Who’s The BOSS: Part 3

Spouse

Is your spouse the sole primary beneficiary of your IRA or other retirement plan? If not, for those married IRA owners living in a community property state, a valid spousal waiver must be on file with the custodian. A spousal waiver is required if the owner is legally married but has named someone other than his or her spouse or someone in addition to his or her spouse as a primary beneficiary. Also, are you aware of the special options afforded spousal beneficiaries? Will your surviving spouse elect to treat your IRA as his or her own? Will your surviving spouse choose to re-title it to an inherited IRA? This and many more factors are often overlooked and need to be considered during a BOSS review as they are integral components of a comprehensive retirement strategy.

The Real Cost of Aging

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 has been a tremendous spike in life expectancy in America over the last 50 years, so what is the real cost of aging? How much can you expect to pay on average for nursing home care today? Many Americans look to solutions such as reverse mortgage planning or the federal Medicaid program but is that enough?

Below is a chart showing median annual costs for nursing home care in select states. The amount for each state is approximate and is based on a 365 day stay with a semi-private room accommodation:

Not all long-term care solutions will be appropriate for every individual so it is important that you meet with your own professional advisor(s) for an assessment to ensure you have the proper strategies in place for your situation.

Who’s The Boss? Part 2

Beneficiary

Do you have a designated beneficiary named on all of your IRAs, 401(k)s or other retirement plans? If you cannot answer this question with 100% certainty, you need to conduct a BOSS review immediately! To be “designated,” a beneficiary must be a living, breathing, human being with a birth date and a remaining life expectancy. Having a designated beneficiary or beneficiaries identified in your retirement plan paperwork is especially crucial in order to preserve the opportunity to make those plans multi-generational. If an IRA is deemed as having no designated beneficiary when an IRA owner dies, the heirs cannot correct this mistake so the opportunity to stretch RMDs over their individual life expectancies is permanently eliminated.

Owner

Will you have enough money to live on during retirement? Are your current IRAs and 401(k)s a good fit with your retirement plan and can they achieve your goals? It is important to determine the answers to these questions today through a BOSS review while there is still time to make any necessary adjustments or corrections. There are IRAs specifically designed to allow you an opportunity to help create a lifetime stream of income that cannot be outlived! If outliving your nest egg is not a concern, the next question is, what happens to your money when you are gone?

WHO'S THE B-O-S-S?

WHAT DOES B-O-S-S STAND FOR?

BOSS is an acronym that we use to refer to the four key people everyone must consider with respect to retirement planning, i.e., developing an income exit strategy and ensuring all IRAs, 401(k)s and other retirement plans are set up properly. To ensure retirement assets will be distributed in a manner consistent with an overall retirement plan, all paperwork must be filled out accurately and clearly reflect the owner’s wishes. To assist in this, we recommend what we call a BOSS review. This is a retirement plan review that should be conducted at least once per year and must be conducted anytime there is a life changing event such as birth, death, marriage or divorce.

Even though an IRA is frequently the largest asset people have, except perhaps their home, many IRA owners surprisingly fail to conduct a BOSS review on an annual basis to ensure that their money will flow the way they want it to. Many people are unaware that unless their IRAs and other retirement plans are set up correctly, they will be leaving their heirs a tax bill and not a legacy. Nobody is immune to IRA mistakes. Plenty of well educated, intelligent, wealthy individuals die without proper planning because they just didn’t know they had a serious problem…a problem that, sadly, could have been easily corrected.

It’s important to understand what happens to your IRA when you pass away. Many people think that their IRA passes through their will, it does not. The IRA beneficiary designation form determines what happens to IRA assets. IRAs are not inherently probate assets, meaning, they do not need to go through the probate system which requires that a probate court declare how and to whom the assets shall be distributed. IRA assets COULD, however, end up going through the probate court system if there is no valid designated beneficiary and, as a default, the IRA ends up going into the deceased’s estate.

You may ask yourself, why does it matter if my IRA or 401(k) goes to my estate, my children are the beneficiaries of my estate anyway, so what’s the big deal?

The big deal is that if the estate is the beneficiary of an IRA, the opportunity for heirs to stretch the IRA RMDs over their individual life expectancies is effectively destroyed. The opportunity for heirs to enjoy continued tax deferred growth on those IRA funds will be destroyed. The opportunity for heirs to maximize the benefit of the IRA by turning the tax infested IRA into a tax efficient legacy from you is destroyed!

Simple Mistakes Can Cost Beneficiaries Everything

Beneficiary designation forms are an often overlooked area of estate planning that can have dire consequences if not taken care of. For example, divorce is already an unpleasant event but imagine that your ex-spouse gets the proceeds of your life insurance policy and/or retirement accounts because you forgot to update your beneficiary designation forms. In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, Kari Kennedy was the administrator of her father’s estate and tried to recover $402,000 that was paid to her father’s ex-spouse. As part of the divorce agreement, the soon to be ex-wife had given up her rights to Mr. Kennedy’s pension and other work-related benefits.

However, Mr. Kennedy failed to remove his ex-wife as the beneficiary of his investment plan assets and replace it with Kari’s name. Following his death, the funds went to his ex-spouse, not Kari as he had intended.

The case made it all the way to the Supreme Court but, unfortunately, Kari was not deemed the beneficiary because, under ERISA, the beneficiary designation form trumps a divorce decree. The Court made it clear that a former spouse can give up the right to retirement benefits as part of a divorce decree but the specific terms of an ERISA governed plan ultimately control what happens to the plan assets.

This is an extreme case but it illustrates the dire consequence of failing to review and update beneficiary designation forms whenever a life changing event occurs such as death, divorce, marriage or birth. A beneficiary review is an important part of your financial review process that your advisor can help guide you through.

Tips to Avoid IRA Errors

Know the Contribution Limits

There is a maximum amount you may contribute each year to your IRAs. The aggregate limit for 2016 is $5,500 ($6,500 if age 50 or older). This limit includes all contributions to all of your traditional IRAs and

Roth IRAs.

Avoid Excess Contributions

If you exceed the annual contribution limit, you will be penalized unless you withdraw the excess amount in a timely fashion. The penalty is currently 6% and this penalty applies each year the excess amount remains in your IRA(s).

Take RMDs on Time

Whether you are an IRA owner who is over age 70½ or you have inherited an IRA from someone, there is a 50% penalty for every missed required minimum distribution! Yes, a 50% penalty on the undistributed amount so mark your calendars with the annual December 31st deadline and avoid this common error.

Keep Beneficiary Forms Updated

If you fail to name a designated IRA beneficiary, it could have unintended consequences. What is a  “designated” beneficiary? Aren’t all beneficiaries “designated”? No, they are not the same! A designated beneficiary is a living, breathing, human with a remaining life expectancy. Charities cannot be designated. Estates cannot be designated. Trusts cannot be designated. Your beloved dog cannot be designated. Failure to name a designated beneficiary essentially diminishes the opportunity for individual beneficiaries to maximize the benefits of tax deferred distributions on an inherited IRA.

Life changing events such as marriage, death, divorce, birth and adoption occur regularly and could impact your beneficiary designation decisions. Every IRA owner should conduct a beneficiary form review at least once a year to ensure that IRA assets will pass to the intended beneficiaries.

Don’t Guess, Know the Rules

Do you have questions or need help with your personal situation? Your retirement distribution expert can assist you! Call today to schedule a free consultation, ask questions or discuss important IRA planning issues such as: conducting a beneficiary review, correcting IRA mistakes, making sure you’re with the right IRA custodian

Attention Accountants!

As trusted advisors, clients often look to their accountants for guidance and advice on a wide range of tax related and financial issues. But not all firms can offer a full solution to their clients, thus missing out on important business opportunities and a competitive edge. During a recent survey conducted by Accounting Today, they spoke to tax professionals who offer financial services to their clients as well as those who don’t. On Thursday, June 9th at 12:30 PM, America’s Tax Solutions™ will present a webinar that discusses the real and perceived benefits and challenges of offering a more robust financial services solution. Attend this one-hour educational web-based seminar to hear more about the research findings. You will also learn:

• How to produce higher client satisfaction/better client relationships
• How tax professionals are using financial services to drive revenue and profitability
• How America’s Tax Solutions™ can overcome concerns about time and staffing through partnership and planning
• Why the expertise and skills needed to offer financial services are well within a tax professionals grasp

Please join the President and Founder of America’s Tax Solutions™ as he sheds light on the real and perceived experiences and concerns of tax professionals with and without financial services offerings.

Thursday, June 9, 2016

12:30 pm - 1:30 pm PST

REGISTER NOW AT: https://attendee.gotowebinar.com/register/7032282132603949316