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Posts Tagged ‘ Money ’

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

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

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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.


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Sneaky Powerball Scam

March 26, 2014 by

A sneaky Powerball phone scam is targeting state residents.  The callers telling their targets that they are eligible for unclaimed Powerball prizes and asking them to pick some numbers. Later, the scam callers contact the consumers again claiming that they won a third or fourth prize for millions of dollars and an automobile.

A bogus promise of fictional prize winnings is a common scam. What’s different about these calls from more traditional scams, however, is that these scammers are not asking for money to cover “taxes” or “fees” on the bogus prizes or for personally identifying information like Social Security numbers. Instead they are “casing” the chosen victim for future scams, asking them general financial questions about their investments and the values of their homes.

The only time you would receive a call from the Lottery is if you have entered and won a Lottery “mail in” drawing.

Because these Powerball calls have not included the usual scam red flags of requests for money, sensitive personal data or bank or credit account numbers, it is a challenge to persuade potential victims that these calls are fraudulent.

Even if the caller does not ask for personally identifying information in these initial contacts, they are still gathering data that allows them to build a profile that they can use for future scams. If a targeted person freely and eagerly answers the scammer’s questions, that scammer now has two important pieces of information: the overall wealth of the target and a sense that the victim will be an easy and receptive target for future scams. These profiles are valuable for scammers and may be sold and shared among these criminals.

For additional information or to file a complaint, visit the Consumer Protection Bureau at, send an e-mail to or call the Consumer Information Hotline toll-free at 1-800-422-7128.

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With advances in medical treatment and technology, many people now survive critical illnesses that would have been fatal in the past.  As a result of this increased life expectancy senior Americans have the opportunity to watch grandkids grow into adulthood and start families of their own.  Enjoying some great grandkids is a real possibility.

Some unhappy news; many retirees will at some point become critically ill as the following statistics demonstrate.  The need for planning in order to avoid becoming destitute is more important than ever.


  • Men have a slightly less than 1 in 2 lifetime risk of developing some form of cancer. For women, the lifetime risk is a little more than 1 in 3.
  • Between 2002 and 2008, the 5-year relative survival rate for all cancers was 68%, up from 49% in 1975 – 1977.
  • It is estimated that over 1.6 million new cancer cases were diagnosed in 2013.

(Source: Cancer Facts and Figures 2013; American Cancer Society)

Heart Disease:

  • An estimated 80 million Americans have one or more types of heart disease.
  • Each year, an American will suffer a heart attack about every 34 seconds.
  • The lifetime risk for cardiovascular disease at age 40 is 2 in 3 for men and more than 1 in 2 for women.
  • It is estimated that the total costs of cardiovascular diseases in the U.S. was over $448 billion in 2008.

(Source: Heart Disease Facts, Centers for Disease Control and Prevention, July 2013)


  • Someone in the United States has a stroke every 40 seconds.
  • Stroke is a leading cause of serious, long-term disability in the U.S.
  • It is estimated that Americans paid about $38.6 billion in 2010 for stroke-related medical costs and lost productivity.

(Source: Stroke Fact Sheet, Centers for Disease Control and Prevention, July 2013)

Will you have sufficient funds available to pay for:

  • Any insurance co-payments and deductibles;
  • Alterations to your home and/or automobile to meet any special needs;
  • Out-of-town transportation and lodging for medical treatment;
  • Treatments not covered by traditional health insurance; and/or
  • Shorter-term home health care during your recuperation?

Surviving critical illnesses increase our life expectancies, we will live longer than ever before.  At the same time, fortunately annuity ownership is rising  An annuity is the only guaranteed financial  hedge against longevity.  More than ever a retiree’s goal should be lifetime income not just income for 20-30 years.

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At retirement, if you have a pension, you have to make a difficult decision that could negatively impact your future financial security and that of your spouse.  Most people with company pension plans give this decision little thought and simply select the first payout option listed on their pension estimate; Joint and Equal Survivor Option.

For example, assume your maximum lifetime pension benefit is $2,000 monthly.

With the joint and equal survivor option, you’ll receive a significantly lower lifetime pension payment. Your surviving spouse, however, will continue to receive 100% of your pension benefit if you die first.

  • For as long as you live, you receive 75% of $2,000 the maximum life income option benefit.  Your benefit is reduced to $1,500 per month, for life.
  • If you die first, your spouse will receive a lifetime monthly pension benefit equal to 100% of your benefit, or $1,500 per month.
  • If your spouse dies first you will continue to receive $1500 per month.  There is generally no going back to the maximum $2,000 benefit. 

Second choice is  – Joint and One-Half Survivor Option:

If you elect the joint and one-half survivor option, you’ll receive a lower lifetime pension payment. On the other hand, if you die first, your surviving spouse will continue to receive a lifetime pension benefit equal to 50% of your pension benefit prior to your death. For example:

  • For as long as you live, you receive a monthly pension benefit of $1,700 or about 85% of the maximum life income option benefit.
  • If you die first, your spouse will receive a lifetime monthly pension benefit equal to 50% of your benefit, or $850 per month.
  • If your spouse dies first, however, your monthly pension benefit remains at $1,700.

Next choice is – Life Income Option:

If you receive your pension benefit under the life income option, you receive the maximum lifetime pension payment. If you die first however, your surviving spouse receives nothing after your death. For example

  • For as long as you live, you receive a monthly pension benefit of $2,000.
  • If you die first, however, your spouse will receive a monthly pension benefit of $0.
  • If your spouse dies first, your monthly pension benefit remains unchanged at $2,000.

At retirement, you will have to decide how your pension benefit will be paid out for the rest of your life:

  • If you elect to receive the maximum retirement check each month for as long as you live, with the condition that upon your death, your spouse gets nothing.
  • If you elect to receive a reduced retirement check each month, with the condition that upon your death, your spouse will continue to receive an income.
  • This pension decision is permanent.
  • The decision you make will determine the amount of pension income you receive for the rest of your life.
  • The decision is generally irreversible.
  • In making this decision, many people unknowingly purchase the largest death benefit (life insurance) they will ever buy and one over which they have no control.

How Can Retirement Income Protection Help Solve the Pension Benefit Dilemma?

Federal law allows a pension plan participant to waive the “joint and survivor” annuity payout requirement, with the written consent of his or her spouse.  This means that, with your spouse’s consent, you can elect to receive the MAXIMUM life income annuity payout at your retirement.

  • However, what happens to your surviving spouse’s income and lifestyle if you should die first?

The solution, you maintain sufficient life insurance to replace the pension income lost at your death, assuring that your spouse will have an adequate source of income after your death.  This is a death benefit you control and if your spouse predeceases you the life insurance can be surrendered paying you back part or all of your premiums;  Depending on when death occurred.

In making this important decision, you should evaluate the risks associated with retirement income protection funded with life insurance:

  • Your income after retirement must be sufficient to ensure that the life insurance policy premiums can be paid and coverage stay in force for your lifetime. Otherwise, your spouse may be without sufficient income after your death.
  • If your pension plan provides cost-of-living adjustments, will upward adjustments in the amount of life insurance be needed to replace lost cost-of-living adjustments after your death?
  • Does your company pension plan continue health insurance benefits to a surviving spouse and, if so, will it do so if you elect the life income option?
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Interesting life insurance facts you can share with your friends and family

Some of the facts and statistics from a recent LIMRA report, “The Facts of Life and Annuites,”1 are real eye-openers and help tell the story of how important life insurance is.

Facts shared in the report:

Life insurance

  • Most individual life insurance policies in force are permanent rather than term.
  • Permanent life insurance benefits Americans of all income levels, not just the affluent (those with household income of $100,000 or more).
  • 95 percent of life insurance beneficiaries are satisfied with the overall service provided by the insuring company.

The life insurance industry

  • Life insurers infused $63 billion into the U.S. economy in 2012 through death benefits paid to beneficiaries.
  • Life insurers infused $72 billion of annuity benefits into the U.S. economy in 2012.
  • The life insurance industry generates approximately 2.5 million jobs in the U.S., including direct employees, those who sell life insurance products, and non-insurance jobs supported by the industry.
  • One of every five dollars of Americans’ long-term savings is in life insurance and annuities.
  • Life insurers provide a significant source of funding to consumers and businesses. As of the end of 2012, life insurers held $322 billion in commercial and residential property loans.
  • Life insurers have $4.5 trillion invested in the U.S. economy, making them one of the largest sources of capital in the nation.
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Don’t forget about your unemployed or under-employed spouse when it comes to IRA contributions. Given the current unemployment rate, you may have a nonworking spouse at the moment. That doesn’t mean they are not able to make an IRA contribution.

As long as you are married, filing a joint tax return, and under the age of 70½, you can look to the following scenarios to see if you can make a contribution to a traditional IRA, and check if the contribution is partially or fully deductible.

One or more spouses working – neither spouse is covered by a qualified retirement plan (QRP) at work: Both spouses can make a deductible contribution to a traditional IRA up to $5,500 for 2013 ($6,500 if age 50 or older) and $5,500 for 2014 ($6,500 if age 50 or older) regardless of adjusted gross income (AGI). (Earned income must at the least be equal to the amount of the traditional IRA contribution.)

One or more spouses working – one spouse is covered by a qualified retirement plan (QRP) at work: The non-covered spouse can make a deductible IRA contribution up to $5,500 for 2013 ($6,500 if 50 or older) and $5,500 for 2014 ($6,500 if age 50 or older); however, deductibility is phased out based on joint AGI. The covered spouse’s ability to take a deduction for a contribution to a traditional IRA for 2013 is phased out with joint AGI between $95,000 and $115,000, and for 2014 is phased out with joint AGI between $96,000 and $116,000. The non-covered spouse’s ability to take a deduction for a contribution to a traditional IRA for 2013 is phased out with joint AGI between $178,000 and $188,000, and for 2014 is phased out with joint AGI between $181,000 and $191,000. (Earned income must at the least be equal to the IRA contribution amount.)

One or more spouses working – both are covered by a qualified retirement plan (QRP) at work: If both spouses are working and covered by a QRP they can each still take a full deduction for a contribution to a traditional IRA for 2013 if joint AGI is below $95,000, and for 2014 if joint AGI is below $96,000. Deductibility is phased out in 2013 when their joint AGI is between $95,000 and $115,000 and in 2014 when their joint AGI is between $96,000 and $116,000.

Roth IRA contributions
With Roth IRAs, participation in a QRP is not an issue, nor is age. As long as you are married, filing a joint tax return, each spouse can make a contribution to a Roth IRA up to $5,500 for 2013 ($6,500 if age 50 or older) and $5,500 for 2014 ($6,500 if age 50 or older) as long as earned income is at least equal to the 2014 Roth contribution and joint AGI is below the phase-out eligibility limit of for joint filers, $178,000 for 2013 and $181,000 for 2014. The phase-out range for determining how much of a contribution can be made to a Roth IRA is $178,000 to $188,000 for 2013 and $181,000 to $191,000 for 2014.

The dollar limits for contributions to a Roth IRA for year are reduced by any contributions to traditional IRAs for than year.

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Taxes are inevitable.  You know that part.  Each April 15, you tally up all of your 1099 forms that you have received and pay taxes on your investments, even if you haven’t actually spent a penny of those dividends and interest earnings.  Unfortunately, the money lost to taxes will never be available to you again.  But if you use the principles of tax diversification, you could benefit by paying taxes on what you spend – Not on what you earn. 

Tax diversification is as important as investment diversification when it comes to managing retirement saving risks.  With the proper advice you can create flexibility by selecting the best tax situation for your specific needs and time horizon.

Think about your financial goals for today, the next 10-15 years and down the road as you near retirement and answer these questions:

  • What investments do you currently hold?
  • What is the intent for that money?
  • Can it be allocated more tax efficiently?
  • How many years until you retire?  If you are retired how much and long do need your income?
  • Are you planning a major purchase?
  • What do you pay in taxes on each year- as reflected in IRS Form 1099

Now divide your investments into these three categories:

  1. Money that is taxed now
  2. Money that is taxed later (tax deferred/taxed when withdrawn)
  3. Money that is never taxed (paid in with after tax dollars and tax free during accumulation and at withdrawal)

Reallocate your investments into the appropriate category, if necessary.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

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The Estate Tax Bill

February 25, 2014 by

The federal government will not accept a percentage of your estate as payment for your estate tax bill. Instead, your estate tax bill must be paid in cash, and it must be paid within nine months after your death.

If your estate is subject to the federal estate tax, there are FOUR ways to provide your estate with the cash needed to pay your estate tax bill:


  • You could accumulate enough cash in your estate to pay your estate tax bill outright. Rarely, however, does a successful person accumulate such large sums of cash. Instead, the reason for financial success is usually due to the investment of cash in appreciating assets, rather than accumulating it in a bank.


  • Your estate could borrow the cash needed to pay your estate tax bill. This, however, only defers the problem, since the money will then have to be repaid with interest.


  • Your estate could liquidate sufficient assets to pay your estate tax bill. This choice may make sense if your estate owns considerable assets that can be readily sold for a gain following your death. Keep in mind, however, that if a forced liquidation is necessary, it may bring only a small fraction of the true value of your assets. In addition, sales expenses are bound to be incurred.


  • Assuming you qualify, you can arrange now to pay your estate tax bill with life insurance dollars. For every dollar your estate needs, you can give an insurance company from approximately one to seven cents a year, depending on your age and health. No matter how long you live, it is unlikely you will ever give the insurance company more than 100 cents on the dollar. In addition, the life insurance policy can frequently be structured to accommodate your unique premium payment requirements.
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Retirement plans come with a wide array of tax code abbreviations IRA, Roth IRA, SEP, 401(k), 403(b), HR10 just to name a few. There are times to consider doing a rollover of these funds.

When should you consider rolling over or transferring  your retirement plan?

  • Change of employment- Most retirement plans become what is known as orphaned when you leave the employer who sponsored the plan.  In order to maintain control of your money it is wise to rollover these plans into a personal retirement account.
  • Of course, when you are retiring – This is the time when you may want to start receiving income from your retirement plan.  Your plan may or may not have income options if it does shop these payments among private insurance companies.  This will insure you receive the highest income payments possible.
  • If you are receiving part of a spouse’s retirement plan due to a marital status change – It is a good idea to rollover the funds in order to maintain personal control.
  •  When your current retirement plan is terminating -  For a variety of reason employers will discontinue a plan and start another leaving the previous plan “frozen in place”.  A good time to do a rollover.
  • In-service distribution from your current plan when available can be rolled over into a personal retirement with guarantees in order prevent future losses.
  •  When you’re inheriting money as the beneficiary of a retirement plan account – Depending on your relationship with the deceased you may be able to do a spousal transfer without taxation into your own personal IRA.  Sorry kids you will have to pay income taxes.
  •  When you have worked for multiple employers, participated in multiple plans, and now desire to consolidate the assets from those different plans into a single plan.
  • If your retirement plan has no safe money investment options – it is advisable to diversify using a rollover whenever your plan allows.

A recent tax court ruled that only one IRA rollover is allowed per year.  To avoid tax problems it is better to do an institution to institution transfer.  This way the funds are never comingled with any of your other money.

Consult with a professional to help you make the most informed decision when a rollover is in your best interest.

You may ask questions in the comments or contact me privately Tim Barton, ChFC

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2014 IRA Rollovers

February 17, 2014 by

An IRA Rollover does not involve current income tax deductions, but rather is a method through which tax favored retirement plan assets can be transferred from one plan to another plan while maintaining their tax favored status.

What Types of Rollovers Are Permitted in 2014?

Eligible Plans

  • Eligible rollover distributions from qualified plans, 403(b) annuities and Section 457 plans may be rolled over to any of the other types of plans that will accept such rollovers. A Section 457 governmental plan must separately account for funds received from qualified plans, 403(b) annuities or IRAs, or it may not accept such funds.

Spousal Rollovers

  • Distributions from a qualified plan paid to the surviving spouse of a deceased participant may be rolled over within 60 days to another qualified plan, a Section 403(b) annuity, a regular IRA or a Section 457 plan.

Rollover Maximum

  • The maximum amount generally eligible for rollover is the amount that would be included in income if not rolled over. There is, however, an exception…after-tax employee contributions distributed from a qualified plan can be rolled over to a regular IRA or to a defined contribution plan in a direct trustee-to-trustee transfer, if separately accounted for.

Roth IRA Rollovers

  • Participants in traditional (non-Roth) qualified plans can roll plan distributions over to a Roth IRA. The rollover amount, less any after-tax contributions, is included in gross income in the year of the distribution.

Roth Accounts

  • Participants who receive a distribution from a Roth account in a qualified plan need to roll that Roth account over into a Roth IRA in order to maintain the income tax free character of Roth distributions.

Hardship Exception

  • The Act gave the Secretary of the Treasury the authority to waive the 60-day rule for rollovers where failure to comply is due to casualty, disaster or events beyond the reasonable control of the taxpayer.

Can Funds Be Transferred Between Traditional IRAs and Between Roth IRAs?

Yes, funds can be moved from a traditional IRA to another traditional IRA or from a Roth IRA to another Roth IRA without any taxes or penalty, assuming certain requirements are met:

  • The trustee of the existing IRA either transfers the funds directly to the trustee of the receiving IRA; or
  • The funds in the existing IRA are distributed to you and you roll them over to the receiving IRA within 60 days of receiving the distribution.
  • Only one rollover from a traditional IRA to another traditional IRA, or from a Roth IRA to another Roth IRA can be made in any one-year period.

 Can Funds Be Transferred From a Traditional IRA to a Roth IRA?

  • Yes. All taxpayers have the option of rolling funds over from traditional qualified plans into a Roth IRA. The conversion income must be recognized in the year the rollover or conversion takes place.

 Can Funds Be Transferred From a Roth IRA to a Traditional IRA?

  • No, funds cannot be moved from a Roth IRA to a traditional IRA.
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Do you own fixed annuities?

Do you wonder why so many retirees own fixed annuities?

The Top 3 Reasons to Own Annuities

46% own annuities to Supplement Social Security and Pension Income

  • Planning Tip

Do you receive interest earnings that you’re not using for income? Not only are you paying unnecessary taxes on this money, but those earnings may increase the amount of your taxable Social Security benefit. Repositioning certain assets into a tax-deferred annuity can reduce or eliminate excessive taxes

 34% own annuities to Accumulate Assets for Retirement

  • Planning Tip

One common way is to move assets into a tax-deferred annuity. This approach works because annuity earnings are excluded from provisional income until withdrawn, reducing provisional income — and taxes due — in the meantime. Remember, the real value of your Social Security benefit isn’t the amount you receive, it’s what remains after taxes.

27% own annuities to Receive Guaranteed  Lifetime Income

  • Planning Tip

Immediate annuities can offer retirement income for life.


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Naming an IRA Beneficiary

February 13, 2014 by

What Are the Options Available in Naming an IRA Beneficiary?

When you open an IRA account, you are asked to name a beneficiary or beneficiaries to receive the value of the IRA at your death. You can also change beneficiaries during your lifetime. There are generally three classes of beneficiaries:

  • Primary Beneficiaries: A primary beneficiary is your first choice of who you want to receive the IRA value at your death.
  • Secondary Beneficiaries: A secondary beneficiary receives the IRA value if your primary beneficiary does not survive you.
  • Final Beneficiaries: A final beneficiary receives the IRA value if none of your primary or secondary beneficiaries survive you.

If you do not have a named beneficiary who survives you, your estate becomes the beneficiary and will be taxed on the value of your IRA at your death.

If you’re married, you can name your spouse as your IRA beneficiary. Alternatively, you can name multiple beneficiaries. If, for example, you have three children, you could name them as the three primary beneficiaries, specifying the percentage of the IRA each will receive. Or, you could name your spouse as the primary beneficiary and your children as the secondary beneficiaries.


If you have several IRAs, you can name different beneficiaries for each IRA. If you have both a regular IRA and a Roth IRA, however, keep in mind the different income tax treatment of these two types of IRAs: the beneficiary of a regular IRA will have to pay income tax on IRA distributions, while the beneficiary of a Roth IRA will receive distributions income tax free.



Certain situations require special care in designating IRA beneficiaries. These include marriages in which one or both spouses have children from a prior marriage, as well as a child or grandchild with a disability or a drug or alcohol problem that might impair their judgment or use of funds from the IRA. In this situation, naming a trust as beneficiary can establish some control over how the funds are used after your death.




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How Can an Income Annuity Protect Against the
Risk of Living Too Long?

The purpose of an annuity is to protect against the financial risk of living too long…the risk of outliving retirement income…by providing an income guaranteed* for life.

In fact, an annuity is the ONLY financial vehicle that can systematically liquidate a sum of money in such a way that income can be guaranteed for as long as you live!

Here’s How an Income Annuity Works:

The annuity owner pays a single premium to an insurance company.

  • Beginning immediately or shortly after the single premium is paid, the insurance company pays the owner/ annuitant an income guaranteed to continue for as long as the annuitant is alive. There are other payout options also available.
  • With a cash refund provision the insurance company pays any remaining funds to the designated beneficiary after the annuitant’s death.

Seeking a secure life long retirement income?  Click the video box to left of this post.


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Some news outlets are wrongly reporting ObamaCare/ACA eliminated Heath Savings Accounts – Not so fast.  Health Savings Accounts are still available and a viable means of saving for health care expenses on a tax favored basis, but you must be eligible.

Who is eligible to establish an HSA?

A Health Savings Account can be established by an “eligible individual”…someone who:

  • is covered under a qualified high-deductible health plan
  • is not also covered by any other health plan that is not a high-deductible health plan
  • is not entitled to benefits under Medicare (generally under age 65)
  • may not be claimed as a dependent on another person’s tax return.

What is a high-deductible health plan (HDHP)?

A high-deductible health plan, or HDHP, is a health plan that satisfies certain requirements with respect to deductibles and out-of-pocket expenses, which are adjusted annually for inflation:

  • If an individual the minimum annual deductible is $1,250 with maximum out-of-pocket expenses $6,350.
  • A family’s annual minimum deductible is $2,500 with maximum out-of-pocket expenses $12,700.

Except for preventative care, the high-deductible health plan may not provide benefits for any year until the deductible for that year is met.

What other health coverage can I have and still qualify for an HSA?

You can maintain certain types of “permitted insurance” in addition to the high-deductible health plan and still remain eligible for an HSA. Types of “permitted insurance” include workers’ compensation, auto insurance, insurance for a specified disease or illness that pays a fixed amount per day (or other period) of hospitalization, accident and disability insurance, dental and vision care and long-term care insurance.

Some health plans on the Health Insurance Exchange qualify for Health Savings Accounts (HSA).  If your exchange does not offer a HSA qualified plan you may still buy a plan off the exchange.  The only reason anyone should buy a government exchange plan is if they qualify for a subsidy If a person does not qualify for a subsidy they are much better off purchasing their health insurance off exchange.  The off exchange plans offer more robust provider networks which include in network coverage while an insured is out of their home network area.



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The following is an overview of the options available to an IRA beneficiary. Depending on the type of IRA, whether or not the IRA beneficiary is the spouse of the deceased IRA owner and the IRA beneficiary’s needs and objectives, different options may be appropriate. 

In order to avoid unforeseen and/or negative tax consequences, an IRA beneficiary should seek professional tax advice before selecting an option.

 Inherited Traditional IRA Options: 

The options available to an individual who inherits a traditional IRA include the following: 

  1. Immediate Lump-Sum Distribution: Surrender the inherited IRA and receive the entire value in a lump sum. The taxable value of the IRA is then included in the beneficiary’s income in the year of surrender.
  2. Distributions Over Five Years: If the IRA owner was under age 70-1/2 at death, the beneficiary can take any amounts from the inherited IRA, so long as all of the funds are distributed by December 31 of the year containing the fifth anniversary of the original IRA owner’s death. This option is not available if the IRA owner was over age 70-1/2 at death.
  3. Life Expectancy: The IRA assets are transferred to an inherited IRA in the beneficiary’s name, where the date by which required minimum distributions must begin depends on whether or not the beneficiary is the surviving spouse and by the IRA owner’s age at the time of death.
  4.  Spousal  Transfer:    Under this option available only to surviving spouses who are the sole IRA beneficiary, the spouse beneficiary treats the inherited IRA as his/her own and the IRA assets continue to grow tax-deferred. IRA distribution rules are then based on the spouse’s age, meaning that distributions may not be available prior to the spouse’s age 59-1/2 without paying a penalty tax and required minimum distributions must begin by the spouse’s age 70-1/2.

For spouse beneficiaries: 

    • If the deceased spouse was younger than age 70-1/2 at the time of death, the surviving spouse may delay required minimum distributions until the year in which the deceased spouse would have reached age 70-1/2.
    • If the deceased spouse was older than age 70-1/2 at the time of death, the surviving spouse must begin taking required minimum distributions by December 31 of the year following the spouse’s death.

 For non-spouse beneficiaries:

    • Required minimum distributions from the inherited IRA can be spread over the non-spouse beneficiary’s life expectancy, with the first payment required to begin no later than December 31 of the year following the year of the IRA owner’s death.


Inherited Roth IRA Options:

 The options available to an individual who inherits a Roth IRA include the following: 

  1. Immediate Lump-Sum Distribution:  Surrender the inherited Roth IRA and receive the entire value in a lump sum. The earnings, however, may be taxable if the Roth IRA is not at least five years old.
  2. Distributions Over Five Years: The beneficiary can take any amounts from the inherited Roth IRA, so long as all of the funds are distributed by December 31 of the year containing the fifth anniversary of the original Roth IRA owner’s death. Any earnings distributed before the Roth IRA is at least five years old, however, may be taxable. Since all amounts other than earnings can first be withdrawn tax free, it may be possible to minimize or eliminate any taxation on earnings by withdrawing them last.
  3. Life Expectancy: The IRA assets are transferred to an inherited IRA in the beneficiary’s name. For non-spouse beneficiaries, required minimum distributions based on the beneficiary’s life expectancy must begin no later than December 31 of the year following the year of the deceased Roth IRA owner’s death. For a spouse who is the sole IRA beneficiary, required minimum distributions may be postponed until the year in which the deceased Roth IRA owner would have reached age 70-1/2. Since contributions are considered to be withdrawn first, it’s unlikely that any taxable distribution of earnings will take place if the Roth IRA hasn’t been in existence for five years.
  4.  Spousal Transfer: Under this option available only to surviving spouses who are the sole Roth IRA beneficiary, the spouse beneficiary treats the Roth IRA as his/her own. Roth IRA distribution rules are then based on the spouse’s age, meaning that distributions of earnings may not be available prior to the spouse’s age 59-1/2 without tax or penalty. Since Roth IRAs have no required beginning date and no required minimum distributions, the spouse can leave the money in the Roth IRA as long as he/she wants.
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What Is the Retirement Savings Tax Credit?

This is often an overlooked tax credit. Remember you have until April 15, 2014 to make your 2013 IRA contribution.

 The Retirement Savings Tax Credit dates back to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001)which  introduced a new temporary tax credit for IRA contributions and elective deferrals to qualified plans made by certain lower income taxpayers. The availability of this “saver’s credit” was made permanent by the Pension Protection Act of 2006.

The credit is applied against the total of regular income tax and the alternative minimum tax and is allowed in addition to any other deduction or exclusion that would otherwise apply to the contribution/elective deferral.

Calculating the Credit

The credit is determined by multiplying “qualified retirement savings contributions” up to $2,000 times the “applicable percentage,” which is determined by the taxpayer’s adjusted gross income (AGI):

Adjusted Gross Income (2014) *

Married, filing jointly                Single                     Applicable Percentage

More than      Not over               More than Not over

$ 0                    $36,000                   $ 0        $18,000                              50%

$36,000           $39,000                $18,000   $19,500                               20%

$39,000           $60,000                 $19,500   $30,000                             10%

$60,000                                             $30,000                                              0%

* As adjusted for inflation

“Qualified retirement savings contributions” are equal to the total of IRA contributions and elective deferrals to a 401(k), 403(b), 457 or SIMPLE plan, a SAR-SEP and voluntary employee contributions to deemed IRAs for the tax year, reduced by distributions from such plans that are included in income (or not rolled over in the case of Roth IRAs).

An Example

A single taxpayer, who does not participate in an employer-provided retirement plan and has $18,000 in adjusted gross income, contributes $2,000 to a regular IRA in 2013. In addition to deducting the $2,000 IRA contribution, this taxpayer can also claim a $400 ($2,000 x 20%) retirement tax credit for 2013.


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2014 Tax Filing Calendar

2014 Tax Filing Deadlines

On or Before…

January 15, 2014

  • Pay the balance of your 2013 estimated tax.

February 1, 2014

  •  Make sure you have received a Form W-2 from each employer for
    whom you worked in 2013.
  • Make sure have received all 1009′s for any contract work you were compensated for.
  • Make sure you have received all 1099′s for any interest, dividend , RMD withdrawals.

April 15, 2014

  •  File your 2013 tax return and pay the balance of any tax due.
  •  You may file Form 4868 to obtain an automatic six-month filing extension (this is not, however, an
    extension for payment of taxes due!).
  • Pay the first installment of your 2014 estimated tax.

June 16, 2014

  • Pay the second installment of your 2014 estimated tax.

September 15, 2014

  • Pay the third installment of your 2014 estimated tax.

October 15, 2014

  • File your 2013 return if you received an automatic six-month
    filing extension using Form 4868.

December 31, 2014

  • Last day for the self-employed to establish a Keogh plan for 2014.

This report should not be used as a substitute for professional advice from an attorney, accountant or other qualified  financial professional.


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You better pay attention because there is going to be a quiz and you might have to take it.  This quiz  must be  passed before some tax refunds are sent out.  In order to protect taxpayers expecting refunds some of them  will be sent a letter from the Wisconsin Department of Revenue directing them to take a 4 question multiple choice quiz.  This quiz should confirm the taxpayers identity.


What if the taxpayer fails the quiz?

  • They get one do over.
  • If the second quiz fails then the taxpayer must send identification proof to verify their identity.
  • A taxpayer who refuses to take the quiz  must  send proof of identity.

Why a Quiz?

  • The IRS estimates the current earned income tax credit fraud is about 23-28%.
  • According the latest stats from the IRS identity theft is up 78% for tax years 2011 to 2012.

Wisconsin does not anticipate any more fraud prosecutions instead they hope for a reduction in identity theft and refund fraud.

Wisconsin Department of Revenue

I wonder how many state revenue departments will pick up on this idea.  Or other government departments.  Perhaps a quiz for a driver license, hunting or fishing license, dog license…

Identity theft is a growing problem so on a more serious note I hope this quiz helps.  In meantime while you’re waiting for your tax refund if you think of any good one liners post them in the comments.


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The rising cost of health care in the United States has become one of the primary risks to a financially-secure retirement. With health care costs expected to continue increasing faster than inflation, the time to plan for your future health care needs is now…before you retire.

Your ability to enjoy a financially-secure retirement can be enhanced by planning for future needs such as:

Long-Term Care Services: Are you familiar with the variety of long-term care services available? If it becomes necessary, what type of long-term care services would you prefer? How will you pay for any needed long-term care services?

Advance Directives: Have you communicated your medical care wishes in the event you suffer a catastrophic medical event? Have you named someone else, a spouse or other family member, to make medical decisions for you in the event you are incapacitated?

Paying for Health Care in Retirement: Do you know what your out-of-pocket health care costs might be after you retire? Are you aware that Medicare, while it covers many health care costs, has significant limitations? Are you familiar with the various types of insurance that can help pay health and long-term care costs not covered by Medicare?

Did You Know…

  • In 2012, men reaching age 65 had an average additional life expectancy of 17.8 years, while women reaching age 65 could expect to live an additional 20.4 years on average. (Source: A Profile of Older Americans: 2012, U.S. Department of Health and Human Services, April 2013)
  • While estimates vary, a couple retiring at age 65 without private health insurance from a former employer can expect to pay significant out-of-pocket health care costs during their retirement years. Fidelity Investments, for example, estimates that a 65-year-old couple who retied in 2013 needs about $220,000 to cover medical expenses throughout retirement, a 38% increase from the $160,000 first estimated for those retiring at age 65 in 2002. This estimate does not include costs of dental care, long-term care or over-the-counter medicines. (Source: 2013 Retiree Health Care Costs Estimate, Fidelity Investments)
  • About one-third of individuals turning 65 in 2010 will need at least three months of nursing home care, 24% more than a year, and 9% more than five years. (Source: What Is the Distribution of Lifetime Health Care Costs from Age 65?, Center for Retirement Research at Boston College, March 2010)
  • The national median daily rate in 2013 for a private room in a nursing home was $230, an increase of 3.6% from 2012. (Source: Genworth 2013 Cost of Care Survey, March 2013)
  • The average length of a nursing home stay is 835 days. (Source: CDC Vital and Health Statistics, Series 13, No. 167, June 2009)
  • At a median daily rate of $230, an average nursing home stay of 835 days currently costs over $192,000.

Tim Barton, ChFC

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