What Do I Need to Know Before I have Mom Move in with My Family ?
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What Do I Need to Know Before I have Mom Move in with My Family ?

Mom Move in with My Family ? Multigenerational living can help an aging parent avoid the sense of isolation and depression that may come with living alone. However, by this time in life, you have a set way of doing things. Your likes, dislikes, value, and personalities have also changed over time.

AARP’s article from 2018 asks “Considering Moving Your Loved One into Your Home?” This is still a timely article. It notes that, regardless of how close and loving your relationship may be, adding another person to your household changes the dynamics for the entire family. The journey will be smoother, if you and your loved one go in with some clear parameters.

First, prior to having Mom Move in with My Family, ask yourself a few questions:

  • How will the move impact my spouse, children and my siblings?
  • How will my parent’s presence impact my family routine, activities and privacy?
  • Will I need to remodel the house or add a bedroom or bath?
  • Will my siblings help with some expenses?
  • Can we afford to do this?
  • Should part of my parent’s income be used to help defray living expenses?
  • Will this change require me to alter my work schedule?
  • How will I create boundaries?
  • How does my parent feel about moving in with my family?
  • How do I feel about this change?

Next, your parent should consider these questions.

  • Will this move take me away from people or activities I enjoy?
  • Do I like being with this family for long periods of time?
  • Are they expecting me to contribute some of my income or savings to living expenses?
  • If the home requires remodeling to accommodate me, am I able to help pay for it?
  • Will my other children help out?
  • If I don’t like something my child does, am I comfortable talking to him about it?
  • What are my feelings about being dependent?

You should then have an open and frank discussion about expectations, fears, finances and any lingering issues. It may be as easy as telling each other what bothers you (since the other person may not otherwise know and would be happy to make a change).

After this, create a list of the positive aspects and refer to it when you have a bad day with the arrangement.

Next, conduct a pair of meetings. Let your children know that they’re not the cause of their grandparent’s possible negative reactions, such as anger, weeping or fear. Tell them that the whole family needs to contribute, but they aren’t responsible for caregiving or fixing their grandparent. Discuss ways that the children can help their grandparent.

The other meeting is with your siblings. In addition to acknowledging that your parent needs help and will likely need more, it can be an emotional realization for all of you. Talk it out. You also shouldn’t be shy about asking for help.

Gifts of time are important in helping you manage other responsibilities in your life. Let your siblings know about your anticipated needs, like serving as a back-up and respite care, help with chores, meals delivered, grocery and prescription pickup and money to offset increased living expenses or to hire an aide.

Reference: AARP (Jan. 22, 2018) “Considering Moving Your Loved One into Your Home?”

 

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Where in the World Do You Go to Retire If You Like The Snow?

There are many people who imagine playing golf in Arizona or lying on the beach in Florida during retirement. However, that is not everybody. There are some who would rather bundle up and enjoy the snow, says Investopedia in its recent article entitled “5 Best Countries to Retire to If You Love Winter.”

Let’s look at some of the snowy spots around the globe where retirees who like to ski, ice state, and make snowmen or snow angels can retire.

Italy. Most everyone knows about the art, food, and rich culture in Italy, but the country’s inland is a winter lover’s dream. Specifically, the Abruzzo region is a great place for retirees who like to ski. Retirees can apply for an elective residency visa with the Italian consulate. This permits a retiree to stay in Italy. However, this visa doesn’t allow you to work. In five years, you’re eligible to apply for a long-term resident visa.

France. You have certainly seen that this country is beautiful all year round. However, it’s fantastic during the winter when snow can be found in many regions. France has several spots where retirees can ski, including the Northern and Southern Alps, the Pyrenees and Massif Central—Europe’s largest volcanic site. Although the overall cost of living is a bit higher than in the U.S., the expense of renting an apartment or a home is quite affordable. Retirees can apply for a long-stay visitor visa through the French consulate. It’s valid for a year, and if you want to stay in France for a longer period of time, you’ll must apply for an extension. Similar to the Italian visa, the French visa doesn’t let you to work while you are there.

Switzerland. This country enjoys lower taxes and extremely good healthcare. These are two good reasons to consider retiring in Switzerland. Along with skiing, retirees can participate in curling, snowshoeing, and many other cold weather activities. Another advantage is Switzerland’s central European location which makes it ideal for winter breaks in Germany, France, or Italy. Like the other European countries mentioned, to retire in Switzerland, you’ll need to apply for a visa through the consulate.  Like in France and Italy, you’re not allowed to work there. It’s also important to know that Switzerland is not keen on foreign nationals applying for public benefits. As a result, it’s important that you have enough saved up to support yourself if you move.

Let’s now look at a few countries outside of Europe that promise plenty of fun during the winter:

New Zealand. This country has become an increasingly popular spot for expatriate retirees. The northern island has a warmer, more temperate climate. However, the southern island gets a good deal of snow in the winter. Remember: the seasons are reversed, so winter with the snow is between June and October. Unless you have children who live in the country, you’re required to apply for a temporary residency visa that’s renewable every two years. If you’re thinking of moving to New Zealand permanently, you’ll need to apply for a resident visa. It’s also important for retirees to know that the financial conditions in New Zealand may be difficult for the average retiree. That means it’s expensive!

Chile. A quick look at the map will tell you that Chile is geographically diverse. Running more than 2,600 miles, the southern region of the country is a skier’s paradise during the winter months. The Portillo Ski Resort is world-renowned. There are also almost two dozen skiing destinations sprinkled through the Andes. The Chilean government issues temporary visas for retirees that are good for a year. You can renew your visa for an additional year, but then you must apply for “definitive residence” or leave the country.

Retiring overseas is a big move, so be sure to calculate what retiring abroad will cost to determine whether it’s a good fit for you financially.

Reference: Investopedia (January 14, 2020) “5 Best Countries to Retire to If You Love Winter”

 

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Should You Name a Trust as an IRA Beneficiary ?
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Should You Name a Trust as an IRA Beneficiary ?

An IRA may not be placed into a trust while the account owner is alive. An IRA also may not be owned by more than one person. The IRA owner can name a trust as an IRA Beneficiary . Just because you can do this, does not mean it is a good idea, says the article “Naming Your Trust as an IRA Beneficiary” from The Press of Atlantic City. The IRA owner could also take all of the funds and deposit them into a trust, but that would be another bad idea. Why? It is because all of the funds withdrawn would be subject to income tax.

Therefore, why would anyone want to name a trust as the beneficiary for an IRA?

  • If you want an heir, like a second spouse, to inherit the income but not the balance of the principal after you have died. This is done so the second spouse cannot name their children as the beneficiary, instead of the original account owner’s children.
  • If you are concerned with the ability of heirs to manage your IRA funds wisely, a trust can be the beneficiary and you can set the terms with which the heirs can have access to the funds.
  • Minor children cannot be direct beneficiaries of an IRA, and a disabled child may become ineligible for government benefits, if he or she receives an inheritance directly.
  • If you want your IRA funds to be inherited by grandchildren instead of children, a trust is the way to go.
  • If creditor protection is a concern under the laws of your state, a trust would keep the IRA funds from being tapped by claims of creditors.

Here is why you would NOT want to name a trust as the beneficiary of your IRA:

  • There are no tax benefits to having the trust inherit your IRA.
  • Trusts have expenses. Trustee fees and tax rates on funds left inside the trust, but not in the IRA, may be substantially higher than personal income tax rates, depending on the beneficiary.
  • The trust will have to keep going long after your own death. That means tax returns must be filed, fees paid, and the trustee must maintain the trust.
  • Some companies that hold IRAs do not allow trusts to be beneficiaries of IRAs. Before you get into figuring out if this is the right route for you, find out first if your custodian will permit it.

There are many other facts to consider before deciding to name a trust as the beneficiary of an IRA. Speak with your estate planning attorney to see if it is a suitable solution for you and your family.

Reference: The Press of Atlantic City (February 13, 2020) “Naming Your Trust as an IRA Beneficiary”

 

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What are the Penalty Free IRA Withdrawals ?

Traditional and Roth IRA distributions can bring about a 10% penalty, if you take them too soon. However, there are several Penalty Free IRA Withdrawals exceptions that will let you avoid the fine.

Investopedia’s recent article entitled “9 Penalty-Free IRA Withdrawals” examines some IRA withdrawals that can be made during retirement.

The IRS will hit you with a 10% penalty on an early IRA withdrawal to motivate you to keep your retirement savings intact. However, you may be able to get around the penalty in some situations. Here are nine circumstances where you can take an early withdrawal from a traditional or Roth IRA without being penalized.

  1. Unreimbursed Medical Expenses. If you don’t have health insurance, or you have out-of-pocket medical expenses that aren’t covered by insurance, you may be able to take penalty-free distributions from your IRA to pay for these expenses. To be eligible, you must pay the medical expenses during the same calendar year you make the withdrawal. Further, your unreimbursed medical expenses must the more than 10% of your adjusted gross income (AGI).
  2. Health Insurance Premiums During Unemployment. If you’re unemployed, you may take penalty-free distributions from your IRA to pay for health insurance premiums. For the distributions to be eligible for the penalty-free treatment, you must satisfy these conditions:
  • You lost your job
  • You received unemployment compensation for 12 consecutive weeks
  • You took the distributions during either the year you received the unemployment compensation or the next year; and
  • You received the distributions no later than 60 days after returning to work.
  1. Permanent Disability. If you become permanently disabled and can no longer work, you can withdraw money from your IRA without the 10% penalty. You can use the distribution for any reason. Just remember that your plan administrator may need you to provide evidence of the disability, prior to approving a penalty-free withdrawal.
  2. Higher-Education Expenses. You may be able to avoid the 10% penalty, when you use IRA funds to pay for qualified education expenses for you, your spouse, or your child. These qualified education expenses include tuition, fees, books, supplies and equipment required for enrollment. Room and board are also approved for students enrolled at least half-time.
  3. An Inherited IRA. If you’re the beneficiary of an IRA, your withdrawals aren’t subject to the 10% early withdrawal penalty. However, this exception doesn’t apply if you’re the spouse of the original account holder, you are the sole beneficiary and you elect a spousal transfer (rolling over the funds into your own non-inherited IRA). In this instance, the IRA is handled as if it were yours, to start, which means the 10% early withdrawal penalties still are applicable.
  4. To Buy, Build, or Rebuild a Home. You can withdraw up to $10,000 (which is a lifetime limit) from your IRA without penalty to buy, build, or rebuild a home. To be eligible, you must be a “first-time” homebuyer, (which means that you haven’t owned a home in the previous two years). However, you could have been a homeowner in the past and still qualify as a first-time homebuyer today. If you’re married, your spouse can add an additional $10,000 from his or her IRA. You can also use the money to assist your child, grandchild, parent, or other family members, as long as they meet the first-time homebuyer definition.
  5. Substantially Equal Periodic Payments. If you need to make regular withdrawals from your IRA for several years, the IRS lets you to do so penalty-free, if you meet certain requirements. Therefore, you withdraw the same amount—determined under one of three IRS-pre-approved methods—each year for five years or until you turn 59½, whichever one comes later. This is referred to as taking substantially equal periodic payments (SEPPs) from your IRA.
  6. An IRS Levy. If you have unpaid federal taxes, the IRS can use money in your IRA to pay the bill. The 10% penalty won’t apply, if the IRS levies the money directly.
  7. Active Duty. Qualified reservist distributions aren’t subject to the 10% penalty. In some instances, you may be able to repay the distributions, even if the repayment contributions exceed annual contribution limits. However, you are required to do so within two years of the end of active duty.

While if the circumstances discussed here are exempt from the early-distribution penalty, they still may be subject to federal and state tax. To claim the early-distribution penalty exception, you may be required to file IRS Form 5329 along with your income tax return, unless your IRA custodian reports the amount as being exempt on IRS Form 1099-R.

Reference: Investopedia (Jan. 20, 2020) “9 Penalty-Free IRA Withdrawals”

Suggested Key Terms: Estate Planning Lawyer, Tax Planning, Retirement Planning, VA Benefits, Veterans, Planning, Financial Planning, IRA, 401(k), Roth Conversion, Substantially Equal Periodic Payments (SEPPs)

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Retirement Fund Withdrawals Can Affect Social Security Benefits

Coordinating Adjusted Gross Income in retirement takes a bit more thought than just collecting a paycheck. Take too much from Peter, you’ll end up paying Paul. Some retirees end up owing taxes on their Social Security benefits. If you want to avoid this scenario, master the details as explained in the article “Will My Retirement Fund Withdrawals Affect My Social Security Benefits?” from The Motley Fool.

It all depends upon your income. This is defined as your adjusted gross income, or AGI, plus nontaxable interest plus half of your annual Social Security benefits. The Adjusted Gross Income is a person’s income for the year, minus certain tax deductions, like self-employment taxes and contributions to tax-deferred retirement accounts. Withdrawals taken from traditional IRAs or most 401(k)s, which are tax-deferred retirement accounts, do count towards the Adjusted Gross Income. However, Roth retirement account withdrawals do not. The only nontaxable interest in your combined income calculation would be tax-exempt bond funds.

For example, a single person with an Adjusted Gross Income of $20,000 with $1,000 in non-taxable interest and a $12,000 annual Social Security benefit would have a combined income of $27,000 ($20,000 plus $1,000 plus $6,000 totals $27,000).

Single taxpayers with a combined income of more than $25,000 and married couples filing jointly with a combined income of more than $32,000 could pay taxes on as much as 50% of their Social Security benefits. Single adults with a combined income greater than $24,000 and married couples filing jointly with a combined income greater than $44,000 could owe taxes on as much as 85% of their benefits.

But wait—here’s a detail you need to know. Because you could owe taxes on 50% or 85% of your benefits does not mean you’ll actually pay this much. There’s a Social Security benefit tax formula that will help you understand how this works. Your estate planning attorney or your accountant can help you figure out how this might impact your retirement finances.

Can you avoid these taxes? With the right plan, maybe. Most retiree’s sole source of income is Social Security and withdrawals from retirement accounts. Being smart with those withdrawals, can reduce the likelihood of owing taxes on Social Security benefits.

If you know that you are approaching one of the Social Security threshholds, try to avoid withdrawing more money from tax-deferred retirement accounts. If you have Roth accounts, try to live from them, because they don’t impact your tax status. Another alternative is to pinch pennies for a while, or simply take the plunge and pay the taxes.

Delaying Social Security benefits as long as you can, up to age 70, is another way to reduce the likelihood of owning taxes on benefits. Yes, you can start taking Social Security at age 62, but you must wait to claim your full benefits until you reach your full retirement age. If you start taking benefits early, you’ll get less than your full benefit, and that smaller amount will be permanent.

You can’t pay taxes on benefits that you’re not receiving. Delaying benefits will increase their size, which will reduce the amount to be withdrawn from tax-deferred accounts. This will lower your Adjusted Gross Income.

It’s possible that you may not be able to avoid paying taxes on Social Security benefits. However, knowing your unique situation in advance and planning accordingly, will be better than living with a reduced budget because you didn’t know and didn’t plan.

Reference: The Motley Fool (Jan. 17, 2020) “Will My Retirement Fund Withdrawals Affect My Social Security Benefits?”

 

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What IRA deadllines Does a Retiree Need to Circle?

Kiplinger’s recent article entitled “A Retiree’s Guide to Key Dates in 2020” explains that the calendar below has the significant IRA deadlines and dates of importance to pre-retirees and retirees. It will give you a head start on getting organized.

January 1:

Now that we are officially into a new tax year, and as you find your documents to prepare for filing your 2019 tax return, look for ways to lessen your 2020 tax tab.

If you’re still working, you can deposit more into your 401(k)s for 2020. You can put up to $19,500 into your employer plan—$500 more than 2019. If you’re 50 or older anytime in the calendar year, your maximum contribution jumps to $26,000. You can also put funds in a traditional or Roth IRA, or a combination of both. The maximum total IRA contribution for 2020 is $6,000, plus an extra $1,000 if you’re 50 or older. Once you turn 70½, you can no longer contribute to a traditional IRA. However, you can contribute to a Roth IRA, if you’re still working. If you’ve retired but your spouse is still working, the working spouse can make the maximum contribution to a spousal IRA for you, provided the worker’s earnings cover the contribution and his or her own IRA contribution.

The first is also the start date for Medicare’s general enrollment period. It goes until March 31, and coverage begins July 1. If you miss enrolling for Medicare at age 65 and don’t qualify for a “special enrollment period” (for people who had group coverage beyond age 65), you can enroll in Parts A and B during this period. In the same time frame, Medicare Advantage beneficiaries can move to a different Advantage plan or to traditional Medicare.

January 15:

This is the deadline for the fourth quarter estimated tax payment for 2019 taxes. You can forgo this deadline, if you file your 2019 taxes by January 31 and pay the remaining balance at that point.

March 31:

This is the deadline for traditional Medicare general enrollment and Medicare Advantage open enrollment.

April 1:

If you turned 70½ in 2019, April 1 is the deadline for taking your first required minimum distribution (RMD) from your tax-deferred retirement accounts. All subsequent RMDs must be taken by December 31. To figure out a first RMD due by April 1, 2020, take the 2018 year-end account balance and divide it by a life expectancy factor based on your birthday in 2019. You can find the factor in IRS Publication 590-B. you’ll still need to take your second RMD this year, if you waited on the first RMD.

If you’re still working past 70½, you can skip the RMD from your current employer’s 401(k) if you don’t own 5% or more of the company. However, you must take RMDs from traditional IRAs and 401(k)s from previous employers.

April 15:

The federal tax filing deadline for 2019 returns is on the regular date in 2020.

You can make 2019 IRA contributions up until April 15, which is up to $7,000, if you are 50 and older.

This is the deadline for the first estimated tax payment for 2020.

June 15:

This is the deadline for the second quarter estimated tax payment for 2020.

July 1:

Here’s when you can gauge a midyear estimate of your 2020 tax bill. Be sure withholding or estimated tax payments are on track to avoid underpayment penalties. You can avoid those penalties by paying at least 90% of the current year tax tab or 100% of the prior year tax tab (110% if you have a high income).

Look for tax-saving moves to trim your 2020 tab.

September 15:

This is the deadline for the third quarter estimated tax payment for 2020. If you are off track with estimated tax payments, or just don’t want to bother, you can withhold tax from your RMD. Withholding is to be evenly paid over the year, even if you withhold tax on an RMD taken in December and it can help cover the tax on all your income for the year.

September 30:

Your “annual notice of change” from your Medicare Advantage or Part D prescription-drug plan should be delivered to your mailbox by today.

October 15:

If you filed for an extension on April 15 for your 2019 tax return, today is the deadline to turn it in.

Medicare open enrollment begins. From now until December 7, you can switch between traditional Medicare and Medicare Advantage, or choose new Advantage and Part D plans, with coverage effective 2021.

November 1:

Early retirees in most states can purchase 2021 health coverage offered on exchanges under the Affordable Care Act from now until December 15.

December 7:

This is the deadline for Medicare’s open enrollment.

December 15:

This is the deadline for the ACA’s open enrollment.

December 31:

This is the IRA deadline for your RMD to be out of your account.

While you are at it, consider maxing out contributions to your employer retirement account, harvesting portfolio losses, making a Roth conversion, making charitable gifts and using up your annual gift exclusion of $15,000 for 2020 to give gifts to as many people as you choose.

Reference: Kiplinger (Dec. 24, 2019) “A Retiree’s Guide to Key Dates in 2020”

 

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Planning Retirement with a Cognitive Decline

The Director of Volunteer Programs at the Alzheimer’s Association, Stephanie Rohlfs-Young, explains that families shouldn’t let a diagnosis disrupt proper financial, estate and retirement planning. She recommends several proactive and tactical steps that individuals and families can undertake to address issues related to cognitive decline.

Barron’s recent article entitled “Cognitive Decline Shouldn’t Derail Retirement Planning. Here Are Some Tips to Prepare Your Finances” provides some tips on navigating the financial aspects of cognitive decline. Let’s look at some of them:

Inventory. For budgeting and estate planning purposes, families should conduct a thorough inventory of the individual’s property and debts to create a list of those who have access to each account. Ask about and include online checking, savings, credit-card and investment accounts. These can be neglected, if they aren’t in paper form. Try to work with the individual in cognitive decline to ascertain this information, when they can still be helpful. You don’t want to lose all those assets. This task can be challenging, when children aren’t aware of their parents’ financial dealings. This can include savings, insurance, retirement benefits, government assistance, veterans’ benefits and more. Families should also pick a lead person to be in charge of financial or legal matters.

Calculating future costs. A diagnosis of this nature is the time to figure out and plan for care costs that may include adult day care, in-home care and full-time medical care. These can costs vary widely, and many times families underestimate the amount they’ll spend on care. Families often fail to factor in out-of-pocket expenses that can add up, like prescriptions not covered by insurance. When budgeting, families should see what insurance may be available and if they might add or amend coverage.

Leverage the skills of an elder-law attorney. Partner with an experienced elder law attorney to help get the family’s financial and legal affairs together. Issues can include the titling of assets, trusts, powers of attorney, advance health care directive and more. For some, there’s also Medicaid planning.

Automate finances. Families should devise a plan for routine financial tasks, like bill paying. These are things that will eventually become too difficult for the loved one experiencing cognitive decline. Consider signing up for online banking. That way, an adult child can have easy access to monitor the parent’s account. Monthly bills, including insurance premiums, can be set up for automatic payment to help minimize the possibility of errors.

Organize your important documents. It’s critical after a diagnosis of cognitive decline to name a health-care representative to allow healthcare decisions to be made by someone of the person’s choosing. You should also have a general durable power of attorney for finances in place. This allows the appointed agent to make financial and legal decisions in the individuals’ stead.

Reference: Barron’s (Jan. 11, 2020) “Cognitive Decline Shouldn’t Derail Retirement Planning. Here Are Some Tips to Prepare Your Finances.”

 

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Tax Planning – I’m Between 55 and 64, How Do I Boost My Retirement Savings?

Tax Planning – It’s never too soon to begin saving. However, the last decade prior to retirement can be crucial. By then you’ll probably have a pretty good idea of when (or if) you want to retire and, even more important, still have some time to make changes, if need be.

If you discover that you need to put more money away, Investopedia’s article “Top Retirement Savings Tips for 55-to-64-Year-Olds” gives you several time-honored retirement savings tips to consider.

  1. Fund Your 401(k) to the Max. If your employer has a 401(k) or a similar plan, and you aren’t already funding yours to the maximum, up your contributions. These plans are an easy and automatic way to invest, plus you’ll defer paying taxes on that income until you withdraw it in retirement. You may be in a higher marginal tax bracket now than you will be during retirement, because you’re in your peak earning years. As a result, you’ll see a smaller tax bill in retirement. This applies to traditional 401(k)s and other plans. If your job offers a Roth 401(k) and you participate, you’ll pay taxes on the income now but be able to make tax-free withdrawals later.
  2. Review Your 401(k) Allocations. Experts tells us that you should invest more conservatively as you get older, with more money in bonds and less in stocks. That’s because if your stocks drop in a prolonged bear market, you won’t have the time needed to recover. As a result, you may have to sell your stocks at a loss. Stocks still have growth potential and are a hedge against inflation, unlike bonds. Therefore, remain diversified in both stocks and bonds, but do this in an age-appropriate manner.
  3. Look into an IRA. If you don’t have a 401(k) plan to join at work—or if you’re already funding yours to the max—another retirement investing option is an IRA. There are two types: traditional and Roth. With a traditional IRA, the money you contribute is generally tax-deductible upfront. With a Roth, you receive a tax break later with tax-free withdrawals. Each has its own set of rules for contributions, so educate yourself on the differences.
  4. Know Your Sources of Income for Retirement. Your level of aggressiveness in saving also depends on the other sources of income you can reasonably expect to have in retirement. When you hit your mid-50s or early 60s, you can get a much better estimate than earlier in your career. After you’ve contributed to Social Security for 10 years or more, you can get a personalized estimate of your future monthly benefits using the Social Security Retirement Estimator. Your benefits are based on your 35 highest years of earnings, so they may increase if you continue working. Your benefits will also vary, based on when you start collecting them. You can start taking benefits as early as age 62, but they’ll be permanently reduced from what you’ll receive if you wait until your “full” retirement age (currently between 66 and 67 for anyone born after 1943). You can also wait and start getting your Social Security up to age 70 and see the largest amount possible.
  5. Don’t Mess with Your Retirement Savings. After age 59½, you can begin making penalty-free withdrawals from your traditional retirement plans and IRAs. With a Roth IRA, you can withdraw your contributions (not their earnings) penalty-free at any time. In addition, the IRS has an exception known as “the Rule of 55.” This waives the early-withdrawal penalty on retirement plan distributions for workers 55 and over (50 and over for some government employees) who lose or leave their jobs. This is a complicated rule, so speak to your estate planning attorney. It is important to understand that just because you can make withdrawals doesn’t mean you should, unless you absolutely need the money. The longer you keep your retirement accounts “in the bank” (up to age 72, when you must begin to take required minimum distributions from some), the better off you’re likely to be.
  6. And Remember the Taxes. When you make withdrawals from a traditional 401(k) plan or traditional IRA, you’ll be taxed at your rate for ordinary income—not the lower capital gains rate.

Reference: Investopedia (June 11, 2019) “Top Retirement Savings Tips for 55-to-64-Year-Olds”

Suggested Key Terms: Retirement Planning, Tax Planning, Financial Planning, IRA, 401(k), Pension, Social Security, Stocks, Bonds, Required Minimum Distribution (RMD)

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How Does Social Security Work for a Spousal Benefit ?

Social Security is the main retirement income source for more than 60% of Americans, which is why it is usually the focus of news about retirement income. However, there’s more to Social Security benefits, including how it helps surviving spouses. A Spousal benefits can be a critical part of retirement securities when families lose a loved one, says the article “Understanding the Basics Of Social Security Benefits for Surviving Spouses” from Forbes.

The rules about surviving spousal benefits can be complicated. There are four basic categories of survivor benefits. Here’s a closer look:

Survivor benefits at age 60. At their full retirement age, the surviving spouse can receive full survivor benefits based on the deceased individual retirement benefit. The amount from the survivor benefit is based on the deceased spouse’s earnings. At full retirement age, the survivor receives 100% of the deceased individuals’ benefit or their projected benefit at full retirement age. If they collect benefits before full retirement age, you’ll get between 70% to 99% of the deceased spouse’s benefit.

You cannot receive both your benefit and your deceased spouse’s benefit. In most cases, it makes sense to defer whichever is the higher benefit, taking the lower benefit first while the larger benefit continues to increase.

Lump sum payment. This was originally intended to help survivors with certain funeral and end-of-life costs. However, the amount has never been indexed for inflation. Therefore, it won’t cover much. To get the payment, the surviving spouse must apply for it within the first two years of the deceased individual’s date of death.

Disabled benefit. If you qualify as disabled, you can receive survivor benefits as early as age 50. Divorced spouses can also receive survivor benefits, if the marriage lasted for at least ten years. If you remarry, you cannot receive survivor benefits. However, if you remarry after age 60, or age 50 if disabled, you can continue to receive survivor benefits based on your deceased spouse’s benefit, if you were married for at least ten years. You can even switch over to a spousal benefit based on the new spouses’ work history at age 62, if the new benefit would be higher.

Caring for children under age 16. A surviving spouse of any age caring for a child who is under age 16 may receive 75% of the worker’s benefit amount. The child is also eligible for a survivor benefit of 75% of the deceased parent’s benefits. A divorced spouse taking care of the deceased ex’s child younger than 16 is also entitled to 75% of the deceased spouse’s benefit. In this case, the ex does not need to meet the ten-year marriage rule, and they can be any age to collect benefits.

One thing to consider: the rules surrounding Social Security benefits are complex, especially when it comes to coordinating a spousal benefit with an overall financial plan. Speak with an estate planning attorney to protect the family and the children.

Reference: Forbes (Dec. 30, 2019) “Understanding the Basics Of Social Security Benefits for Surviving Spouses”

 

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What Does the New SECURE Act Mean for My Retirement?

Lawmakers in Washington are providing some essential tools to those trying to put together a financial plan for their retirement, Motley Fool reports, in its recent article entitled “3 Ways the SECURE Act Could Make You Replan Your Retirement.” However, in the process, our legislators can also throw a curve ball into the existing legal system. This may provide new opportunities for savers but also may create pitfalls for the unaware. As a result, it’s important to know the three primary ways that the SECURE Act will change the way you think about retirement.

  1. Delaying RMDs from IRAs and 401(k)s until age 72. Many Americans use IRAs, 401(k)s, and other tax-favored retirement accounts to help them save for retirement. These accounts offer deferral on any taxes generated by the investments within the account,s until the funds are withdrawn in retirement. However, Congress didn’t want people to be able to defer taxes on their retirement savings forever, so they created a system of required minimum distributions (RMDs). Under current law, most people have to start taking withdrawals from IRAs and 401(k)s beginning in the year they turn 70½. The distribution amount is based on the person’s life expectancy, so that they gradually use up the retirement account balances over time.

The SECURE Act changes the age at which people are required to take RMDs to age 72. This allows people some extra time before dealing with RMDs and also eliminates the complication of dealing with a half-birthday. You can withdraw money from your retirement accounts at age 70½ if you want to, but the legislation lets you make the choice.

  1. Allowing IRA contributions after age 70½. Under current law, people can’t make IRA contributions once they reach 70½, despite still working. Congress again didn’t want people to keep adding to their retirement accounts, when they were already past a typical retirement age. However, in reality, many people still work after age 70½. Therefore, allowing them to set money aside in a tax-favored way is only fair. That’s why the SECURE Act’s changed the age to allow further IRA contributions.
  2. Forcing faster withdrawals from inherited IRAs. The third change isn’t as favorable: to help pay for the tax impact of these changes, Congress decided to curtail the rules that let those who inherit retirement accounts to stretch out distributions over their entire lifetimes. The new legislation would still let spouses treat an inherited account as if it belonged to the spouse, but non-spouse beneficiaries would have to take distributions within 10 years.

With this change, you should review your estate planning to see if changes are necessary to reach the best possible outcome. Ask your estate planning attorney to go over these changes and how they may have an impact upon your estate plan.

Reference: Motley Fool (Dec. 19, 2019) “3 Ways the SECURE Act Could Make You Replan Your Retirement”

 

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