Subscribe to RSS Feed

Author Archive

Durable Power of Attorney What Is It?

A power of attorney is a written document in which one person — the principal — authorizes another person — the attorney-in-fact — to act on the principal’s behalf.

What Authority Is Granted by a Power of Attorney?

The authority granted by a power of attorney depends on the type:

General Power of Attorney: The authority granted is very broad…the attorney-in-fact is granted essentially the same legal authority held by the principal. This means that the attorney-in-fact can exercise such powers as making gifts, buying and selling assets and filing tax returns on behalf of the principal.

Special Power of Attorney: The authority granted to the attorney-in-fact is limited to those powers specifically defined in the document.

The authority granted by both a general and a special power of attorney is typically limited to acts performed on behalf of the principal while the principal is competent, which brings us to a third type of power of attorney:

Durable Power of Attorney: The attorney-in-fact is authorized to act on behalf of the principal even if the principal becomes incapacitated. In fact, a durable power of attorney can become effective immediately, or it can become effective only if the principal later becomes incapacitated.

Why Should You Consider a Durable Power of Attorney?

In the event of future incapacitation, a durable power of attorney can be particularly useful in:

  • Estate Planning/Management: The attorney-in-fact acquires the authority to implement an estate plan and manage the principal’s estate during a period of incompetence.
  • Daily Living: A durable power of attorney can give the attorney-in-fact the authority to manage such practical issues as making living arrangements for a disabled person and paying the bills.

 

As with any legal document, legal advice should be obtained before entering into a power of attorney.

Continue Reading »
No Comments

Another Role for Life Insurance…
The Wealth Replacement Trust

The Problem:

There can be significant tax advantages in giving appreciated assets to a charity. Examples include real estate and securities. If you were to sell an appreciated asset, the gain would be subject to capital gains tax. By donating the appreciated asset to a charity, however, you can receive an income tax deduction equal to the fair market value of the asset and pay no capital gains tax on the increased value.

For example, Donor A purchased $25,000 of publicly-traded stock several years ago. That stock is now worth $100,000. If she sells the stock, Donor A must pay capital gains tax on the $75,000 gain. Alternatively, Donor A can donate the stock to a qualified charity and, in turn, rece

ive a $100,000 charitable income tax deduction. When the charity then sells the stock, no capital gains tax is due on the appreciation.

When a donor makes substantial gifts to charity, however, the donor’s family is deprived of those assets that they might otherwise have received.

A Potential Life Insurance Solution:

In order to replace the value of the assets transferred to a charity, the donor establishes a second trust – an irrevocable life insurance trust – and the trustee acquires life insurance on the donor’s life in an amount equal to the value of the charitable gift. Using the charitable deduction income tax savings and any annual cash flow from a charitable trust or charitable gift annuity, the donor makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums. At the donor’s death, the life insurance proceeds generally pass to the donor’s heirs free of income tax and estate tax, replacing the value of the assets that were given to the charity.

Continue Reading »
No Comments

What Is a Living Will?

“Living will” is a term commonly used to refer to a legal document available in most states that allows an adult to state in advance whether or not life-sustaining medical procedures should be used to prolong life when there is no chance for a reasonable recovery.

Why Should You Consider a Living Will?

Reasons to consider a living will include:

  • A belief that adults have the right to control medical decisions regarding their care, including the right to refuse or withdraw life-sustaining treatment.
  • Concern about the suffering and loss of dignity that can occur when life-sustaining measures are used to prolong an inevitable death.
  • Easing the emotional pain the family might otherwise have to suffer in making such a difficult decision.
  • Relieving a doctor’s and hospital’s fears of liability in withholding or withdrawing treatment.
  • Language concerning organ donation can be included in a living will.

How Do You Implement a Living Will?

While the validity of a living will is determined by state statute, the requirements generally include that the document be:

  1. In writing,
  2. Dated
  3. Signed 
  4. Witnessed by two people who are not related to the declarant and are not heirs of his or her estate.

In addition, doctors and their employees, as well as hospital employees, are generally not acceptable witnesses. Consult your doctor or attorney for more information about the availability of a living will in your state.

Once a living will has been executed, copies should be given to close family members, the primary doctor and the family attorney.

A living will can be revoked at any time by destroying the document and any copies or by signing a notarized revocation of the document.

Continue Reading »
No Comments

Need retirement income you can’t outlive? Have coffee with Meg. Take a video break and learn how Meg uses a single premium immediate annuity (SPIA) to alleviate concerns about outliving her retirement assets and being unable to meet monthly expenses.

Retire with Confidence

People are living longer than ever before, meaning  that unpredictable market performance, higher  healthcare costs and rising inflation could impact  your retirement nest egg. Social Security is in  question, and you may or may not have a pension.
The reality is, many individuals simply may not be  able to maintain their standard of living — or worse  — may run out of money during retirement.

 Live Comfortably with Retirement Income- Consider the risks that can affect your retirement and life:

  • Lifespan - Living longer and outliving your retirement money.
  • Inflation – Cost of living increases that erode your retirement buying power.
  • Fluctuation – Market volatility that impacts your retirement assets.
  • Experience – Life events that require retirement plan flexibility.

At what rate can you safely withdraw from your portfolio to address these risks?

  • According to the Journal of Financial Planning the safe withdrawal is 2.52%.

Contact www.TimBarton.net

Continue Reading »

No Comments

You might know that you can move money from your employer’s qualified retirement plan to an IRA when you leave the employer.  But do you know you may be able to take advantage of this opportunity while still employed by the company?  There can be big benefits to this move.

What is an In-Service Withdrawal?

Basically, some companies allow active employees to move funds from an employer-sponsored qualified plan, such as a 401(k) or 403(b), while still contributing to the plan. When handled as a direct rollover, an actively working employee (usually age 59½ or older) then can buy an Individual Retirement Annuity (IRA) without current taxation. Of course, if a withdrawal is not rolled over to a qualified plan or IRA, it is considered taxable income (and may be subject to a 10% federal penalty if less than age 59½). But done right, there can be advantages to making this move.

What are the Benefits of an In-Service Withdrawal?

Using an in-service withdrawal to fund a deferred annuity in an IRA can offer these potential benefits:

  1. You may be able to gain more control over the retirement funds.
  2. You may be able to protect your retirement funds from market volatility.
  3. You may be able to choose options you feel better suit your retirement needs.
  4. You may be able to ensure yourself a guaranteed income stream in retirement.

What are the Next Steps?

  1. Talk to a Pro: Talk to your financial professional and see if taking an in-service withdrawal to fund an individual retirement annuity may benefit you.
  2. Talk to a Plan Administrator: Talk to your employer’s plan administrator about eligibility and requirements. They can tell you if the plan allows in-service withdrawals, and about any rules, such as withdrawal limits, fund types, transfer timing, etc.

Importance of Direct Rollover

As you consider an in-service withdrawal, it’s important to be certain your financial professional and plan administrator handle it properly — as a direct rollover.

With a direct rollover, your funds transfer from the plan trustee directly to another qualified retirement plan or IRA. By doing so they are not subject to tax withholding.

If your funds transfer to you, the plan participant, plan administrators must withhold 20% for federal income tax purposes, even if you intend to roll all the funds over within the 60-day time limit. This is a critical detail; one you don’t want to dismiss.

Added Considerations: Get the Complete Picture

  1. Talk with a tax advisor about potential tax implications before moving money out of your retirement plan.
  2. Use the proper paperwork. Most qualified plans have specific forms for direct rollovers.
  3. Some qualified plans may cease matching contributions for a period after taking an in-service withdrawal.
  4. The tax code allows the following to be rolled over from a qualified plan as an in-service withdrawal: Employer matching and profit-sharing contributions Employee after-tax contributions (non-Roth)
  5. Employee pre-tax and Roth contributions after age 59½
  6. The tax code does not allow rolling over the following before age 59½:
  7. Employer safe harbor match or safe harbor non-elective contributions
  8. Employee pre-tax or Roth contributions
Continue Reading »
No Comments

What Is the Marital Deduction?

The marital deduction (I.R.C. Sections 2056 and 2523) eliminates both the federal estate and gift tax on transfers of property between spouses, in effect treating them as one economic unit.  The amount of property that can be transferred between them is unlimited, meaning that a spouse can transfer all of his or her property to the other spouse, during lifetime or at death, and completely escape any federal estate or gift tax on this first transfer.  However, property transferred in excess of the unified credit equivalent will ultimately be subject to estate tax in the estate of the surviving spouse.

The 2010 Tax Relief Act, however, provided for “portability” of the maximum estate tax unified credit between spouses if death occurred in 2011 or 2012.  The American Taxpayer Relief Act of 2012 subsequently made the portability provision permanent.  This means that a surviving spouse can elect to take advantage of any unused portion of the estate tax unified credit of a deceased spouse (the equivalent of $5,000,000 as adjusted for inflation; $5,340,000 in 2014).  As a result, with this election and careful estate planning, married couples can effectively shield up to at least $10 million (as adjusted for inflation) from the federal estate and gift tax without use of marital deduction planning techniques.  Property transferred to the surviving spouse in excess of the combined unified credit equivalent will be subject to estate tax in the estate of the surviving spouse.

If the surviving spouse is predeceased by more than one spouse, the additional exclusion amount available for use by the surviving spouse is equal to the lesser of $5 million ($5,340,000 in 2014 as adjusted for inflation) or the unused exclusion of the last deceased spouse.

What Requirements Apply to the Marital Deduction?

To qualify for the marital deduction, the decedent must have been married and either a citizen or resident of theU.S. at the time of death.  In addition, the property interest (1) must be included in the decedent’s gross estate, (2) must pass from the decedent to his or her surviving spouse and (3) cannot represent a terminable interest (property ownership that ends upon a specified event or after a predetermined period of time).

Continue Reading »
No Comments

5 Reasons People Give

August 7, 2014 by

According to the Giving USA Foundation, individual giving accounted for 72% of all contributions to charitable organizations in 2012. 

Source: Giving USA Foundation™ – Giving USA 2013 Highlights

People give to charities for a variety of reasons. They give:

  1. Because they have compassion for the less fortunate.
  2. From a belief that they owe something back to society.
  3. To support a favored institution or cause.
  4. For the recognition attained by making substantial charitable donations.
  5. To benefit from the financial incentives our tax system provides for charitable gifts.

Regardless of your reasons for giving, a careful review of the various ways to structure charitable gifts can help make your gifts more meaningful, both to you and to the charities you choose to support.

A charitable gift is a donation of cash or other property to, or for the interest of, a charitable organization. The gift is freely given with the primary intention of benefiting the charity.

Whether given during lifetime or after death, charitable gifts are eligible for a tax deduction, but only if made to a qualified charitable organization. For example, you may have a relative who has fallen on hard times, someone you choose to help with gifts of cash. While you may be motivated by charitable intentions in making these gifts, you cannot deduct them for either income tax or estate tax purposes.

In general, qualified charitable organizations include churches, temples, synagogues, mosques and other religious organizations, colleges and other nonprofit educational organizations, museums, nonprofit hospitals, and public parks and recreation areas. Gifts to these types of organizations qualify for a federal income tax deduction if made during your lifetime or, if made after your death, can be deducted from the value of your estate for federal estate tax purposes.

On the other hand, examples of non-charitable groups include labor unions, social clubs, lobbying organizations, chambers of commerce, for-profit groups and individuals. Gifts to any of these are not eligible for a charitable tax deduction.

If in doubt about an organization’s qualified status, ask the charity for documentation of its tax-exempt status. Alternatively, the IRS provides a complete listing of approved charitable organizations in Publication 78, Cumulative List of Charitable Organizations (http://www.irs.gov). (search Pub 78)

Don’t forget to check how much of your contribution is used for the charity’s mission verses how much is paid out in other expenses such as administration, salary, employee benefits and fundraising.  http://www.charitynavigator.org/ is a good site to research a charity.

Continue Reading »
No Comments

At this point in our lives we’ve raised our own kids and hopefully the values we struggled to impart before they left home have become part of their family lives.  Now they’re raising  our grandchildren and like us, when we were new parents our kids will try to bring all of their life lessons into the mix.  The hard part, at times,  at least for me, is to keep my mouth shut not give unasked for advice.  Anyone else have that problem?

This narrows my options to – just setting the best example I can no matter the subject matter.  When it comes to money and finances.  Money does not grow on trees.

  • Young children can  understand the concept of money.  When I take them out and we’re going to buy a little something like an ice cream I give them the money to pay for it.   This teaches them money is exchanged for things we want.
  • Save all my “change” for grandkids. I split up this money into 3 coin purses for each kid marked 20% for savings,  10% sharing, and all the rest for whatever they want. (with parent’s permission of course)   The savings is used for their bigger desires/wants. The sharing can be used to buy things like ice cream, candy bars and other treats for family on outings or they will deposit it into Salvation Army kettles or other charitable containers found at the checkouts.  Elementary school age is a good time to start.
  • Demonstrate to the grandkids how to reach a savings goal.  Show them how saving X amount of their money each month and in how many months this money will equal an amount needed to buy a computer game, book or whatever.
  • When the grandkids are coming for a barbeque, a couple like to help cook.  We plan a menu, make a list of needed ingredients, figure out the budget (money to purchase listed items) and go to the store.  As we pick things out we discuss pricing,  brand names and how to evaluate the best deal.
  • Needs versus wants concept is very important throughout life for all of us.  As they age and gain understanding there are  things associated with my hobbies that reflect needs versus wants which make  good subject matter for discussion with my grandkids. Particularly an activity they have an interest in, like fishing for example.

These are just few examples of actions and conversation points  I use to demonstrate how to use money with my grandkids.  Actually I did the same things with their parents as they grew up and remember how I appreciated any support from other adults.  As a grandpa I just wait for the “teachable” moment or when the conversation flows that way.  To be effective today’s kids are no different than yesterday’s kids- the brains shut off during “the talk”.

Need more ideas?  Download my PDF booklet

“Money Doesn’t Grow on Trees…  Teaching Kids about Money”

 

Continue Reading »
No Comments

What Are the Obstacles to Successful Retirement Planning?

There are a number of obstacles that you may face in planning for your retirement:

 Discipline to Save

  •  Many people find it difficult to form the habit of “paying themselves first,” by making regular deposits to a savings plan.

 Saving to Spend

  •  Money is saved for retirement purposes, but then is spent to make purchases.

 

 Income Taxes

  •  Income taxes can erode the growth of your retirement savings.

Longer Life Expectancies

  •  Longer life expectancies increase the risk of retirees outliving at least a portion of their retirement income.

Inflation

Longer life expectancies also increase the risk of inflation eroding the purchasing power of retirement income.

  • For example, if inflation increases at 3.5% a year, it would require over $1,400 in 10 years in order to maintain the original purchasing power of $1,000.

 

 

 

 

Continue Reading »
No Comments

Return of Money Trumps Return on Money

Gallup March 31,2014

“United States investors are generally a cautious group when thinking about risk versus return options for their retirement savings.”

Nearly 2 thirds (66%) of investors surveyed by Gallup said a guarantee that their initial investment was secure even if that meant lower growth potential; outranked having high growth potential that carried some risk of losing their initial investment.

The Takeaway – In 2013 – Interest guarantees and income guarantees increased annuity sales 5% higher, to 230,100,000,000 industry wide. According to LIMRA, 2/24/2014

Retirees who take income from an annuity are happier than those who adopt a different approach according to “Annuities and Retirement Happiness” (September 2012)  The report from consultants Towers Watson, concluded-

“…while workers and retirees might have very different needs, almost all of them can benefits from annuitizing some portion of their of their retirement income (beyond Social Security).

Non-Spousal? Non-Problem

Business partners? Yes.     Father and sons? Yes.  Charitable donors and donees? Yes.    Non-spousal joint annuitant structuring provides added  flexibility for income solutions.

 

 

Continue Reading »
No Comments

Is it time to take some risk money off the table?
Not if you believe the market will always go up and that all the risk of future downturns have been made illegal.

This graph certainly looks good.  As of June the Bull market has been around for 64 months that’s the third longest bull market in a half a century. The 1990′s bull lasted 9 years with much higher gains. Are we in the early stages of a new phenomena where the market never goes down?

Cause for concern

Investors still sell low & Buy High

To get an idea of the temperature of financial attitudes we can check the ”Advisor Confidence Index”  It shows financial advisors are strongly optimistic about the economy and markets.  Eerily just like they were in 2007 and more disturbing is the confidence of the small investors who are choosing to invest now.

I do not give investment advice nor can I see into the future, but I do study behavior and in the past the average investor  almost always buys high and sells low.  There is are no indications that has changed.

Perhaps it’s time to consider a lateral transfer of your gains to safety.  www.FixedindexAnnuity.com

 

Continue Reading »
No Comments

 

A qualified retirement plan is a program implemented and maintained by an employer or individual for the primary purpose of providing retirement benefits and which meets specific rules spelled out in the Internal Revenue Code. For an employer-sponsored qualified retirement plan, these rules include:

  • The plan must be established by the employer for the exclusive benefit of the employees and their beneficiaries, the plan must be in writing and it must be communicated to all company employees.
  • Plan assets cannot be used for purposes other than the exclusive benefit of the employees or their beneficiaries until the plan is terminated and all obligations to employees and their beneficiaries have been satisfied.
  • Plan contributions or benefits cannot exceed specified amounts.
  • The plan benefits and/or contributions cannot discriminate in favor of highly-compensated employees.
  • The plan must meet certain eligibility, coverage, vesting and/or minimum funding standards.
  • The plan must provide for distributions that meet specified distribution requirements.
  • The plan must prohibit the assignment or alienation of plan benefits.
  • Death benefits may be included in the plan, but only to the extent that they are “incidental,” as defined by law.

 

Question Why do employers comply with these requirements and establish qualified retirement plans?
Answer To benefit from the tax advantages offered by qualified retirement plans.

Qualified Retirement Plan Tax Advantages:

In order to encourage saving for retirement, qualified retirement plans offer a variety of tax advantages to businesses and their employees. The most significant tax breaks offered by all qualified retirement plans are:

  • Contributions by an employer to a qualified retirement plan are immediately tax deductible as a business expense, up to specified maximum amounts.
  • Employer contributions are not taxed to the employee until actually distributed.
  • Investment earnings and gains on qualified retirement plan contributions grow on a tax-deferred basis, meaning that they are not taxed until distributed from the plan.

Depending on the type of qualified retirement plan used, other tax incentives may also be available:

  • Certain types of qualified retirement plans allow employees to defer a portion of their compensation, which the employer then contributes to the qualified retirement plan. Unless the Roth 401(k) option is selected, these elective employee deferrals are not included in the employee’s taxable income, meaning that they are made with before-tax dollars (see page 13 for information on the Roth 401(k) option).
  • Qualified retirement plan distributions may qualify for special tax treatment.
  • Depending on the type of qualified retirement plan, employees age 50 and over may be able to make additional “catch-up” contributions.
  • Low- and moderate-income employees who make contributions to certain qualified retirement plans may be eligible for a tax credit.
  • Small employers may be able to claim a tax credit for part of the costs in establishing certain types of qualified retirement plans.

The bottomline is that the primary qualified retirement plan tax advantages – before-tax contributions and tax-deferred growth – provide the opportunity to accumulate substantially more money for retirement, when compared to saving with after-tax contributions, the earnings on which are taxed each year

Continue Reading »
No Comments

The US Supreme Court has unanimously ruled that funds held in inherited IRAs are NOT “retirement funds”  and therefore are not protected in bankruptcy. It is clear that IRAs are exempted but, before the Clark case decision, whether an inherited IRA was subject to the same protection had varying precedent. The decision in Clark is another reason why naming a qualified trust as beneficiary of an IRA is beneficial.

This decision covers both Roth and Traditional IRAs.

An inherited IRA is a traditional or Roth IRA that has been inherited after its owner’s death.

Justice Sotomayer delivered the opinion-

If the heir is the owner’s spouse, as is often the case, the spouse has a choice: He or she may “roll over” the IRA funds into his or her own IRA, or he or she may keep the IRA as an inherited IRAs spouse inherits the IRA, he or she may not roll over the funds; the only option is to hold the IRA as an inherited account. Inherited IRAs do not operate like ordinary IRAs. Unlike with a traditional or Roth IRA, an individual may withdraw funds from an inherited IRA at any time, without paying a tax penalty. Indeed, the owner of an inherited IRA not only may but must withdraw its funds: The owner must either withdraw the entire balance in the account within five years of the original owner’s death or take minimum distributions on an annual basis. Relying on the “plain language of §522(b)(3)(C),” the court concluded that an inherited IRA “does not contain anyone’s ‘retirement funds,’” because unlike with a traditional IRA, the funds are not “segregated to meet the needs of, nor distributed on the occasion of, any person’s retirement.”

 

 

Continue Reading »
No Comments

 

Long-term care insurance purchased today can help provide you with the financial security you need and deserve in your retirement years. By acting today, you will have protection to help pay for whatever long-term care needs a long life brings!

Long-term care refers to help with daily activities needed by people with disabilities or chronic, longer-lasting illnesses, such as help with eating, bathing and dressing. Long-term care also includes assistance for those suffering from cognitive impairments, such as Alzheimer’s disease and dementia. Other types of insurance, such as health insurance and disability insurance, do not typically pay for these services. Long-term care can be provided in a variety of settings, such as your home, an assisted living community or in a nursing home.

A typical long-term care insurance policy helps cover the cost of long-term care services, including:

  • Assistance in your home with daily activities, such as bathing, dressing, meals and housekeeping services.
  • Visiting nurses and/or home health aides who come to your home.
  • Services available in your community, such as adult day care.
  • The cost of an assisted living community.
  • Nursing home care.

While the good news is that people are living longer, the bad news is that increased life expectancy also increases the odds of needing long-term care services, which can be expensive.

Without long-term care insurance to help meet the cost of needed long-term care services, you run the risk of depleting a lifetime of savings. With long-term care insurance, you’re in a better financial position to make the choice of what long-term care services you receive and where you receive them. PLUS, qualified long-term care insurance receives favorable income tax treatment…the benefits from qualified long-term care insurance, for the most part, are not taxable income to the recipient, up to a per diem limit ($330 for 2014).

Eligible premiums paid for qualified long-term care insurance can be applied toward meeting the 7.5% “floor” for medical expense deductions on your federal income tax return. The amount of eligible long-term care premium that can be applied to the 7.5% floor depends on your age:

If you are this age by the end of the year: This is the maximum eligible long-term premium for tax deduction purposes in 2014*:
40 or less $370
41 – 50 $700
51 – 60 $1,400
61 – 70 $3,720
More than 70 $4,660

* The maximum eligible long-term care premium is adjusted each year for inflation.

Continue Reading »
No Comments

According to Insurance News the cost of health care in the United States is approximately $9,000 per person.   As a country we spend $2.8 trillion or about 17.2% of gross domestic product on healthcare.  Some think the cost is too high but remember for the most part this spending is going to create maintain good U.S. employment.

$2.8 trillion spending breakdown

  • $882 billion hospitals
  • $565 billion physicians
  • $263.3 billion prescription drugs
  • $76.4 million services i.e. physical therapy, optometry or chiropractic care.

Private Insurance companies pay the most of the nation’s healthcare bills – $917 billion followed by:

  •  Medicare $572.5 billion
  • Medicaid $421.2 billion
  • Patients paid $328.2 in out of pocket costs on their health insurance plans.

What do we get for all this spending?  The longest life expectancies in the history of the world.  Not only is life expectancy long they are, for the most part high quality and active.  Which is why poll after poll of seniors has shown their number 1 fear is Outliving Their Money.

 

Continue Reading »
No Comments

Avoiding Probate

June 1, 2014 by

Probate is simply the Latin word for prove, which means that the estate probate process is the process by which your will is brought before a court to prove that it is a valid will. The courts charged with this responsibility are generally known as probate courts, which may actually supervise the administration or settlement of your estate.

Supervision of the estate settlement process by the probate court can result in additional expense, unwanted publicity and delays of a year or more before heirs receive their inheritance. The publicity, delays and cost of probate motivate many people to explore ways in which to avoid or minimize the impact of probating a will, including:

State Statute

  • If specific requirements are met, many states have made provision for certain estates to be administered without the supervision of the probate court, resulting in less cost and a speedier distribution to heirs.

Form of Property Ownership

  • The joint tenancy form of holding title to property allows ownership to pass automatically to the surviving joint tenant, who is normally the surviving spouse.

Transfer on Death

  • Many states have enacted Transfer on Death statutes that allow a person to name a successor owner at death on the property title certificate for certain types of property, including real estate, savings accounts and securities.

Life Insurance

  • Unless payable to the estate, life insurance proceeds are rarely subject to the probate process.

Lifetime Giving

  • Gifts given during life avoid the probate process, even if made shortly before death.

Trusts

  • A “Totten” trust, which is a bank savings account held in trust for a named individual, can be used to pass estate assets at death outside of the probate process.
  • A revocable living trust, created during the estate owner’s lifetime, can be an effective way to avoid the expense and delay of probate, while retaining the estate owner’s control of his or her assets prior to death.

Proper planning may serve to minimize the impact of the probate process on your estate and heirs.

Any potential method of avoiding probate, however, should be evaluated in terms of its income and/or estate tax consequences, as well as its potential impact on the estate owner’s overall estate planning goals and objectives.

Continue Reading »
No Comments

In a recent United States Tax Court case, Bobrow v Commissioner, the Tax Court ruled that all IRAs of a taxpayer should be looked at in aggregate when it comes to the one-rollover-per-year rule. Prior to this ruling it was widely accepted, as well as published in IRS publication 590, that the one-rollover-per-year applied to each IRA independently.

Following the court decision the IRS issued Announcement 2014-15, stating their intention of enforcing the new aggregated one-rollover-per-year rule. However, they are allowing a grace period until January 1, 2015 before enforcement will begin.
As a reminder, the one-rollover-per-year rule applies only to indirect (60-day) IRA to IRA rollovers. Information on the IRS website implies that the limit will apply separately to indirect Roth IRA to Roth IRA rollovers. It appears that traditional, SEP and SIMPLE IRAs would be aggregated for purposes of the rule.

Please also keep in mind:

  • There is no limit on the number of rollovers between an IRA and a qualified plan.
  • There is no limit on the number of IRA to IRA transfers.
  • It appears that there is no limit on the number of indirect traditional IRA to Roth IRA conversions.

 

Continue Reading »
No Comments

 

A married couple may file a joint tax return and be treated as one taxpayer, so that taxes are paid on the couple’s total taxable income. While a married couple may file separate returns, this usually results in higher taxes than filing jointly. The so-called “marriage penalty” results when the combined tax liability of a married couple filing jointly is greater than the sum of their tax liabilities calculated as though they were two unmarried filers.

Beginning with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001), various tax bills took steps to alleviate the marriage penalty through 2012. The American Taxpayer Relief Act of 2012 finally made the following marriage penalty relief provisions permanent.

Marriage Penalty Relief – Standard Deduction Increase

The following standard deduction schedule applies to a married couple filing jointly:

Calendar Year 2013 and later:

  • Joint Return Standard Deduction as a % of Single Return Standard Deduction - 200%
  • (in 2014, $12,400 married/$6,200 single)

Marriage Penalty Relief – Expansion of 15% Tax Bracket

The following schedule applies to the size of the 15% tax bracket for joint filers as a percentage of the 15% tax bracket for singles:

Calendar Year 2013 and later:

  • Top of 15% Joint Bracket as a % of Top of 15% Single Bracket – 200%
  • (in 2014, $73,800 married/$36,900 single)
Continue Reading »
No Comments

On March 28 I wrote a post about a U.S. tax court altering the rules on IRA to IRA  rollovers and wondered when the IRS would officially change the rules and start enforcement.  Previously according to publication 590 and several IRS letter rulings a taxpayer could rollover each IRA account IRA to IRA once per year- per account.  The tax court changed this long standing precedent by limiting each taxpayer to one 60 day IRA to IRA rollover per year.  No matter how many IRA accounts a taxpayer owns they are now limited to only one rollover per year.

On January 1, 2015 the IRS will begin enforcing this new interpretation.  In order to avoid scrutiny a taxpayer should do all IRA rollovers as institution to institution direct transfers.  These direct transfers will remove all IRS questions and prevent a taxpayer for enduring audit, extra paperwork, penalties and unintentionally taxation of IRA funds.

For more background please read the previous post-    IRA Rollover Rules Altered by Tax Court http://retire.areavoices.com/2014/03/28/ira-rollover-rules-altered-by-tax-court/

Going forward a taxpayer should consult a well informed professional prior to doing any IRA rollovers.

Continue Reading »
No Comments

The January 2014  Bobrow tax court ruling  is an IRA game changer with huge ramifications for IRA owners.   The tax court has ruled the once a year IRA rollover rule applies to all of someone’s individual retirement accounts and not to each separately.  This ruling is stunning in that it changes the Internal Revenue Service’s long standing position in private letter rulings and  IRS Publication 590 that the once a year rule applies to each IRA separately.

According to IRC Section 408(d)(3)(B) IRA owners can roll over only 1 distribution within a 1 year period, 365 days not calendar year.   The 365 days starts on the day the IRA owners receives the money. Until this January 2014 court ruling it was clear the owner of  IRAs could rollover each IRA separately once per year.  If the owner wanted they could rollover each IRA once per year.

This a significant departure from everyone’s previous understanding thus making it prudent to only do one IRA to IRA rollover per year.

If an IRA owner needs to rollover more than one IRA account it is best to use the trustee to trustee transfer commonly  referred to as a direst transfer or institution to institution transfer.  These are the preferred methods to avoid tax trouble.

Is the IRS going to look back on taxpayer IRA rollovers?  Unknown at this time.  If they did -  taxpayers who  rolled over more than one IRA in a 365 day period could be required to pay the 6% penalty for excess contributions if the money was moved into another retirement account.

To avoid the above tax problems always  do direct transfers.  These  avoid comingling  IRA funds with regular “nonqualified” account funds (checking or saving account).  If a rollover is coming from a 401(k) or other tax qualified plan it is common practice for the institution to send the funds to the owner.  Make sure the check is made payable to “new institution FBO owner’s name” This check can be forwarded to the new institution without the comingling of funds.

 

Continue Reading »
No Comments