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.