends, even though our parents were tying hard to convince us that Santa Claus would still find us even hundreds of miles from our normal home. It compared to this year in many ways, and yet, we felt blessed that we were still free and able to communicate our lives and loves to those who meant so much to us.
Today, we are more fortunate to have many means of communicating instantly to those who are separated from us. With modern conveniences such as computers and cell phones, even though we may be apart, we come together instantly from any part of the country or world. In many cases photos are transmitted just as quickly as voice messages. We are being held together even though we are apart.
Yes, today is challenging, yet we know and believe we will overcome all that we are facing. It is in our minds and hearts to be strong and stay the course to a brighter more fulfilling future.
Another day…we’re moving on…
To address the challenges…others have come and gone.
We’ve adjusted to wearing a mask,
Though it is made more difficult to complete a task.
A burger and fries from a local drive thru,
Have replaced group gatherings we once knew.
Family and friends stay a distance apart,
When a nice hug and kiss would heal a heart.
Not having togetherness can be lonely,
But let’s not be caught saying…”if only.”
Let’s reach out to those we know…many or few,
With a call or note or even an e-mail will do.
Move on in positive ways,
To make these the best of our days.
A very Merry Christmas and a much Happier New Year 2021
Happy Holidays. If you are like many Americans, you’re wondering when to take retirement income… and how much. Well, for those of you old enough to remember layaway, this might just work for you. The “layaway” concept is also referred to as “laddering” by many. In other words, let some of the money continue to grow for a while, tap another part of the nest egg for a period of time and then release the balance in a retirement income flow. Let me give you a couple of examples.
Now, remember, each situation is different and you will want to confer with your financial professional. Here we go…
Let’s say we have a male ready to retire at age 66. He can take Social Security now, as he needs the money, but wants to maximize the value of his Social Security retirement income. Let’s also say that his Social Security retirement income is $2500 per month at age 66. He could leave that Social Security alone until he reaches age 70. That $2500 is guaranteed to grow at 8% per year with no current taxation. Very tough to beat today. But, remember, he needs $2500 per month now. What to do?
He could get a 4 or 5 year single premium immediate annuity for the period until he is 70 years old. Then, when that money is finished, he then takes Social Security which is much more than the $2500 at age 66. But, he has other moneys and will need more at age 75. So, he could purchase a fixed index annuity with a lifetime income rider to get the additional income he desires and take retirement income off of this account at age 75. Sound confusing? Let me help.
With this concept, your financial professional will only need to ask you two questions.
“How much do you need?” And, “when do you need it?”
He can give you the exact amount of money you need to put in “layaway” to achieve your retirement income needs. So, let’s empty that worry bucket. Holidays are approaching, and this is one worry we can eliminate.
With bank savings accounts earning pennies in interest, and even long-term certificate of deposit rates averaging less than one percent, it can cause a squeeze in the household finances. One result is some people go on yield safaris, looking for bigger interest game. While there is nothing wrong with trying for higher returns, the concern is that the potential for loss is sometimes overlooked.
A decade and a half ago auction rate securities and mortgage bond tranches were sold as low risk, liquid alternatives during a period when bank rates were falling. However, auction rate securities largely became illiquid and many of the “AAA” bonds were reclassified as junk or in default in 2008.
This time around some savers were buying packages of small business debt – but the impact of SARS-CoV-2 is causing small businesses to fail. Others are buying dividend paying stocks – often a sound move, but even companies like Ford creased their dividend in 2020. The more adventurous try covered call option writing, where you collect a fee for agreeing to sell a stock you own at a given price. It works well when the stock price is steady; however, all the option fees put together cannot overcome a big drop – like Exxon Mobil share price falling roughly in half in 2020.
If you’re a saver looking for a place that pays higher interest than the bank, but still protects your principal and the interest you’ve earned from market loss, the alternative is pretty much coming down to fixed annuities. Although a fixed annuity is not FDIC insured, fixed annuity carriers have an excellent record of protection in both good and bad financial times. There are two main types.
A fixed rate annuity pays a locked-in interest rate for a specified number of years – anywhere from one up to ten. A fixed index annuity pays interest based on the performance of an independent index, usually linked to the stock market. Which is better? It depends.
With a fixed rate annuity you know what you’re getting. With a fixed index annuity if the index goes down you won’t earn any interest for that year (but you won’t lose what you have). However, the fixed index annuity often offers the potential for considerably more interest, so if the good years offset the bad they could pay much more interest. It ultimately comes down to whether you’re okay with seeing a zero in a given year.
Fixed annuities have penalties for early withdrawal called surrender penalties. For fixed rate annuities with multiple year interest guarantees the penalty period usually matches the guarantee period. Fixed index annuity penalty periods are usually for five to ten years. The early penalties are much higher than those imposed on certificates of deposit – so you shouldn’t buy the annuity if you think you’ll need to cash it in early – but you need to look at the entire picture. If your choice is between a CD paying 0.75% and a fixed rate annuity paying 2.5% that has a 6% penalty, you are money ahead with the annuity after four years, even after cashing it in.
This is a very tough time for savers, and it doesn’t look like yields will be going up anytime soon. Even so, this isn’t the time to quit the bank and start hunting exotic yield beasts that could come back to bite you. It is a good time to consider moving some of that money to the protected sanctuary of fixed annuities.
For educational purposes only. Does not provide investment, tax or legal advice. Information believed accurate, but is not warranted. Not a solicitation to buy or sell any security. Past performance is not an indication of future results. Both investments and fixed annuities involve certain risks; a consumer should consult with their advisor. Fixed annuities are not bank instruments and are not insured by FDIC.
It goes without saying that most of us will be glad for 2020 to end, as it has been one of the most exhausting years in modern history. This past year is undeniably one for the history books on many fronts, including: human pandemics, the stock market, the economy, social impacts and politics. There is no doubt students and historians will be studying and analyzing 2020 for decades to come. Amazingly, despite the trials and tribulations 2020 has delivered, as of this writing, the markets are in positive territory for the year, despite being one of the most volatile markets in history. Below we review the events that caused this volatility.
2020 events that are statistically unlikely to reoccur in our lifetime…
S&P 500 (year to date)
Planning: Year-End Financial Planning Deadlines
As 2020 comes to an end, there may be a few items that need to be completed before the clock strikes midnight on December 31st.
Dream boldly. Plan wisely.
It's time to implement strategies to help reduce your 2020 federal income tax bill and position yourself for future tax savings. Here are some ideas to consider before year end.
Gaming the Standard Deduction
The Tax Cuts and Jobs Act (TCJA) almost doubled the standard deduction amounts. For 2020, the standard deduction allowances are:
The easiest itemizable expense to prepay is included in home mortgage payments due on January 1, 2021. Accelerating that payment into 2020 will give you 13 months' worth of itemized home mortgage interest deductions for this year. Beware: The TCJA limits these deductions, so consult with your tax advisor before prepaying your mortgage.
Other items to consider prepaying are state and local income and property taxes that are due early next year. Prepaying those bills before year end can decrease your 2020 federal income tax bill, because your total itemized deductions will be that much higher. However, the TCJA decreased the maximum amount you can deduct for state and local taxes to $10,000 ($5,000 for married couples who file separate returns).
Important: Prepaying state and local taxes can be a bad idea if you'll owe the alternative minimum tax (AMT) this year. That's because write-offs for state and local taxes are completely disallowed under the AMT rules. Therefore, prepaying those expenses may do little or no good for people who are subject to the AMT. Fortunately, the TCJA eased the AMT rules, so most people are no longer at risk.
To maximize your itemized deductions for 2020, you also could make bigger charitable donations this year and then make smaller donations next year to compensate. Or you might consider accelerating elective medical procedures, dental work and expenditures for vision care. If you itemize for 2020, you can deduct medical expenses to the extent they exceed 7.5% of your adjusted gross income (AGI). Next year, the deduction threshold is scheduled to rise to 10% of AGI.
Managing Gains and Losses in Taxable Investment Accounts
If you hold investments in taxable brokerage firm accounts, consider the tax advantage of selling appreciated securities that have been held for over 12 months. The federal income tax rate on long-term capital gains can be as high as 20%, plus the 3.8% net investment income tax (NIIT) can also apply at higher income levels. (See "Current Individual Federal Income Tax Rate Scene" at right.)
To the extent you have capital losses from earlier this year or capital loss carryovers from prior years, selling appreciated investments this year won't result in a tax hit. In particular, sheltering net short-term capital gains with capital losses is a tax-smart move because net short-terms gains would otherwise be taxed at higher ordinary income rate of up to 37%.
Conversely, if you have some loser investments — that are currently worth less than what you paid for them — you might want to unload them. Taking the resulting capital losses this year would allow you to shelter capital gains, including high-taxed short-term gains, from other sales this year.
If selling some loser investments would cause your 2020 capital losses to exceed your 2020 capital gains, the result would be a net capital loss for the year. It can be used to shelter up to $3,000 of 2020 income from salaries, bonuses, self-employment income, interest income and royalties ($1,500 for married couples who file separate returns). Any excess net capital loss can be carried forward indefinitely.
A capital loss carryover can be used to shelter short- and long-term gains recognized next year and beyond. This can give you extra investing flexibility in those years, because you won't have to hold appreciated securities for over a year to get a lower tax rate. You'll pay 0% to the extent you can shelter gains with your loss carryover. Depending on future tax rate changes, these loss carryovers can be quite valuable.
Donating to Charities
You can also make gifts to your favorite charities in conjunction with an overall revamping of your investments in taxable brokerage firm accounts. But there are two principles to keep in mind.
First, don't give away investments that are currently worth less than what you paid for them. Instead, sell the shares and book the resulting tax-saving capital loss. Then you can give the cash sales proceeds to favored charities — plus, if you itemize, you can claim the resulting tax-saving charitable write-offs.
The second principle applies to investments in appreciated securities. These winning investments should be donated directly to a preferred charity. Why? Because, if you itemize, donations of publicly traded shares that you've owned for over a year result in charitable deductions equal to the full current market value of the shares at the time of the gift. Plus, when you donate appreciated shares, you escape any capital gains taxes on those shares. Meanwhile, the tax-exempt charitable organization can sell the donated shares without owing federal taxes.
Gifting to Family Members
The principles for tax-smart gifts to charities also apply to gifts to relatives. That is, you should sell loser investments and collect the resulting tax-saving capital losses. Then give the cash sales proceeds to loved ones.
Likewise, you should give appreciated shares directly to relatives. In many cases, they'll pay a lower tax rate than you would if you sold the same shares.
Making Charitable Donations From Your IRA
IRA owners and beneficiaries who have reached age 70½ are permitted to make cash donations totaling up to $100,000 to IRS-approved public charities directly out of their IRAs. You don't owe income tax on these qualified charitable distributions (QCDs), but you also don't receive an itemized charitable contribution deduction.
The upside is that the tax-free treatment of QCDs equates to an immediate 100% federal income tax deduction without having to worry about restrictions that can delay itemized charitable write-offs. Contact your tax advisor if you want to hear about the benefits of QCDs. If you're interested in taking advantage of this strategy for 2020, you'll need to arrange with your IRA trustee for money to be paid out to one or more qualifying charities before year end.
Prepaying College Tuition Bills
The TCJA retains two valuable tax credits for higher education costs.
1. American Opportunity credit. This credit equals 100% of the first $2,000 of qualified postsecondary education expenses, plus 25% of the next $2,000 (assuming the phaseout rule explained later doesn't affect you). So, the maximum annual credit is $2,500.
For 2020, the American Opportunity credit is phased out (reduced or eliminated) if your modified adjusted gross income (MAGI) is between:
For 2020, the Lifetime Learning credit is phased out if your MAGI is between:
Specifically, you can claim a 2020 credit based on prepaying tuition for academic periods that begin in January through March of next year.
If your MAGI is too high to be eligible for the Lifetime Learning credit, you might still qualify to deduct up to $2,000 or $4,000 of college tuition costs for 2020. If so, consider prepaying tuition bills that aren't due until early 2021 if that would result in a bigger deduction this year. As with the credits, your 2020 tuition and fees deduction can be based on prepaying tuition for academic periods that begin in the first three months of 2021.
Important: The higher education tuition and fees deduction is scheduled to expire after 2020, unless Congress passes legislation to extend it.
Deferring Income Into Next Year — or Not
If you expect to be in the same or lower tax bracket next year, you might want to defer some taxable income from 2020 into 2021. For example, if you operate a small business that uses the cash method of accounting, you can postpone taxable income by waiting until late in the year to send out some invoices. That way, you won't receive payment for them until early 2021. Small business owners can also defer taxable income by accelerating some deductible business expenditures into this year.
Both moves will postpone taxable income from this year until next year when it might be taxed at lower rates. Deferring income can also be helpful if you're affected by unfavorable phase-out rules that reduce or eliminate various tax breaks, such as the child tax credit and the higher-education tax credits.
On the other hand, if you expect to be in a higher tax bracket in 2021, consider accelerating income into this year (if possible) and postponing deductible expenditures until 2021.
Converting an IRA to a Roth IRA
The best scenario for converting a traditional IRA into a Roth account is when you expect to be in the same or higher tax bracket during retirement. Currently, tax rates are low by historical standards, but there's been discussion of increasing taxes in the future to fund COVID-19 financial relief measures and various spending priorities. So, now might be a good time to consider a conversion.
Beware: There's a current tax cost for converting. A conversion is treated as a taxable liquidation of your traditional IRA followed by a nondeductible contribution to the new Roth account. If you wait to convert your account until 2021 or later, the tax cost could be higher, depending on future tax rates.
After the conversion, all the income and gains that accumulate in the Roth account, and all qualified withdrawals, will be federal-income-tax-free. In general, qualified withdrawals are those taken after:
Meet With a Tax Pro
The future of federal income taxes for individuals is uncertain. But at least you know the rules that will apply for 2020. Contact your tax advisor to discuss ways to best position yourself for this year and beyond.
Many people only think of an annuity as something that pays an income for as long as they live. This is one benefit all annuities – and only annuities – offer. It is also the reason why people buy immediate annuities (also called income annuities). However, the lion’s share of annuities are purchased as saving places and never turned into immediate annuities (the conversion is called annuitization). One of the reason annuities are used as saving places is that taxes on any interest earned may be deferred as long as the interest remains inside the annuity.
There are two main branches on the annuity tree:
Variable annuities are registered as securities and offer various investments. Since they are securities they are subject to stock market risk and can lose money. When you hear that annuities have fees, they are usually talking about variable annuities. Variable annuities can be annuitized and turned into a lifetime income stream, but the income will fluctuate depending on how the underlying investments perform.
Fixed annuities do not subject principal or interest earned to market risk – in others words, you can never lose what you’ve made because the stock market went down or some bond issuer went out of business. Fixed annuities can also be annuitized, but the income will remain stable and not go down.
Fixed Annuities as Saving Places
Annuities used as saving places are called deferred annuities, because, as mentioned, the annuity owner has control over when to take the interest out of the annuity and pay income taxes on it. All fixed deferred annuities guarantee a minimum return. The three types credit interest in different ways:
Fixed Rate Annuities declare a new interest rate each year. It will fluctuate, but will never be less than the minimum interest rate stated in the annuity.
Multi-Year Guaranteed Annuities (MYGAs) lock in a rate for the term selected of two to ten years.
Fixed Index Annuities base the amount of interest earned on the performance of an external index. Although the degree to which the annuity participates in any gains is locked in, the actual interest earned depends on well the index performs. Since this is a fixed annuity it does not lose any value if the index goes down, instead, zero new interest is earned for the period.
Fixed Annuities for Income
Immediate annuities pay an income for a specified period of years or for life. The biggest concern when getting an immediate annuity with a life income is dying too soon, with the result that the annuity company keeps most of the money. This can be offset by setting up the annuity to pay for the greater of life or a specified period of years (life with period certain). You can also choose a cash refund option that means payments will continue until all of the principal has been returned if early death occurs.
Withdrawals are another way to get income. The deferred annuity remains intact, but the annuityowner takes out the interest earned each year. Indeed, most deferred annuities allow the withdrawal of up to 10% of the value each year without penalties.
Guaranteed Lifetime Withdrawals Benefits (GLWBs) are withdrawals from the deferred annuity, but they are guaranteed to last a lifetime even if the annuity account goes to zero. The income is stable, but unlike an immediate annuity, here the annuityowner retains control over the remaining account balance. GLWBs are usually an optional benefit for which a fee is charged.
Annuities have similarities with other savings choices (and one difference):
IRS “Under Age 59½” Premature Distribution Penalty is in addition to the normal income taxes owing, and can be avoided if certain conditions are met. In the case of annuities not held in qualified plans, the penalty only affects withdrawn interest earned over and above the original principal.
Penalties for Early Withdrawal (surrender charges) are made if the annuity is cashed in prior to the end of the term initially agreed to. Surrender periods vary in length from one to twelve years. For the vast majority of policies, penalties do not apply if the policy is cashed in due to death of the owner. The annuity may be continued after the penalty period and no penalties are charged.
Maturity Date is the longest one can keep annuity interest deferred before it must be taken out. Maturity dates usually occur when the annuitant celebrates their 80th to 90th birthday, but some new policies may be kept until age 100 (the annuitant is the person upon which the annuitization life income is based – usually the owner). Although many financial writers get this confused, the maturity date is not how long the insurance company makes you keep your annuity with them, but how long the insurer will let you keep your money with them.
For educational purposes only. It does not provide investment, tax or legal advice. Information believed accurate, but is not warranted. Past performance is not an indication of future results. Both investments and fixed annuities involve certain risks; a consumer should consult with their advisor.
Fixed annuities are not bank instruments and are not insured by FDIC.
This November, you will be voting “red or blue” in the Presidential election. The most of important thing, of course, is that you vote. I don’t want to sound like a broken record and say that these are not normal times. But, what if they are for a while. Many years ago, I attended a conference where they spoke of the “circle of concern and the circle of influence.” The circle of concern is much larger. And, they are items that we usually don’t have any control or an ability to influence, these items. Sure, they keep us up at night but beyond our control. Examples could be a hurricane, tornado, COVID-19 etc. On the other hand, the “circle of influence” is comprised of items that we can influence and change... or, at least protect ourselves from. Let me explain.
My title of this article is “Red or Blue… but not Black AND blue.” Yes, you can affect change through your vote. But, how do you protect your nest eggs from getting “Black and Blue?” I am referring to some very volatile times in the equity markets. Please allow me to state that I am not giving investment advice. As you know from my previous writings, that I am and always have been a big fan of the equity markets. So, I am speaking to Baby Boomers and above. Do you have the appropriate amount of money at risk? Can you afford another potential downturn in the market? Do you have the “stomach” for a 10%, 15%, 20% or more drop in the market? Now, I can’t control the market… it is in my circle of concern. But, I can influence the outcome by making sure I have the proper amount of my nest egg in Safe Money Places.
So, in closing, make sure you vote… red or blue. But, don’t let your nest egg get “Black AND Blue.” You can influence that. If you would like to discuss options with a licensed agent in your state, give us a call and we will set up the appointment. Or, contact a member of the Safe Money Places Agent Network. Stay safe.
I don’t think that I need to say that these are not ordinary times. This pandemic is (I hope) a once in a lifetime occurrence. I, like you, have witnessed many events that we could not avoid. One only has to remember 9/11, the dot com crash in 2000, and the financial meltdown in 2008/2009. But, this COVID-19 experience may top the charts. While I am confident that we will get through this pandemic, there will still be carnage. Today, I am speaking about retirement income nest eggs for current, or soon to be, retirees. I would also like to remind you that I am not giving investment advice . I do believe in the equity markets, I do understand that long term markets have always come back. But, for many of us, there might not be time to build those accounts to the numbers we had imagined. That is why I am speaking of a retirement income vaccine.
Okay, let’s get the genie out of the bottle. I am speaking about annuities that can provide a steady stream of guaranteed retirement income. I am not here to argue about whether equities or annuities are best. I am also not here to suggest that you empty your “equity bucket” and place all your money in an annuity. But, I am suggesting that you empty some of your “worry buckets.” If you are like me, you look forward to a steady stream of retirement income that is guaranteed and one that you can’t outlive. So, I have some suggestions.
First, identify what is keeping you up at night. Next, look at a timeline and identify the date that you will need the retirement income. Separate essential from discretionary income needs. Then, ask yourself if you have the appropriate amount of money at risk. Then, make a decision. Is it time to place some of your nest egg in a product that will guarantee principal and all previous gains? Yes, in some products there are penalties for early withdrawals, but as long as you play by the rules… all will be safe. Some of these products will allow you to take income immediately, and some you can defer payments. Yes, these are annuities. I suggest that it could just be the vaccine that your retirement income account needs. Stay safe, do your homework… but do investigate an annuity. No, I am not giving investment advice. I’m just giving you an additional tool to help you sleep at night.
Family reunions and gatherings are a great way to stay in touch with the people we love. Unfortunately, the current state of COVID-19 and the lurking possibility of a second or third wave of outbreak may make these activities difficult to plan. However, remote apps like video chat and EVites make it possible for families to still connect for large gatherings from a distance. Here are some of the best apps for remote family reunions that can ensure you and your family are still able to enjoy time together.
Best Video Chat Apps for Family Reunions
We’re probably all familiar with easy video chat apps like Facetime, but there are others that allow for many users to join at once. Connecting over these can be done from a desktop or laptop computer, as well as mobile devices like phones and tablets. Most of these are free and just need one person to host the event from their device and invites to be sent to others.
Planning reunions and get togethers can be a logistical difficulty, particularly when you a large guest-list. This is even more true from a distance, as more folks may be able to join without the added difficulty of traveling far distances. For that reason, EVites and digital invitation apps are a big help. In addition to being a convenient way to keep track of who’s joining your event, these apps also feature beautiful design options that can give your invitation that personalized and colorful feel you crave.
Best Polling Apps for Family Reunions
Everyone seems to have an opinion when it comes to event planning. Whether it’s about the group activities, timing questions, or decisions about which video chat app to use, a polling application can allow a user to ask questions and get a precise count as to which options work best. You might use these to ask questions like, “What day works best for our virtual family reunion,” or, “Which games do we want to play?”
Did you know you can sell all or a portion of a life insurance policy, even term insurance?
Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
Life Settlement Advisors
For one reason or another, you may need to take some money out of an IRA before reaching retirement. You can withdraw money from an IRA at any time and for any reason, but it's important to keep in mind that most IRA withdrawals are at least partially taxable. In other words, you'll owe regular income tax on the amount. In addition, the taxable portion of a withdrawal taken before age 59 1/2, which is called an "early withdrawal," will be hit with a 10% penalty — unless you qualify for an exception.
The exceptions apply to traditional IRAs, SEP-IRAs and SIMPLE-IRAs. (However, some early withdrawals from SIMPLE-IRAs are hit with a 25% penalty rather than the standard 10% penalty. For simplicity, the rest of this article will ignore that higher 25% rate.)
Also, be aware that different rules apply to withdrawals from Roth IRAs and qualified plans, such as 401(k) plans.
Exceptions to the Penalty
So what are the exceptions to the 10% early withdrawal penalty? Let's take a look:
1. Withdrawals for medical expenses. If you have qualified medical expenses in excess of 10% of your adjusted gross income (AGI) in 2020 (and 2019) early IRA withdrawals up to the amount of that excess are exempt from the 10% penalty. To take advantage of this exception, you don't need to trace the withdrawn amount to the medical expenses. However, those expenses must be paid in the same year during which you take the early withdrawal.
2. Substantially equal periodic payments (SEPPs). These are annual annuity-like withdrawals that must be taken for at least five years or until you reach age 59 1/2, whichever comes later. The rules for SEPPs are complicated, so you may want to get your tax advisor involved to avoid pitfalls.
3. Withdrawals after death. Amounts withdrawn from an IRA after the IRA owner's death are always free of the 10% penalty. However, this exception isn't available for funds rolled over into a surviving spouse's IRA or if the surviving spouse elects to treat the inherited IRA as his or her own account. If the surviving spouse needs some of the inherited funds, they should be left in the inherited IRA (in other words, the one set up for the deceased spouse). Then, the surviving spouse can withdraw the needed funds from the inherited IRA without any 10% penalty.
4. Withdrawals after disability. This exception applies to amounts paid to an IRA owner who is found to be physically or mentally disabled to the extent that he or she cannot engage in his or her customary paid job or a comparable one. In addition, the disability must be expected to:
6. Withdrawals for qualified higher education expenses. Early IRA withdrawals are penalty-free to the extent of qualified higher education expenses paid during the same year. The qualified expenses must be for the education of:
8. Withdrawals by military reservists called to active duty. This exception applies to certain early IRA withdrawals taken by military reserve members who are called to active duty for at least 180 days or for an indefinite period.
9. Withdrawals for IRS levies. This exception applies to early IRA withdrawals taken to pay IRS levies against the account. However, this exception is not available when the IRS levies against the IRA owner (as opposed to the IRA itself), and the owner then withdraws IRA funds to pay the levy.
Before and After a Withdrawal
With some exceptions, IRA owners who make IRA withdrawals before age 59 1/2 must file a form with their tax returns. Specifically, they must file Form 5329, "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts."
If you think you qualify for an exception to the 10% penalty on early traditional IRA withdrawals, consider involving your tax pro before making a big early withdrawal. You want to be sure that you do indeed qualify. Better safe than sorry!
Early Withdrawal Downsides
Even if you qualify for an exception to the 10% early withdrawal penalty, remember that you still have to pay regular income tax on the amount. And you'll lose out on the benefit of future tax-deferred compounding growth on the withdrawn funds.
Choosing the investments that are right for you is always a little bit of a guessing game. Of course, investing is inherently risky, and the unknown future is the main cause of that risk. But it’s certainly easier to decide how to diversify your portfolio and grow your retirement income when you understand the difference between the four most common investment types. Here’s our guide sharing basic definitions as well as some insight into these investments and the risks associated with each.
Definition of a Bond
A bond is issued to fund a special project by a company or at multiple levels of government. This could be research and development, building roads and schools, or even a war effort. Every person or entity that invests in a bond is essentially getting an “I.O.U” promising their investment will be paid back by a certain date, called the maturity date. You also receive a coupon for a certain interest rate that is a fixed rate of return on the bond.
At regular intervals until the bond matures, usually once every six months, you as the bondholder will receive a payment of the coupon rate of interest on your investment. When the bond maturity date arrives, your initial investment is paid back all at once.
Buying and Selling Investment Bonds
Another important notion that relates to bond investment is the concept of yield. This becomes relevant when you want to buy or sell a bond that has already been issued but hasn’t reached maturity. Yield is impacted by the difference between the coupon rate of the bond and the current coupons for new bonds in the market. This difference affects the price investors are willing to pay, and the profit the buyer will make on the bond. Bonds must be purchased through a broker, so talk with your broker more about this concept to find the right investment for you based on current and projected market conditions.
Bond Investment Risks
Generally, municipal and government bonds are considered an extremely safe investment. Some states even have laws that require governments to make bond payments before using their budget for any other purpose. It’s extremely rare for a city, state, or the Federal government to default on a bond.
Corporate bond issuers have a much higher risk of defaulting, but these investments also come with a significantly higher yield than a municipal or government bond. Always remember that all investment involves the risk of loss, even tried-and-tested options like a bond.
Definition of Stock
Each share of stock is a portion of ownership in a publicly traded company. It’s important to know that in most cases, this doesn’t guarantee you any input or managerial oversight in the company, unless that is a separate agreement you reach with the business, like in a startup or as an employee. Some stock does come with voting rights that allow shareholders to have some high-level control over the company’s direction. But generally buying stock is a vote of confidence in the company’s direction and future as it exists.
Buying and Selling Stock
Like bonds, stocks must be purchased through a broker. Full-service brokers are the financial experts we picture on the trading floor. They usually provide advice about finances and investment to their clients. Online brokers that offer less support bring a more modern approach and follow instructions to allow individuals direct access and control over their own investments.
Stock Investment Risks
The risks of stock investment are legendary, as are the returns. Overall, many professionals would agree one of the riskiest parts of investing in stocks is the role of emotions like greed or fear. Many individuals establish sell orders in their portfolios to automatically sell a stock when a certain rate of return is guaranteed. This takes some of the emotion out of the equation. As for the risks of losses, it’s important to consult with a financial professional about what percentage of your savings to invest in volatile options like stock, and how much to keep in options that are more stable. This will prevent fear from crippling you even at the lowest points of the market.
Definition of an Exchange-Traded Fund
Investors who are active in the stock market but looking for alternatives may consider an exchange traded fund (ETF). One share of an ETF represents a much smaller investment in the many stocks and bonds that are part of the fund. They work by tracking a specific index and aggregating some or all the bonds and stocks that are available in that index at any time. These could be relevant to industries like oil, or to certain nations and emerging markets.
Investing in an Exchange-Traded Fund
ETFs are traded through both traditional and online brokers, just like stocks. The price of each share of an ETF will go up and down throughout the day depending on the performance of the holdings in the fund. This option allows investors to distribute the risk of investing in a certain industry across many holdings, while also having the advantage of being able to trade directly with other investors based on real-time conditions in the market.
ETF Investment Risks
Just as the collective nature of the ETF brings benefits, it also brings some limits and risks. A lack of liquidity means you can’t only choose some of the investments in the fund to be part of. This is important to consider when choosing funds that are industry or region-specific—are you comfortable with the full scope of risk in the fund, and how the risk might change in the future? Depending on the way the fund is managed, these options may also come with high fees. Talk with your broker to get a clear picture of the fees you may be charged and why.
Definition of a Mutual Fund
Like an ETF, a mutual fund pools money from many investors to purchase stocks, bonds, and other investments. Investing in a share of the mutual fund represents a partial investment in all these holdings. However, a mutual fund is not publicly traded on the market. A mutual fund is also a company, led by a fund manager who is elected by a board of directors to make the best investment decisions for everyone involved in the fund. This is very different from an ETF, which functions by passively aggregating investments in a certain index without as much consideration of their potential performance.
Investing in a Mutual Fund
In 2018, 80% of mutual fund investors were investing through a retirement plan like 401(k) or IRA. In part, this is because participating in a mutual fund requires a minimum investment threshold of $1,000 or more, not just the cost of one share. It’s also important to know that trying to sell your retirement account shares in a mutual fund before age 59 ½ may come with penalties. Talk with your plan administrator or financial adviser to learn more.
Individuals can also buy shares of a mutual fund outside a retirement account, but your transaction will be with a broker who owns shares or with the fund itself. The same is true when you redeem your shares in the fund—you will only be transacting with the fund itself or a broker who represents the fund, not trading directly with other investors. Mutual funds are only traded once per day, after the stock market closes at 4pm ET.
Mutual Fund Investment Risks
One of the biggest risks of this investment type is fees. From transaction fees to administrative fees to trading fees, it’s important to understand why each charge is necessary. It’s also a good idea to annually benchmark your mutual funds’ performances against other mutual funds. If your fees are higher or your returns are lower than the average, it might be time to talk with your broker or adviser about the benefits of reallocating some or all of those funds into a different investment.
These are the main investment types that help individuals grow their wealth and prepare for retirement and other periods of life where money is needed. Some of these assets are easy to manage and sell while others require a lot of oversight but may yield a higher return. For clarification on any of these points or to understand what mix of investments is right to grow and sustain your income, we recommend consulting an experienced professional about your goals and willingness to be exposed to risk.
Did you know you can sell all or a portion of a life insurance policy, even term insurance?
Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash.
Contact us today to learn more.
This article was written by Leo LaGrotte from Life Settlement Advisors
As the Founder, President, and CEO of Life Settlement Advisors, Leo has spent more than 18 years working in the life settlement and viatical settlement industry. Leo’s career began as an investment advisor, operating his own independent firm for seven years. Through his work as an investment advisor, and as the President of Life Settlement Advisors, Leo has gained a broad knowledge of investments, life insurance, and the analysis and pricing of life insurance policies.
Is it time to start a new beginning? We are starting a new decade – 2020. And, to me it seems evident that it is time for me at eighty-four and a half years to begin thinking of what I will do and accomplish in the remaining years of my life.
To begin, I left my old life behind in Indiana, and move lock, stock, wife, and computer files to Texas. This move, by itself, was a significant change in my existence along with the climate and home environment, but it was even more of a change in my lifestyle. The relaxed and casual style of living here in Texas takes some adjustment. The people are outwardly very friendly, but that applies primarily to terra-firma, but is not evident on the highways and streets. These folks are in a constant state of hurry-up on the roads. And, in their pick-up trucks, they are a sight to behold and a challenge to beware of.
The historical significance of Texas is evident everywhere. This is a state deeply proud of its inheritance. The American and Texas Flags are prominently and proudly displayed everywhere. This not only occurs on holidays, but is evident year ‘round. These folks are proud of their history and like to show it. And, any discussion of disturbing the sanctity of a place like the Alamo is a kin to starting a war.
Back to my original thought process. How does someone at my tender age of the mid-eighties make the adjustment and keep a significant stance of some importance in their lives? I have come to the realization, you don’t do it by ignoring your surroundings and what’s going on in the community. I suppose it is a part of my genes to want to take a part and have a say. Voting has been and continues to be an essential part of my life. It is difficult for me to understand why anyone who values their lifestyle would ignore the essential and basic value of their ballot. It is difficult, in my estimation, to want to complain about or compliment leaders by ignoring the first Tuesday in November.
There is not time left, nor is there a need to dismiss a lifetime of learning to start over. A lesson I have taught myself is history has a way of repeating itself on a regular basis. All anyone has to do is to stay actively alert and be patient. The past will catch up with you, and more than likely, you have been there before. Remembering is an essential part of growing older. Keeping an active mind is essential to continuing the future growth pattern.
Keeping a sense of humor pays dividends. The world seems to want to continue drawing attention to calamity at every turn. There is no need to try to stem the tide of adverse news – it seems to pop-up at every juncture. So, it is hard to ignore, but you can smile and know this too will soon pass, as it always seems to do. Even the worse days have their sunsets, and the moon and stars seem shine as brilliant as before, I know this to be true because I have taken notice of it for years.
Minding ones physical and mental needs plays an important role in the future, as well. It pays dividends to listen to those who have provided the necessary information, lessons and medications to keep you active and alive through the years. They are there as helpful and useful resources to be relied upon and to stimulate your continued growth with healthful advice and action. I know personally that I would not have lived as long and well as I have without their constant nagging and assurance of success.
It helps significantly if you have planned ahead financially to maintain the where with all that is needed to assure the later years of life. Insurance can certainly go a long way toward that sound investment necessary in future years. The interesting thing to me is how easy it is to take those money steps at the early age, and let the wealth continue at a normal rate of growth until needed. There never seems to be as much as you desire, but it sure helps knowing that there is an investment that will pay dividends when needed.
To sum up the purpose of this article, it is not necessary to start over – just continue an active pattern of life that has held you in good stead through the earlier years of a lifetime. No matter what time is left, or the changes that will occur, know lessons earned and learned are there for the taking…then do so! You have lived a lifetime – keep on truckin’, as they like to say here in Texas!
This article was written by Norm Wilkens
Norm Wilkens is a nationally recognized speaker and writer, Norman Wilkens has traveled to forty-seven of the fifty states speaking on topics of marketing, advertising and public relations. His most noteworthy subjects include: Healthcare Marketing; Multi-generational travel and Baby Boomers - their contribution to society and economics. He is presently serving as Midwestern Contributor to California’s AAA WESTWAYS Magazine.
Among Wilkens’ current activities are the Butler University Alumni Board of Directors; Butler’s Central Indiana Alumni Chapter Board; Chairman of the Board of Visitors for the new Communication College of Butler; Board of Directors of Ruth Lilly Educational Foundation; Salvation Army of Indiana Advisory Board and as an Elder at Second Presbyterian Church of Indiana.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act contains a number of favorable provisions that will help Americans save more for retirement. However, the new law also contains an unfavorable provision that will affect nonspouse IRA beneficiaries who inherit accounts with substantial balances. As a result, some carefully constructed estate plans will be damaged. Here's the story.
Before the SECURE Act, the required minimum distribution (RMD) rules allowed a nonspouse beneficiary to gradually drain inherited IRAs over the beneficiary's IRS-defined life expectancy.
For example, Ann is 40 years old when she inherits her elderly Aunt Lilly's $500,000 Roth IRA. The current IRS life expectancy table estimates that Ann will live for another 43.6 years.
Ann must start taking annual RMDs from the inherited account by dividing the account balance as of the end of the previous year by her remaining life expectancy as of the end of the current year. So, her first RMD would equal the account balance as of the previous year end divided by 43.6, which would amount to only $11,468, or 2.29% of the balance ($500,000 divided by 43.6 years). Her second RMD would equal the account balance as of the end of the following year divided by 42.6, which translates to only 2.35% of the balance. And so on until the account is fully depleted.
Before the SECURE Act, the RMD rules allowed nonspouse beneficiaries to keep an inherited account open for many years and reap the tax advantages for those years. With an IRA, this is sometimes called the "stretch IRA" strategy. It's particularly advantageous for inherited Roth IRAs, because the income those accounts produce can grow and be withdrawn free from federal income tax. So, under the pre-SECURE Act RMD rules, a stretch Roth IRA could provide protection from future federal income tax rate increases for many years.
The SECURE Act requires most nonspouse IRA and retirement plan beneficiaries to empty inherited accounts within 10 years after the account owner's death. This is an unfavorable change for beneficiaries who would like to keep inherited accounts (generally traditional and Roth IRAs) open for as long as possible to continue reaping the tax advantages.
This change won't affect account beneficiaries who want to quickly drain inherited accounts or account owners who empty their accounts during their retirement years. It only affects certain nonspouse beneficiaries who want to keep inherited accounts open for as long as possible to reap the tax advantages.
This change also won't immediately affect accounts inherited by a so-called "eligible designated beneficiary." This term refers to:
Important: Under the exception for eligible designated beneficiaries, RMDs from the inherited account can generally be taken over the life or life expectancy of the eligible designated beneficiary, beginning with the year following the year of the account owner's death.
The unfavorable changes to the RMD rules under the SECURE Act are generally effective for RMDs taken from accounts whose owners die after 2019. The RMD rules for accounts inherited from owners who died before 2020 are unchanged.
For More Information
Nonspouse beneficiaries should be aware of the changes to the rules for draining inherited accounts. If you inherit a traditional or Roth IRA with a substantial balance, contact your tax advisor to determine if the unfavorable 10-year rule applies to you and to answer any other questions you have about minimizing taxes on distributions.
In addition, individuals who were relying on the Stretch IRA strategy as part of their estate plan will have to rethink things. Your tax advisor can help with that, too.
This article was written by TMA Small Business Accounting
The TMA Small Business Accounting, P.C. staff have been delivering professional services to small businesses in Central Indiana for over 20 years. Having worked with hundreds of small business clients, we have significant expertise with a wide variety of service businesses in Indiana. We have especially strong experience and expertise in working with businesses in the healthcare (medical, dental, etc.) and foodservice (restaurants, caterers, etc.) industries.
WOW… that is the average annual cost in 2019 to receive services in a semi-private room in an Indiana skilled nursing facility, according to the Indiana FSSA.
Let me give you a few other startling facts.
So, as long as everyone has a couple hundred thousand dollars hanging around, they should be okay. But, what if there is a spouse at home? Will he/she have enough cash to stay in the world that they have become accustomed to? Let's talk.
I just attended a meeting where an elder law attorney was speaking about long term care costs and also Medicaid. He acknowledged that there are far more people with too few assets to cover these costs. That is when Medicaid comes in... after you are impoverished. He then spoke of the declining number of insurers in the long term care arena. And, he spoke highly of the new asset based products and life and annuity products with accelerated benefits.
As I sat there listening, I still am perplexed as to why more Americans are not taking advantage of these new products. We all know that a long term care type of emergency can devastate one's retirement plan. We all work hard to develop a steady income in retirement that is safe and stable But, most have not considered that they might have to change their addresses to the $78,324 per year semi private room.
If you have a long term care policy... congrats. If you don't you will probably never purchase one. If you have the new breed of asset based long term care/chronic illness products, I salute you. If you have an additional $200,000 - $400,000 of cash hanging around to pay for the room, I salute you.
But, if you feel a little vulnerable and would like some information about these products and strategies? Let us know, and we will put you in contact with a member of The Safe Money Places Agent Network that is licensed in your state.
This article was written by Raymond J. Ohlson CLU, CRC, CEO & President of Safe Money Places International, LLC
Mr. Ohlson entered the insurance business while completing his Bachelor of Science Degree at Ball State University. He quickly qualified for the Million Dollar Round Table (MDRT) of which he is a Life Member. He also received his Chartered Life Underwriter (CLU) designation from the American College in Bryn Mawr, Pennsylvania.
Nearly everyone should consider updating his or her estate plan. This is smart advice even if you’re not currently exposed to the federal estate tax. Year end can be a convenient time to reflect on major life changes and plan for the future, including devising strategies to minimize taxes.
Reasons to Review Your Plans
For 2019, the unified federal estate and gift tax exemption is $11.4 million (effectively $22.8 million for married couples). Thanks to these generous exemptions you may not currently be exposed to the federal estate tax.
Nearly everyone should consider updating his or her estate plan. This is smart advice even if you’re not currently exposed to the federal estate tax. Year end can be a convenient time to reflect on major life changes and plan for the future, including devising strategies to minimize taxes.
Reasons to Review Your Plans
For 2019, the unified federal estate and gift tax exemption is $11.4 million (effectively $22.8 million for married couples). Thanks to these generous exemptions you may not currently be exposed to the federal estate tax.
However, there’s a distinct possibility that today’s favorable estate and gift tax exemptions won’t last. They’re set to expire in 2026 under current law, unless Congress extends them. However, some lawmakers have expressed interest in ending them sooner, along with other unfavorable tax changes. So, depending on what happens in Washington, you could be exposed to the federal estate tax in the near future, after all. Plus, lower exemption amounts may apply at the state level if you live in a state with a death tax.
You also might need to update your estate plan for nonfinancial reasons. Examples include changes in marital status, the birth or adoption of a child, the death of a loved one, the launch of a business venture, the acquisition of new assets (or debts) via a purchase or inheritance, and even a lottery windfall. Here are some steps to consider.
Establish Your Will
First and foremost, it’s essential to have your last will and testament drafted. If you die intestate (without a will), the laws of your state will determine the fate of your minor children and who will inherit your assets. A written will makes your wishes known.
There are three main purposes for putting together a will:
Create a Living Trust
For people with significant assets, a fundamental estate planning goal is to avoid probate, if possible. Probate is the court-supervised process of:
Note: You should also have a so-called “pour-over will” drawn up. This document stipulates that assets that aren’t officially owned by the trust still belong under its umbrella. Items such as vehicles, artwork, jewelry and collectibles may be covered.
The trust document should 1) name a trustee to manage the trust’s assets after you die, and 2) specify which beneficiaries will get which assets from the trust and when. Because a living trust is revocable, you can change its terms at any time, or even unwind it completely, as long as you’re alive and legally competent.
For federal income tax purposes, the existence of the living trust is completely ignored while you’re alive. As far as the IRS is concerned, you still personally own the assets that are legally held by the trust. So, you continue to report on your personal tax returns any income generated by trust assets and any deductions related to those assets (such as mortgage interest on your home).
For state-law purposes, the living trust isn’t ignored. That’s why, if set up properly, a living trust avoids probate.
When you die, the assets in the living trust are included in your estate for federal estate tax purposes. However, thanks to the unlimited marital deduction privilege, assets that go to your surviving spouse aren’t included if he or she is a U.S. citizen.
Important: If you set up a living trust, you must transfer to the trust legal ownership of the most important assets for which you wish to avoid probate (typically homes and other real property). Many people set up living trusts and then fail to actually transfer ownership of their assets. When this happens, the probate-avoidance advantage is lost unless your estate’s executor can argue that the problem is cured by your pour-over will.
Update Your Beneficiary Designations
A will or living trust document doesn’t override beneficiary designations for:
Important: It’s also important to consider naming one or more secondary (contingent) beneficiaries to inherit these accounts in the event the primary beneficiary dies before you do.
As a general rule, whoever is named on the most-recent beneficiary form will get the asset automatically if you die, regardless of what your will or living trust document might say. So, if you’ve failed to update your beneficiary designations, don’t assume that your will or living trust will protect your heirs. Fix the problem now while it’s on your mind.
Beyond ensuring that your money goes where you want it to go, another advantage of designating beneficiaries is that it avoids probate. That’s because the money goes directly to the beneficiaries you’ve named by operation of law.
In contrast, if you name your estate as your beneficiary and then depend on your will to parcel out assets to your intended heirs, your estate must go through the court-supervised probate process. Your intended heirs, those you intended to get little or nothing, and other interested parties can make objections and create roadblocks during this process. Probate can become time-consuming, expensive and downright ugly.
Review Real Property Ownership
Owning property (like your home) with another party (such as a spouse) as joint tenants with the right of survivorship (JTWROS) also protects the property from probate in case one joint tenant dies.
For example, John owns a home with his adult daughter Jane as JTWROS. John unexpectedly dies. The surviving joint tenant (Jane) automatically takes over sole ownership of the property — without becoming embroiled in the probate process.
If you haven’t already established JTWROS ownership, contact a real estate attorney to discuss whether this type of ownership makes sense for your situation.
Things change. You may win the lottery, lose loved ones to death, and gain children or grandchildren. Such events could require changes in your estate plan. Plus, the federal estate and gift tax rules — as well as the state death tax rules — have proven to be unpredictable. For all these reasons, it’s a good idea to get into the habit of reviewing your estate plan at the end of each calendar year. Your financial and legal advisors can help you make changes as needed.
In the same way aging is a part of life, so is keeping up your health. Whether your regular doctor has retired, you’ve moved to a new area, or you need additional doctors to treat specific conditions, there are some helpful questions to pose to a new doctor as a senior citizen. Read on to find out how to evaluate your new physician.
“WHAT IS YOUR PROFESSIONAL BACKGROUND?”
It’s never a bad idea to get a sense of how your doctor ended up where they are. Ask them up about their college years and what drew them to medicine. Find out if they’re board certified or their opinion on the doctor-patient relationship. In addition to inquiring about their educational background, you can find out more about their areas of specialty. You may find a sense of comfort knowing that your current physician spent time working in the ER.
“HOW WILL THIS FIT INTO MY CURRENT CARE PLANS?”
If this new doctor is a specialist, it’s important to understand how their treatment will integrate with the care you currently receive. Will you still see your primary care doctor, or are they taking over? Do they communicate or confer with your other doctors? Are there any interactions – either from medications or treatments – that you should be aware of? They’ve undoubtedly been briefed on your care up to this point, so don’t hesitate to ask they provide a clearer picture of how their care will impact your day-to-day life.
“AM I ON THE RIGHT MEDICATIONS?”
When we think of doctors prescribing medications, we generally imagine these decisions as infallible. However, mistakes do happen. According to studies, preventable medication errors affect 7 million patients each year. Even if a prescription doesn’t lead to adverse effects, there may be better options that exist for a specific condition or set of illnesses. It never hurts to ask for a second opinion, especially when your health and healthcare are changing.
“WHAT ARE YOUR OFFICE POLICIES?”
No one likes waiting around at the doctor’s office. These delays are not only irritating, but they can cause serious concerns about the physician’s dedication or attention. A new study found that 1 out 5 patients have switched doctors due to long wait times, and the same research showed that 30% of patients have actually physically left an appointment after being stuck in the waiting or exam room. It’s helpful to understand the setup of a new doctor’s office.
Some specific questions to ask are:
All these questions will help to set a reasonable expectation for your visits.
In younger years, heading to the doctor was usually reserved for being sick. But as we grow into those all-important golden years, healthcare becomes not a luxury but a necessity. If you’re preparing to see a new doctor or begin a search for a better one, keeping these five questions handy can be helpful in making sure you find the best care possible.
Case Study: Dave and Joyce bought life insurance when they were younger to protect their childrens’ futures. Joyce lost her battle with cancer last year and the kids are all grown. Dave no longer needs his coverage. Dave’s investment advisor told him he could sell his unwanted life insurance policy for an immediate cash payment. Dave sold his life insurance policy and used the proceeds to pay off medical bills and check off a few boxes on his bucket list.
In the scheme of things, one of the most significant twelve-hour periods in a year occurs on the first Tuesday of November-- from six a.m. to six p.m. in most of the United States – Election Day. For this half-day in the majority of our fifty states, from dawn to dusk, a series of important events are put into motion that affect our future and our very existence.
For many years, it was my duty and honor as well as my job to play a role in the process of electing various officials to city, county, state and national offices. In those years, I helped elect, through advertising and public relations, men and women who would serve as our leaders. As I reflect on those campaigns, they assume even more responsibility today than I had imagined since I was engrossed in day to day operations involved in the election process.
Please understand, I knew the importance of our efforts at those critical times, and was certainly not alone in the electioneering . Often, there were many people who were engaged in campaigning. In fact, the process required dozens of professionals and well as volunteers. However, it was easy to become personally enamored with the personalities of those seeking the various offices, becoming emotionally carried away, as we toiled through the hours of meetings, polling, slogans, production sessions and arguments that were always a part of every election.
All of our efforts culminated in one twelve- hour period. The weeks, months and in some cases, years of toil boil down to half a day in November. In the earlier days of my campaigning, most often the investment in time was not matched with dollars spent. Even the most important Mayor, Congressional and Senatorial races didn’t generate even close to the millions of dollars invested today. In a number of campaigns for Mayor less than fifty thousand dollars was invested.
It wasn’t unusual in the early 1950s and ‘60s to find under one hundred thousand dollars allocated on a Congressional Campaign. Today, less than a million dollars would not be considered worthy of the effort. That begs the question, “What does a candidate really expect to receive when the investment in time, talent and dollars are so significant?” Hopefully, there are still a number of individuals who are altruistically motivated to seek an office, and are genuine in their desire to serve their fellow men and women. I sincerely hope so.
Back to my original premise. The twelve hours that are provided to select those representatives of our desires and wishes for the future are often taken lightly and do not generate the demand and attention deserved. Many of those November days see light turnouts at the polls. Having watched intently the returns as they pour in during the evening hours of an Election Day, I can attest to the fact that I often felt relief or enormous pain depending upon the results. However, I always wanted a heavy turnout. Let the majority rule. On the other hand, there is nothing in my life that compares with losing an election after hundreds of hours of demanding day in and day out effort. That is particularly true when you sincerely believe in the person or persons you are representing.
Over the years, I have worked for men and women of both Democratic and Republican Parties. In my analysis of those efforts, I believe I can justify my time spent on their behalf. There were a few, very few, that I did not believe were worthy and deserving of my total attention and commitment. When adding up the years those people served in the various offices attained, I believe their efforts and mine were merited.
Do not take the responsibility of your vote for granted. In our great nation, it is a right paid for through the generations by men and women who were willing to give their lives for the privilege of seeing our way of government grow and flourish. Make your TWELVE HOURS COUNT!
It was a very warm day in August 1944. Our family, my Dad, Mom, Sister and Mary were on our way back to Scott Field, an Army Air Corps Base, east of Bellville, Illinois. We had been in Indianapolis on leave for ten days, and were driving back to base in our 1941 Chrysler four-door. My sister, along with Mary, and I were straddling a rubber tire between the front and back seats of the car. It held a position of honor because a tire, of any kind, was precious beyond words during the war years.
Because of the length of the trip and the heat of the day, it was determined we would stop in Terre Haute, Indiana, for a bite of lunch and a brief rest break. A small restaurant was selected in the center of town, and the family with my Dad in his Major Uniform and the rest of us in tow, entered the restaurant and found a table for lunch. The waitress approached us and stated quietly, but very firmly, that Mary, could not be served in the restaurant. She would have to leave.
Without a word, Mary eased out of her chair and started toward the door. I followed quickly behind her out the door. The waitress looked toward my mother, and said, “The little boy didn’t have to leave!” My mother answered, “Yes, he did. You hurt his best friend!” Mom brought sandwiches to the two us in the car before we drove out of Terre Haute.
Mary Sanford was my sister’s and my best friend and shield growing up. I was just a little over five years old when Mary joined our family. She meant a lot to my sister and to me. Mary was a story-teller; a trusted buddy; a confidant; a playmate and was different than the two of us.. Mary was African-American. We didn’t understand what that “difference” meant. To us, Mary was a part of our family – as much as we all were. We understood she was with us to take care of us, and to help my Mom with chores, but Mary held a position of pride and no prejudice in the family. She was as much a part of our life and living with us as was anyone else in the family. As far as I was concerned, she had equal status with everyone. I could take anyone being upset with me in the family, but Mary. If Mary wasn’t happy with what I was doing, it hurt me deeply. I think I expected my Mom and Dad to get upset with me, but not Mary. However, my Mom and Dad made sure that my sister and I knew that Mary was to be respected, just as if they were giving the orders.
Mary was in early twenties when she arrived at Homecroft, our home prior to World War II, just south of Indianapolis. She had been married twice prior to joining our family, and had been sold by her father into marriage with her first husband while just a girl in her early teens. Mary told me once that she didn’t know how to cook for her first husband, and as a little girl, she thought mud pies were to be served and eaten. Both of her husbands had been killed in accidents prior to her coming to Indiana. She was working as a servant for another family in Indianapolis when we learned of her wanting to find a different position. I personally felt that it was destiny that Mary found us, and that she was to become a part of our family.
Mary was responsible for my upbringing as was anyone in the family. I looked to her for guidance and consulting. She taught me the basics of cooking; how to wash dishes and clothes properly; how to play kindly with neighborhood kids and to respect all races and religions. She would not tolerate any cussing, or swearing of any kind. So, we just didn’t do it! We knew, however, that Mary was a woman of “color” and consequently, would be treated differently outside of our home. We still went everywhere with her. We went to the base movie theatre with Mary, but couldn’t sit with her because she was segregated from us. We traveled downtown with her on the streetcar, but couldn’t sit with her at a lunch counter. We took her hand when crossing street corners, much to the dismay of on- lookers, but we didn’t care.
I learned many lessons from Mary. The most important, I would say, was tolerance. She showed me the fortitude to withstand the pressure of those around me who were void of decent understanding and caring. Consequently, I grew up with no racial prejudice, and still refrain from having any to this day.
As we grew older and left home, we always knew that Mary was still a major part of our home life. She was there for our Mom and Dad, even though, they were now growing much older – the needs still existed. My sister and I were always happy to see that Mary was still a very active part of our family life even though it wasn’t the same as when we were growing up. Mary stayed with the family for over fifty years, and grew old right along with my folks.
Mary’s health gave way in later years, and she went to a rest home in Kentucky. When she passed away in her late seventies, my sister and I drove to Kentucky for the funeral. Mary had always paid her own insurance program out of her weekly pay. Her sister used the funds for other expenses. So, the funeral had not been paid for. As we were leaving after the funeral, the director, asked my sister and me, “Who will pay for the expenses?” My sister stated immediately, “My mother will!” There was no doubt in her answer to the question. Mary was still a part of our family, and always will be.
I look back with fondness on the years we spent visiting my mother-and father-in law in my wife’s family home. My father-in-law was the city attorney and his wife was the editor for the local newspaper. The Christmas after Jan and I were engaged, I received a Webster’s Dictionary with a handwritten note that said, “I read a letter you sent to my daughter. I hope this dictionary can help”. I used that dictionary many times during my undergraduate studies and even into graduate school. A few years later we were concerned when Jan’s mom began to miss editing mistakes at the newspaper. Shortly after she was diagnosed with Alzheimer’s. During the next seven years, we helped oversee her care and she was able to spend her last days in their home with her husband of fifty years by her side. After her passing, Jan’s dad came to live near us and our five children in Fishers, Indiana.
The one huge problem we were left with was what we were going to do with their home filled with 50 years of treasured belongings.
This task was daunting, and more so because we lived in another state. After successfully navigating the difficult and emotional journey of downsizing their home, my wife and I asked each other if there were any resources to help people through this experience. Seeing an important, unfilled need in society, we founded Life Transitions, originally Senior Life Transitions, in 2009. In the last 10 years we have helped over 5,000 families with their downsizing and transitions needs. We would like to share with you a few tips that we have learned along the way. Hopefully they will help you in your own journey.
It is never too early to start the downsizing process.
For many of us, the idea of downsizing causes anxiety and feelings of being overwhelmed. Simply put, sorting through possessions collected over a lifetime makes us face our own mortality. Peter Walsh, host of TLC’s Clean Sweep says, “It is so emotionally charged because this is not about the stuff, it is about dealing with fundamental issues of families and growth, and loss and love.” I remember one 95-year-old client who needed to move to an assisted living community. I could hear crying before we even entered her home. She looked at me with tears in her eyes and said, “This was not the plan. I was supposed to go through that door in a casket.”
Downsizing can be an opportunity to redefine your life.
It can help you create a “best of the best” lifestyle. I have witnessed hundreds of people at the front end of their downsizing process who were overwhelmed, stuck or resistant to the idea, but in the end said, I wish I would have started this earlier. I feel so much more free. One of our clients said to us, “I have been saving all my best stuff for special events. I’m now going to use my best for everyday”. Her downsizing has created a new liberty to use the best of her best.
Set reasonable goals for sorting.
Whether you have two weeks, two months or two years to downsize, set clear and reasonable goals. When sorting, ask these questions: Do I love it? Do I need it? Will I use it? If you don’t “say” yes to one of these, the items go.
Start with the room you use the least and are not as emotionally attached to.
For example; a pantry, a closet, a guest room. This will strengthen you to tackle the area you’re more attached to. Mark Brunetz, one expert on living clutter free says, “The more you do, it and the easier it gets. It’s like a muscle that’s been dormant. Use it and it gets stronger.” As you work your way through one area, you will see progress and gain the confidence to go onto the next. Be patient with yourself. You can absolutely do this.
Purge early and often!
Tao Te Ching chapter 63 says, “Confront the difficult while it is still easy, accomplish the great task by a series of small acts.” Trash costs a lot of money to get rid of in bulk – so start taking a few things out to the corner each week. Watch for your community’s HAZMAT days – these are important for getting rid of chemicals, paints, etc. Goodwill, Salvation Army, Habitat for Humanity, and Big Brothers and Big Sisters will sometimes come to your house to pick up items you want to donate.
The more you give away the less there is to sort & downsize. Jan and I recently spoke at the Home Economics Guild recently and one of the ladies told us about her “Blue Light Special” give away. This creative home economist would use holiday gatherings at her home as opportunities to bring out all the things she wanted to downsize. She would place it in one room and invite family and friends to take freely. Giving things away to family and friends can be an enjoyable experience.
Challenging categories. Some items that are tough to let go.
Jan’s parent were avid readers, belonged to book clubs and had lot collected many books. Books can feel like family. One place to donate books is your local library, used book store or charity. Last month we took hundreds of books to be sold at Half Price Book Store. All the books earned a little over $200, the exception was one Bible that sold for $1000.
Many of us have too many clothes. Remember the rule; Need, wear, love. Do you love how it looks? Do you wear it? Most people wear only 20 % of the clothing they own. Most times when downsizing to a smaller home, closet space is at a premium. Measure your new closet space. Measure what you have in your current home.
Regarding family photos, Peter Walsh says “photos have a particular power and importance that make it feel like sacrilege if you throw them away.” This was one of the most emotionally difficult parts of downsizing Jan’s family home. Choose the best one or two and have the rest to be digitized for easy storage and easy access. This new technological age, all important documents can be scanned and stored.
Start a conversation with your family.
Have your kids tell you what they want. Most people believe that their children and grandchildren will want their prized possessions, but that is often not the case. Author Marni Jameson says, “Keep what you love and what nurtures you. Hold dear your memories along with a few treasures from those who loved you and whom you loved. Leave a few treasures for those you love to remember you by…hold on to a heartful—not a houseful—of memories.”
You don’t have to do this alone.
Our company, Life Transitions specializes in helping people of all ages downsize, often when they are moving from one home to another. If you find yourself with such a need, please feel free to give us a call.