Retirement Investing

QUESTION: WHAT IS THE “DISTRIBUTION PHASE” OF RETIREMENT PLANNING?

As we grow older, we leave a period of relative
complacency about money and transition into a more
critical period of anxiety and fear during the distribution phase. It is at this point in our lives that we are faced with important choices that could help defer or mitigate taxes. Our choices will ultimately dictate the kind of lifestyle we can enjoy when we leave the workforce. Successful tax planning means understanding the challenges, opportunities and risks associated with this critical time.

A research study by Prudential Insurance confirmed that investors knew that this was a different time for them and 72% recognized that the financial risks were unlike any that they have previously faced. The Prudential survey revealed some ambivalence about risk, with about half of the respondents favoring a conservative strategy, while the other half opted to seek capital gains by investing more aggressively.

Two main fears were revealed:

1) VOLATILITY

An aversion to investments that threatened their principal and exposed them to risk.

2) RUNNING OUT OF MONEY

Fear of outliving assets and consequently choosing an aggressive investment strategy.

The good news is that despite the increased anxiety,

choices for investors approaching retirement are

greater than ever. Investors can protect principal, lock in gains and generate a stream of income that they can’t outlive. Your America’s Tax Solutions retirement distribution specialist will work with you to determine the right options for you and your family.

What is a Custodial Agreement?

The role of a custodian is diverse:

the safekeeping of assets such as

equities and bonds; the settlement of

any purchases and sales of such

securities; and the distribution of

income from such assets.

The custodian is the financial institution responsible for safeguarding a firm’s or an individual’s financial
assets. If you have a retirement plan, then you have a custodian. These institutions do not “own” your
account — they are trustees of assets that are held in your name. These assets may include cash,
bonds, mutual fund shares and stocks.

WHY YOU SHOULD CARE
Your custodial agreement sets the rules by which you will accumulate your savings balance and how that
savings balance will later be distributed to you and/or your heirs. Unfortunately, a custodial agreement can often be a hefty contract full of legalese. Few IRA owners ever take the time to fully review the provisions and exceptions in these critical documents. As a result, you may be surprised to learn that most of these agreements will make the Federal Government the primary beneficiary of your retirement account!

A SOLUTION IS AVAILABLE
Your America’s Tax Solutions retirement distribution specialist is an expert on custodial documents
and can help you create an IRA distribution strategy that protects your nest egg from excessive and
needless taxation. A comprehensive review of your custodial agreement is a crucial step in determining
whether your IRA is an IOU to the IRS.

Advantages of an IRA

With the new legislation, H.R. 2029 passing, I figured it would be a good time to talk about the advantages of having an IRA.  Since their debut in 1977, IRAs have gained widespread public acceptance — more than 60 million Americans own either Roth or traditional IRAs, with more than $12 trillion dollars invested. Most economists, financial planners and accountants regard the IRA program as a great savings windfall for the American people. Employee savings and retirement plans present an attractive option for many Americans. Many qualified plans offer the convenience of payroll deduction plus matching contributions from an

employer. However, a comprehensive retirement plan should consider all available options and your America’s Tax Solutions™ retirement distribution specialist can help you determine which options are right for you.

IRAs — particularly Roth IRAs — are both accumulation and distribution vehicles. If the distribution phase is properly administrated, an IRA can become a Multi-Generational legacy, “stretching” the assets and required distributions beyond the life of the original owner, while it continues to grow tax-deferred over multiple generations. This is what is termed a legacy investment strategy and it is accomplished through a Multi-Generational IRA (MGIRA). An MGIRA is not a product nor is it something that you select from a menu of financial services. An MGIRA is an IRA distribution strategy. Your America’s Tax Solutions™ retirement distribution specialist can describe for you in greater detail how an MGIRA works, and help you decide whether or not this powerful legacy strategy is right for you.

Potential IRA Advantages:
• More estate planning options
• Greater opportunity for a Multi-Generational “stretch”
• Wider array of investment choices within the account
• Simplified conversion to a Roth IRA
• Plan portability
• Account consolidation options
• Professional advice from America’s Tax Solutions™

Plan Rollover After Death

QUESTION: WHAT OPTIONS DOES A SURVIVING SPOUSE HAVE WHEN

(S)HE IS THE SOLE BENEFICIARY OF A RETIREMENT ACCOUNT?

Answer: A surviving spouse has the most options of any beneficiary. In order for a spouse to be able to take advantage of all of these options, the beneficiary designation form must be set up properly and the spouse must take proper steps after the death of the participant.

SPOUSE BENEFICIARY

If an individual dies while maintaining funds in an ERISA-governed plan, the individual’s spouse will be allowed to roll over the funds from the ERISA plan to an IRA in the spouse’s own name. This is called a spousal rollover. However, before executing a spousal rollover, one must ensure that the rollover makes sense from an estate planning perspective and avoids what is called the “spousal rollover trap.” The spousal rollover trap is best illustrated by the following example:

Assume Jon dies at age 47, leaving his million dollar profit sharing plan to his 47-year-old wife Patti. If Patti rolls 100% of the profit sharing plan to an IRA in her own name, any distributions will be subject to the 10% early distribution penalty, because she is under age 59½. Alternatively, if all or a portion of the funds are retained in Jon’s ERISA-governed plan or rolled over to an inherited IRA, Patti will be able to take distributions from the plan without incurring the 10% penalty.

Once a spousal rollover is done, it can’t be undone. To avoid the spousal rollover trap, a portion of the funds could be retained in the profit sharing plan or in an inherited IRA in the decedent’s name for the benefit of the spouse, if the surviving spouse is under age 59½. To determine the amount to be retained in an inherited account, Patti’s financial planner must carefully analyze her cash flow needs relative to her outside resources and qualified plan assets. In many cases, a balancing approach in this type of case is in order where one rolls over a portion of the funds and leaves the rest in the inherited IRA.

The advantage of leaving the funds in the inherited IRA is avoiding the 10% penalty on distributions because of the “death exception.” The best news for surviving spouses is that there is no deadline by which a spouse may elect to take it as his or her own. Therefore, a spouse may keep the IRA as an inherited IRA for a number of years, take distributions as required or needed, and later do a spousal rollover and assume the IRA as his or her own. In general, the advantage of rolling over the funds is that the surviving spouse can name his or her own beneficiaries and they have the opportunity to “stretch-out” distributions over their individual life expectancies.

Don't Let This Happen To You!

Ex-Wife Entitled to 401(k) Account Balance

Even though an ex-wife waived her right to her now-deceased ex-husband’s 401(k) plan savings, she is still entitled to the money, a federal judge in New Jersey has ruled.

U.S. District Judge Robert B. Kugler for the District of New Jersey, in following a 2009 U.S. Supreme Court decision, ruled that the husband’s old employer had to disburse the money according to the plan documents under which the ex-wife was the beneficiary.

In finding that Adele Kensinger was entitled to the money, Kugler pointed out that the Supreme court ruled that the Employee Retirement Income Security Act (ERISA) does not bar common law waivers but plan administrators are nevertheless bound by the plan documents if such waivers conflict.

Even if the property settlement agreement (PSA) constituted a valid waiver of Adele Kensinger’s right to the 401(k) proceeds, the justices still had required the employer to transfer the proceeds according to the plan documents, Kugler said.

According to the decision, William and Adele Kensinger were married at the time that William Kensinger enrolled in his 401(k) plan and named Adele Kensinger as his beneficiary. The two subsequently divorced and executed a PSA in which they gave up their rights to any interest in the others' retirement accounts, but William Kensinger did not remove his ex-wife as the named beneficiary. He died in 2009, with an account balance of approximately $57,000.

His estate argued that it was entitled to the funds.

The case is In the Matter of the Estate of Kensinger, D.N.J., No. 09-6510 (RBK/AMD).

IRA Summit - December 17th - 18th San Diego

Our IRA Summit is underway here at America's Tax Solutions HQ in sunny San Diego! Our advisors and CPAs are learning a great deal of valuable information from Barry and Joe.

Section 1035 Exchanges

QUESTION: does your life insurance policy need an update ?

Answer: If you don’t know, it probably does! Insurance needs change as your family, financial, and business
needs change. Just as technology created new means of communication and streamlined old methods, new types of insurance programs sold by ethical agents will match the most current features and updates to your changing needs. If a new product provides a more cost effective solution than your old product, then you may consider exchanging the old policy for a new one. This is particularly important if the insurer that sold your current contract is financially unstable.


Here are SEVEN points to consider when reviewing an old policy:

1. You feel a higher rate of return may be realized with a new policy.
2. You feel that the current insurer may become insolvent and a more stable insurer can be obtained through a policy exchange or diversification of insurance carriers will increase safety and/or return.
3. You have exercised a loan provision against a policy, the interest paid on the policy is non-deductible, costs are increasing and you need to continue coverage.
4. You would like to change from an individual to a group product.
5. You can achieve a higher death benefit with a new product.
6. You would like to change an ordinary life policy into a single premium policy to eliminate the premium payment burden, obtain a higher rate of return on the underlying cash value and obtain a higher death benefit.
7. You have an ordinary life contract and you would like to exchange it for a universal, variable, or interest sensitive policy. Premium rates on the new policy are lower due to such factors as improved mortality tables, a non-smoking discount, a volume discount for several policies aggregated into one or other factors.

Federal income tax law facilitates certain exchanges by providing that in some instances they may be
made without the immediate recognition of gain. Although such transactions are sometimes referred to
as “Section 1035 tax-free exchanges,” the gain at the time of the transaction is deferred rather than
recognized as an immediate taxable event.

Rolling Over Your Retirement Plan

QUESTION: HOW CAN “TAX-INFESTED” MONEY BECOME “TAX-DEFERRED”?

You have some crucial decisions to make about how you take distributions from your hard-earned savings. Not understanding rollover regulations can lead to unintended tax consequences that chip away at your retirement funds.

The funds held in your retirement accounts are called “qualified savings,” since they qualify for special tax-deferred status by the Federal Government. If you decide to withdraw all of the money at once from those accounts, it is called a “lump-sum distribution.”

Your America’s Tax Solutions^TM retirement distribution specialist can explain the tax consequences of taking a lump-sum distribution and the benefits of rolling those funds into an IRA.

WATCH OUT

Plan administrators of your 401(k)s will not automatically assume you want to do a rollover. Also, the Tax Code provides for a 60-day window during which you can remove your qualified money from your pension plan or 401(k) and deposit into a traditional or Roth IRA. Be advised: The IRS does not trust that you will dutifully meet your 60-day obligation. If you request a lump-sum distribution, your employer is required to withhold 20% for federal income tax. Thus, on a $50,000 lump-sum distribution, you would pay $10,000 in withholding to the Federal Government.

FROM TAX-INFESTED TO TAX-FREE!

Your America’s Tax Solutions^TM retirement distribution specialist can explain how you may bypass the 20% withholding requirement by structuring the transaction as a trustee-to-trustee transfer. Your ATS specialist will also explain the legacy advantages of rolling your 401(k) into an IRA, including the ability to stretch the period of tax-deferred earnings within an IRA beyond the lifetime of the person who set up the account at a compounded, tax-deferred rate.

The LTC Game Changer

Protect, Preserve and Defend Your Health Healthcare

We protect ourselves from costs associated with car accidents, flood and fire damage to our homes, and we have individual healthcare coverage to help prevent serious illness. Many of us have life insurance to plan for the future and to provide tax-free benefits to our families when we are gone. However, sometimes traditional coverage is just not enough. As we evolve as a society, so do our financial, retirement and health planning tools. There is a new solution now available so individuals can combine the best of both worlds – it's a hybrid solution to help ensure that long-term care needs will be satisfied while providing a legacy for heirs.

The Game Changer

A lot of people shun long-term care (LTC) planning because of the costs associated with traditional LTC. In response to the LTC crisis, a game changer came into play. A NEW SOLUTION to LTC was developed so you can combine the benefits of life insurance and LTC insurance into a single policy. This new solution makes it easier for you to cover your needs while getting more out of your health care investment. The best part is that if you never activate this coverage, your money doesn’t disappear into the pockets of some company, it goes back to you or, if you have passed away, to your designated beneficiaries! Even if you passed away and used all or just some of your funds, you can have your plan set up in such a way that a minimum death benefit will be paid to your designated beneficiaries. Regardless of your situation, a minimum level of death benefits and LTC coverage are guaranteed.

Pension Maximization

QUESTION: MY RETIREMENT PLAN OFFERS SEVERAL OPTIONS FOR THE

PAYOUT OF MY PENSION. WHEN I RETIRE, WHICH OPTION SHOULD I TAKE?

Answer: It depends on what options your plan offers, whether you are married at the time of retirement, and what your retirement goals are. Even if you are married, a Joint and Survivor Annuity may not be the best way to care for your spouse should (s)he outlive you.

A life insurance strategy called “pension maximization” or sometimes “pension enhancement,” may provide a more attractive overall benefit package for married couples than the normal Joint and Survivor (J&S) annuity option from a qualified plan. The concept is simple: rather than electing to receive the normal default J&S annuity from a pension plan, the retiring participant, (with the consent of his or her spouse), selects the higher benefit payable under the Single Life (SL) annuity option. The couple then purchases life insurance on the participant to ensure the financial security of the spouse in the event the participant dies first and pension benefits cease. The difference between the pension benefit payable under the SL annuity and the lower joint benefit payable under the J&S annuity is then used to pay premiums on the insurance.

A fundamental but often misunderstood concept is that a J&S annuity is a type of insurance. Whenever a couple selects some form of J&S annuity, rather than the SL annuity, they are essentially buying insurance to ensure survivor benefits for the spouse. The “premiums” they pay for this protection are equal to the difference between the benefit payable under the SL annuity and the joint benefit payable under the J&S annuity.

For example, if the pension would pay $3,000 a month under the SL annuity option, but only $2,550 under the normal benefit and 50% survivor annuity option (which will then pay the surviving spouse $1,275 per month after the death of the plan participant spouse), the couple is effectively paying a $450 monthly premium to ensure that the spouse will be paid $1,275 per month (50% of the $2,550 joint benefit) in the event the plan participant dies first.

A couple can use the basic strategy of a Joint and Survivor annuity to maximize their pension benefits during the lifetime of the participant and still ensure the financial security of the surviving spouse if participant dies first and pension benefits cease. By using the difference in the benefit amounts to purchase life insurance, the spouse can replace the value of the pension income. The life insurance proceeds may be tax-free instead of fully taxable like the pension amounts!*

*Death benefit payments are generally income tax-free.

Who Gets Your IRA?

The Battle Over Retirement Accounts

Do you have a will, a trust, and retirement accounts? Who will get your retirement assets? Let’s say that your will says that everything goes to your spouse, your trust says that everything goes to your children, and the beneficiary form for your IRA says

that everything goes to your spouse and your children equally. Who gets your IRA?

It will go to your spouse and your children equally.

IRAs pass to beneficiaries through the beneficiary form. They don't pass by way of your will unless you name your estate as your beneficiary or sometimes, in what should never be the case, if you fail to name any beneficiaries at all. They also never get to your trust unless you name your trust as your beneficiary. You could have the best trust in the world in place to receive distributions from your IRA after your death, but if you don’t file a beneficiary form naming that trust as your beneficiary, it will never see any IRA distributions.

Whenever there are changes in your family situation, you need to think about whether your beneficiary forms need to be updated. This is especially true after a divorce or a remarriage. If you do not want retirement

benefits going to an ex-spouse, then you probably have to update your beneficiary forms. If retirement benefits are meant to go to children and not to a newly married spouse, then you may need to have the new spouse sign a waiver of his or her rights to your retirement benefits. Without a waiver, the benefits might go automatically to your new spouse, cutting out your children. This is almost always true for employer plan benefits.

When there is no beneficiary form on file, you are really taking your chances. Now your retirement assets will go to whoever the company has named for you in the default language in the documents for the account. It could be a spouse; it could be your estate.

Do your loved ones a favor and make sure your retirement assets are going to the right person – the one you planned on receiving the benefits. Check those beneficiary forms.

What to learn more?

America’s Tax Solutions™ offers an incredible 2 day program called the IRA Summit to help tax professional fully understand the world of IRAs and 401k(s) and their role when it comes to helping clients correctly distributing these assets.

What Is A RMD?

Congress created IRAs to help promote saving for retirement but it never intended Americans to defer taxes forever. That is why the Tax Code requires that after IRA account owners reach the age of 70½, their Required Beginning Date (RBD) is triggered and they must begin drawing down their accounts and paying income taxes on the distributions. Those withdrawals are called Required Minimum Distributions (RMDs).

Note: Roth IRA owners are not required to take Required Minimum Distributions.

Failure to take RMDs on time after the RBD, can trigger stiff penalties – additional tax penalty of 50% on distributions you were supposed to take but didn’t. Your America’s Tax Solutions^TM retirement distribution specialist will gladly describe for you how the calculation for an RMD is done based on your previous year’s IRA balance and your life expectancy. That life expectancy figure is not predicated on your family tree or a doctor’s physical, but rather, by a Uniform Lifetime Distribution Table.

FACTS ABOUT REQUIRED MINIMUM DISTRIBUTIONS (RMDS)

• Traditional IRA owners: RMDs must begin no later than April 1st of the year after turning age 70½
• Required Beginning Date is the date at which you must begin taking RMDs
• There is a 50% penalty for failing to take RMDs on time
• Roth IRA owners are not subject to RMD rules but beneficiaries of
• Roth IRAs are subject to RMD rules

Your America’s Tax Solutions ^TM retirement distribution specialist will assist you with this calculation, identify your Required Beginning Date, and help ensure that you do not fail to take your scheduled RMDs.

Taxes May Increase When Your Spouse Passes Away

Most people name their spouse as their primary beneficiary of their assets, including retirements plans such as IRAs and 401(k)s. However, many do not realize that they could end up paying more taxes after they become a widow or widower. How does that happen? The tax brackets for single tax filers and joint filers are different - there are tax advantages to being married in the U.S. As a newly single filer, you may be surprised to find yourself in a higher tax bracket.

Qualified retirement plans have required distributions (RMDs). Assuming the surviving spouse is the primary beneficiary of the deceased’s qualified plans, the most common primary beneficiary designation, not only has the surviving spouse suddenly become a single filer for tax purposes, but if the surviving spouse is age 70½ or older then (s)he cannot avoid RMDs, increasing his or her annual income. 

      *Owners of Roth IRAs do not have RMDs. 

For some people, losing a spouse could also impact their Social Security benefit in an unexpected way. Approximately 1/3 of all Social Security recipients have to pay income taxes on their benefits. So how does losing a spouse potentially increase taxation of benefits? RMDs are considered income. In some cases that additional income could trigger tax consequences on Social Security benefits. Why? According to the Social Security Administration, if you are filing as an individual and your income exceeds $34,000 (the threshold for 2015), up to 85% of your Social Security benefits may be subject to income tax.

Stop Contributing to It and Start Living on It

Dutiful savers cannot presume that their nest egg will support their lifestyle throughout a long and active retirement. Without a comprehensive distribution plan, most Americans face the real possibility of out-living their money.

First, most investors don’t realize that the Federal Government is the primary beneficiary on their retirement accounts and if they don’t take steps to “disinherit” Uncle Sam, they stand to sacrifice 35 to 80% of their nest egg to taxes. What is the point of reaping high rates of return and accumulating a huge balance if you’re just going to hand it over to the IRS?

Second, Americans can out-live their money by spending too freely, especially early in retirement. Their rate of withdrawal is excessive, in part because many of us don’t expect to live as long as we do. Studies show that Baby Boomers of sound mind and body may need to stretch their assets over three decades.

Finally, a great danger to a retirement plan is the unforeseen, economic and political elements that can sabotage even the best-laid plans. The unforeseen can also include what are termed Black Swan event trends that are impossible to predict yet have profound and lasting effects on world economies. Examples are the terrorist attacks of September 11th, the bursting of the dot-com stock bubble in 2002 and the sub-prime mortgage meltdown that precipitated the recession of 2008. All of these Black Swan events reverberated throughout the economy and undermined retirement plans.


THERE IS A SOLUTION
The distribution specialists at America’s Tax Solutions™ can help protect your nest egg through a comprehensive strategy that will GUARANTEE for you a lifetime stream of income that maximizes your life savings. Your America’s Tax Solutions™ retirement distribution specialist is an expert in retirement investing and distribution. He or she will guide you toward the retirement of your dreams, while guarding you against the tax hits and Black Swan events that can sabotage your plans.

Does Your Current Policy Need a Make-Over?

We here at America's Tax Solutions like to make sure our clients and their clients are always prepared. Many Americans buy various types of insurance policies, put the paperwork in a drawer and never look at it again. Unfortunately, many of those people could be stuck with old policies they bought 10, 20 or even 30 years ago and they haven’t had them reviewed. Why is this important? Over the past several decades they may have experienced life changes and their planning needs have likely changed as well.

Did they consider things like tax diversification and tax-free retirement? Can these policies be used to help fund a college education for their kids or grandkids, protection against a long-term care disaster, and so on? If they were say 25 to 35 years old when they first selected their policies, probably not. There also may be better policies available today that didn’t exist back when they first met with their agent.

7 Points You Should Consider When Reviewing Old Policies:

1. You feel a higher rate of return may be realized with a new policy.

2. You feel that the current insurer may become insolvent and a more stable insurer can be obtained through a policy exchange or diversification of insurance carriers will increase safety and/or return.

3. You have exercised a loan provision against a policy, the interest paid on the policy is non-deductible, costs are increasing and you need to continue coverage.

4. You would like to change from an individual to a group product.

5. You can achieve a higher death benefit with a new product.

6. You would like to change an ordinary life policy into a single premium policy to eliminate the premium payment burden, obtain a higher rate of return on the underlying cash value and obtain a higher death benefit.

7. You have an ordinary life contract and you would like to exchange it for a universal, variable, or interest sensitive policy. Premium rates on the new policy are lower due to such factors as improved mortality tables, a non-smoking discount, a volume discount for several policies aggregated into one or other factors.

If you haven’t reviewed all of your active policies, it’s important to dust them off and take a look to make sure they still provide you with what you want. If you are unsure where to begin, don’t hesitate to reach out immediately to your retirement distribution expert, tax professional or agent. Remember, a basic policy review should always be a FREE service from your trusted advisors!