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BayTrust Financial

Mar 24
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Stock Market Volatility: It Helps to Look Backward

By Investing, News

Obviously, many of our clients are worried about the news, the headlines about coronavirus, and the drops in the stock market happening at the time of this writing.

As you know, our firm focuses a lot of attention on protecting your savings as you near retirement. But for some of our clients (depending on their unique circumstances), part of their portfolio—and/or part of their 401(k) or other retirement funds—are still subject to stock market risk. The reason for this is that based on historic return data: the stock market can offer the highest returns over time, and so might still be part of your overall retirement plan design.

The Stock Market Is a Long-Term Strategy

Some of our clients are all set with their retirement income plan, so their concerns are not for themselves. They are worried about their children and grandchildren, and how the stock market drops will hurt their loved ones’ finances.

We would like to remind everyone that it’s helpful to look backward.

The first market crash happened in Europe in 1634, when Dutch tulips bottomed out. (There’s a period movie called “Tulip Fever” that dramatized this one.) In the United States, the first major crash (and worst so far) happened in 1929. It took America 12 years to recover from the “Great Depression,” but we did recover, and went on to enjoy some of the greatest prosperity in our history.

But we’ve weathered more recent stock market collapses, too. Like the one in 1987 when “Black Monday” brought the largest single-day market loss in U.S. history. And there was the Dot.com bust of 2000. And of course, the “Great Recession” of 2008.

The thing is, historically every eight years or so we have experienced some sort of market correction. We were well overdue for this current market volatility; it’s been 12 years of experiencing primarily a bull market since 2008. Our firm has been talking with our clients about the possibility of a market correction for the last four years; indeed, we’ve been planning for it.

We view the stock market as just one of the tools in your financial planning arsenal—the tool with the longest timeline. To quote Warren Buffett: “The stock market is a device for transferring money from the impatient to the patient.”

In other words, although no one can predict the future, based on historic market performance your children and grandchildren probably have time to recover, and most likely, prosper. (This might even be a good time for them to pick up some bargains, depending on their circumstances.)

For you, if you do not have a retirement plan in place to help balance growth plus protection of your assets in volatile times, please call us. There are options to investing in the market.

Contact Drew Financial Private Capital in Florida toll free at 1.833.DREWCAP or 813.820.0069.

 

 

Source: https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Feb 24
Love0
RMDs and retirement

Clearing Up Confusion About RMDs

By Retirement, Tax Planning

Last month, we posted information about how the SECURE Act has increased the age for required minimum distributions (RMDs) from 70-1/2 to 72 starting this year, 2020.

If you turned age 70-1/2 in 2019, your RMDs were required for the 2019 tax year, and WILL BE required for 2020, 2021 and every year from now on.

For everyone turning 70-1/2 in 2020, your RMDs will not be required until the year you turn 72, even if you have received notification from your custodian to the contrary.

Because the law was passed and became effective within two weeks of passage, automated computer notifications and settings have not been changed yet. Call us if you have any questions!

 

LET’S MEET ABOUT YOUR ESTATE PLAN

Remember that inherited “stretch IRAs” have been shortened to 10 years in many circumstances due to the passage of the SECURE Act.

Let’s get together and discuss how this may affect your current estate plan, what burdens your heirs may face, and what we need to do now in conjunction with your estate attorney.

 

SECURE ACT CHANGES FOR EMPLOYEES AND EMPLOYERS

  1. PART-TIME EMPLOYMENT ELIGIBILITY

Unless there is a collectively-bargained plan in place (such as a union agreement), you may be eligible for your employer’s 401(k) or similar retirement benefit plan even if you work part time. If you have worked for your employer for one year consecutively for at least 1,000 hours, or for three consecutive years for at least 500 hours (roughly 25 work-weeks of 20 hours per week), you will be eligible.

  1. ANNUITY OPTIONS IN 401(k) PLANS

Even though employers were already allowed to offer annuities in their 401(k) plans, only about 9% of them did. The SECURE Act shifts the burden of legal liability away from employers who offer annuities in their plans; you will need to be diligent about examining them before choosing. (We can help you with this.) The DOL will require standardized monthly retirement income projections to help you compare; they are expected to issue guideline regulations about this in the coming months.

  1. ANNUITY PORTABILITY

Within a retirement plan, an annuity portability requirement has been added by the SECURE Act. If an annuity offering is removed from a 401(k) plan menu, you will be able to roll that annuity investment over into your own IRA with no penalty.

  1. FOR EMPLOYERS

The SECURE Act raised the tax credit for employers to $15,000 to set up, administer and educate employees about retirement plan changes over a three-year period. (NOTE: Employer contributions to 401(k) plans have been and still are tax deductible.) There is a new tax credit of $500 per year for automatic enrollment of employees into a company’s 401(k) plan—and the cap for auto enrollment has been raised from 10% to 15% of wages.

 

If you have any questions about this information, please don’t hesitate to call our office!

Contact Drew Financial Private Capital in Lutz, Florida at (813) 820-0069 to find out more.

 

 

Sources:

https://www.plansponsor.com/in-depth/getting-secure-acts-lifetime-income-provisions-right/

https://humaninterest.com/blog/part-time-employees-secure-act/

https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743

https://www.cnbc.com/2019/07/03/if-annuities-come-to-your-401k-savings-plan-heres-what-to-know.html

 

The SECURE Act is a complex new law still being analyzed and assessed by industry experts. IRS clarifications may follow. The information in this article is provided for general information and educational purposes only. It is not designed nor intended to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in or refrain from a particular course of action.

Do not rely on this information for tax advice. Check with your CPA, attorney or qualified tax advisor for precise information about your specific situation.

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Jan 22
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5 Things You Need to Know About the SECURE Act

By Retirement, Tax Planning

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE) became effective Jan. 1, 2020, and many people have questions about it.  Here are the top five things consumers should know.

 

  1. 72 is the new 70½

The SECURE Act raises the age at which retirees must begin taking Required Minimum Distributions from the awkward age of 70-1/2 to an even age 72, allowing for a couple more years of growth before RMDs kick in. NOTE: Anyone who reached age 70-1/2 in 2019 or before is subject to the old rules.

 

  1. You can keep making contributions to traditional IRAs

The act repeals the age limitation for making contributions to traditional IRAs, as long as you have earned income. Previously, the maximum age for traditional IRA contributions was set at 70-1/2 (this was the only type of retirement account which had an age limitation). Now, those working into their 70s and beyond can continue contributing to their traditional IRAs, even if they’re simultaneously required to begin drawing them down.

 

  1. The stretch IRA is dead

While existing “stretch IRAs” are grandfathered in and still follow the old tax rules, stretch IRAs are unlikely to be used by financial and estate planners in the future because their tax advantages have been drastically reduced.

Prior to the new law, stretch IRAs were primarily used for estate planning because they allowed a family to extend distributions over future generations—while the IRA itself continued to grow tax free. The person inheriting an IRA was required to take RMDs based on their life expectancy, which meant that a very young beneficiary could stretch out their distributions potentially over their lifetime.

Now beneficiaries must draw down the entire account within 10 years of inheriting it, possibly throwing them into a higher tax bracket. (They can take the money out in any year or years they like, as long as the account is empty by 10 years of the date of death of the original account owner.)

The new 10-year rule also applies to inherited Roth IRAs.

You may want to review your plan if you have stretch IRAs set up for your family, because any IRA inherited as of January 1, 2020 is subject to the new rules. Trusts you may have put in place to take advantage of stretch IRA rules probably won’t ameliorate taxes anymore either.

Keep in mind that the act does provide for a whole class of exceptions who aren’t subject to this 10-year rule; for them, the old distribution rules still apply. These beneficiaries (referred to as “Eligible Designated Beneficiaries”) are:

  • Spouses
  • Disabled beneficiaries
  • Chronically ill beneficiaries
  • Individuals who are not more than 10 years younger than the decedent
  • Certain minor children (of the original retirement account owner), but only until they reach the age of majority. NOTE: At this time, minor children would appear to be ineligible for similar treatment if a retirement account is inherited from a non-parent, such as a grandparent.

 

This new law is clearly designed to raise taxes. According to the Congressional Research Service, the lid put on the Stretch IRA strategy by the new law has the potential to generate about $15.7 billion in tax revenue over the next 10 years!

 

  1. The Roth got more attractive

Because contributions to Roth IRAs are made on an after-tax basis, a Roth account owner is not subject to Required Minimum Distributions at any age. An owner can leave their Roth to grow until their death, leave it to their spouse, who can then allow it to grow until they die. The second spouse can leave it to their children, who can then allow it to continue to accumulate tax-free for another 10 years, although they will now have to empty the account by the 10-year mark.

In terms of estate planning, Roth IRAs typically do not cause a taxable event when distributions are taken by a beneficiary.

Low individual tax rates by historical standards and a pending reversion in 2026 to the higher income tax brackets/rates that preceded the Tax Cuts and Jobs Act (TCJA) of 2017 can make this an opportune time for Roth conversions for those over age 59-1/2. These can benefit you, your spouse and heirs by strategically moving taxable retirement funds into tax-free Roth retirement accounts. The most common strategy for Roth conversions is ‘bracket-topping,’ where you convert enough to go to the edge of your tax bracket.

Keep in mind that these conversions need to be planned and done carefully, as they can no longer be reversed.

Remember, any account can be set up as a Roth – including CDs, government bonds, mutual funds, ETFs, stocks, annuities—almost any type of investment available.

 

  1. Other non-retirement related provision highlights:
  • You can use $5,000 of qualified money for childbirth or adoptions
  • 529 plan-approved “Qualified Higher Education Expenses” now include expenses for Apprenticeship Programs—including fees, books, supplies and required equipment—provided the program is registered with the Department of Labor
  • 529 plans can also be used for “Qualified Education Loan Repayments” to pay the principal and/or interest of qualified education loans limited to a lifetime amount of $10,000, retroactive to the beginning of 2019
  • The Kiddie Tax rules changed by the Tax Cuts and Jobs Act (TCJA) of 2017 have been reversed, (and can be reversed for the 2018 tax year as well)
  • The AGI (Adjusted Gross Income) “hurdle rate” to deduct qualified medical expenses remains lower at 7.5% of AGI for 2019 and 2020.
  • The following tax benefits for individuals are reinstated retroactively to 2018, and made effective onlythrough 2020 at this time:
    • The exclusion from gross income for the discharge of certain qualified principal residence indebtedness
    • Mortgage insurance premium deduction
    • Deduction for qualified tuition and related expenses

 

There are even more provisions of the SECURE Act designed to make it easier for small business owners to offer retirement plans to employees, as well as add annuities to their plans.

 

Contact Drew Financial Private Capital in Lutz, Florida at (813) 820-0069 to find out more.

 

 

 

The SECURE Act is a complex new law still being analyzed and assessed by industry experts. IRS clarifications may follow. The information in this article is provided for general information and educational purposes only. It is not designed nor intended to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in or refrain from a particular course of action.

Do not rely on this information for tax advice. Check with your CPA, attorney or qualified tax advisor for precise information about your specific situation.

Sources:

https://www.wealthmanagement.com/retirement-planning/what-advisors-need-know-about-secure-act  

https://www.marketwatch.com/story/economists-like-annuities-consumers-dont-heres-the-disconnect-2019-12-23

https://www.investopedia.com/articles/retirement/04/031704.asp

https://www.kiplinger.com/article/retirement/T064-C032-S014-pros-cons-and-possible-disasters-after-secure-act.html

https://www.forbes.com/sites/leonlabrecque/2019/12/23/the-new-secure-act-will-make-roth-strategies-much-more-appealing-here-are-five-ways-to-use-a-roth/#3c239df6381d

https://www.marketwatch.com/story/secure-act-includes-one-critical-tax-change-that-will-send-estate-planners-reeling-2019-12-30

https://www.kitces.com/blog/secure-act-2019-stretch-ira-rmd-effective-date-mep-auto-enrollment/

 

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Dec 18
Love0
401k Rules

The Rules Are Changing For 401(k)s In 2020

By 401k Plans, Retirement

The Rules Are Changing For Your 401(k) In 2020

If you’re still working and contributing to a 401(k) or similar workplace retirement plan, there is some good news for the upcoming year.

If you’re under age 50, the amount you can contribute to your 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is now $19,500 for 2020—a $500 increase over 2019. Additionally, for those who are age 50 or over by December 31, 2020, the catch-up amount is now $6,500, up by $500 (and the first increase since 2015).

Keep in mind that you can still put away an additional $6,000 in an IRA—$7,000 for those age 50 or older. As always, these contributions can be made up until tax day, April 15, for the previous year’s taxes. That plus the new limits mean that an employee who is 50+ can sock away a total of $33,000 in tax-advantaged retirement accounts for 2020.

For Business Owners

For self-employed small business owners, the amount that can be saved in a SEP IRA or a solo 401(k) goes up from $56,000 to $57,000 in 2020, if all requirements are met. The limit on SIMPLE retirement accounts goes up from $13,000 to $13,500 in 2020 (plus $3,000 if you’re 50+). For defined benefit plans—similar to pensions of the past, but now used by high-earning self-employed individuals—the limit on the annual benefit goes up from $225,000 in 2019 to $230,000 in 2020.

Hardship Withdrawal Rule Changes

Even though making hardship withdrawals from 401(k) and 403(b) retirement plans will be easier for plan participants in 2020, for most employees, withdrawals should be a last-ditch option if you’re facing financial hardship. This is true especially if you’re under age 59-1/2, when you have to pay taxes plus a 10% tax penalty on the amount withdrawn.

However, it will be easier to start to saving again following a hardship withdrawal. Prior to 2020, employees who took a hardship withdrawal were barred from making new contributions to their plans for six months. Starting January 1st, this is no longer the case.

Also in 2020, employees can withdraw earnings, profit-sharing and stock bonuses rather than just their contribution amounts for 401(k) hardship withdrawals. (NOTE: 403(b) plan participants are still limited to just their contributions.)

Starting in 2020, your employer gets to decide whether you have to take a plan loan first—requiring payback with interest—before taking a hardship withdrawal; it’s no longer mandated by the government, it’s optional. Remember, taking a loan rather than a hardship withdrawal is almost always your best choice to keep your retirement on track.

Hardship Verification and Disaster Relief Rules

Hardship verification standards have been eased; an employer or retirement plan administrator is not required to determine if a hardship withdrawal is necessary by checking cash or assets available—the burden is on the employee to certify that it is.

To take a hardship withdrawal, employees must have an immediate and heavy financial burden or need that includes one or more of the following:

  1. Purchase of a primary residence.
  2. Expenses to repair damage or to make improvements to a primary residence.
  3. Preventing eviction or foreclosure from a primary residence.
  4. Post-secondary education expenses for the upcoming 12 months for participants, spouses and children.
  5. Funeral expenses.
  6. Medical expenses not covered by insurance.

In 2020, a seventh category has been added for expenses resulting from a federally declared disaster in an area designated by FEMA; the agency will no longer need to issue special disaster-relief announcements to permit hardship withdrawals to those affected.

 

If you have any questions about the new rules for 401(k)s and similar retirement savings plans, please call us! Our mission is to help you achieve your personal financial and retirement goals.

Contact Drew Financial Private Capital in Florida at (813) 820-0069.

 

 

Sources:

https://www.forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/#662aa23733bb

https://www.shrm.org/resourcesandtools/tools-and-samples/exreq/pages/details.aspx?erid=1312

https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-final-rule-eases-401k-hardship-withdrawals.aspx

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Nov 20
Love0

Does Your Retirement Plan Include Inflation Risk?

By Retirement

Inflation may not always be top of mind when you think about planning for retirement. Of course, you will likely consider your current expenses, but you need to account for what the costs of those expenses could be over time.

None of us can predict the future, but we can plan. Inflation diminishes purchasing power over the years and increases the costs of services that retirees and pre-retirees need. Given that more Americans are living longer, it can pay dividends to include inflation risk in your overall planning.

The other issue we have to contend with when it comes to inflation is that we may be lulled into a false sense of security since government measures of inflation have been very low in recent years. In addition, safer investments like money market funds, CDs and government bonds generally yield less than the cost of goods and services that many of us need. This makes it difficult for our safe money investments to keep pace with our expenses.

Lower government inflation measures also have an impact on Social Security benefits. Among the features of Social Security is that benefits are generally adjusted each year for inflation in what is known as a cost-of-living adjustment, or COLA. In October, the Social Security Administration announced a 1.6% COLA that takes effect in December for some beneficiaries and by January for most.

The average benefit increase for retired workers with the recently announced COLA is estimated to be $24 to $1,503 per month. Married couples both receiving benefits will see a $40 increase, on average, to a monthly payment of $2,531. The cost-of-living adjustment for 2020 is lower than that of 2019, which was 2.8%, and 2018, which was 2.0%.

Getting the most out of your Social Security benefit is extremely important for your retirement and it’s nice to have a feature that steps up with inflation. However, adjustments tracking official government statistics likely won’t cover the higher expenses you will face throughout retirement, so planning is important.

Health Care and Medical Cost Inflation

Then there is health care, among the biggest costs you may encounter in retirement and even now if you are still working and saving for retirement. Medical cost inflation is real and it can negatively impact your savings if you don’t have a way to offset it.

The Centers for Medicare & Medicaid Services (CMS) estimated earlier this year that health expenditures are projected to increase 4.8% overall in 2019, up from 4.4% growth in 2018.

For those still working and covered by an employer’s plan, costs are outpacing wages and inflation. Since 2009, the Kaiser Family Foundation says average family premiums have increased 54% and workers’ contributions have increased 71%, several times more quickly than wages (26%) and inflation (20%).

If you are already enrolled in Medicare and have been incurring out-of-pocket expenses then you know the impact of what higher drug costs or services that Medicare doesn’t cover can do to your monthly budget. We often cite figures from Fidelity Investments, estimating that a 65-year old couple retiring in 2019 can expect to spend $285,000 in today’s dollars for health care and medical expenses throughout retirement. The figure doesn’t include long-term care.

Once you have an idea of what your expenses are, we can get started now on developing or updating your plan to account for inflation. The other thing to keep in mind is that while inflation has been low in the past decade, it is best to plan using higher long-term averages.

There are several ways we can address inflation risk, depending on your situation. Strategies and options could include how your investments are positioned over time and guaranteed income solutions that adjust periodically to keep pace with inflation. You will want to meet with us, too, for a plan to cover long-term care as these costs can be a significant financial risk. Now is also a good time to contact us to discuss Medicare because the current open enrollment period runs through December 7 if you want to make changes or switch plans.

Let us know how we can help! Contact Drew Financial Private Capital in Lutz, Florida at (813) 820-0069.

 

 

Sources:

“Social Security Announces 1.6 Percent Benefit Increase for 2020,” October 10, 2019. Social Security Administration. Retrieved from: https://www.ssa.gov/news/press/releases/2019/#10-2019-1

“National Health Expenditure Projections 2018-2027,” February 2019. Centers for Medicare & Medicaid Services. Retrieved from: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ForecastSummary.pdf

“Benchmark Employer Survey Finds Average Family Premiums Now Top $20,000,” September 25, 2019. Kaiser Family Foundation. Retrieved from: https://www.kff.org/health-costs/press-release/benchmark-employer-survey-finds-average-family-premiums-now-top-20000/

“How to plan for rising health care costs,” April 1, 2019. Fidelity Investments. Retrieved from: https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Oct 24
Love0

The IRA Had a Birthday Last Month

By Retirement

The IRA can provide many gifts as part of a comprehensive retirement plan.

The Individual Retirement Account (IRA) turned 45 on Labor Day. On September 2, 1974, the Employee Retirement Income Security Act, or ERISA, was enacted into law, introducing broad safeguards to protect employee savings in both defined benefit plans like pensions, and defined contribution plans.

The intent of Congress in initially establishing IRAs was to provide a tax-advantaged retirement savings plan for those workers at businesses that weren’t able to offer pensions. The IRA also made it possible to preserve the tax-deferred status of qualified plan assets when an employee changed jobs or retired, paving the way for rollovers.

It was still several years before the 401(k) plan would arrive, not through legislation, but rather a private letter ruling from the Internal Revenue Service (IRS). However, the 1974 act would benefit 401(k)s through the flexibility of rollovers.

Today, the IRA plays a vital role for Americans saving for retirement. IRA assets totaled $9.4 trillion at the end of March 2019, representing nearly one-third of the $29.1 trillion U.S. retirement market. Assets held in IRAs have been growing at an annual average pace of 10% over the past 25 years, from $993 billion in 1993, according to the Investment Company Institute (ICI).

Millions of Americans use IRAs to save for retirement. An estimated 42.6 million U.S. households, or 33.4%, owned IRAs as of mid-2018. An estimated 33.2 million households owned traditional IRAs, making it the most common type of IRA. A total of 22.5 million households owned Roth IRAs, and 7.5 million U.S. households owned employer-sponsored IRAs such as Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, according to the ICI.

The types of IRAs have expanded since 1974. SEP IRAs were created in 1978 to offset concerns that complex regulations were preventing smaller businesses from offering retirement plans. SIMPLE IRAs were created in 1996 specifically for employers with 100 or fewer employees.

The popular Roth IRA came into being as part of the Taxpayer Relief Act of 1997, enabling retirement savers with the option of contributing on an after-tax basis, and the ability to take tax-free withdrawals, so long as they qualify with IRS rules. However, Roth IRA contribution limits and eligibility are based on your modified adjusted gross income, or MAGI. For 2019, that means only single Americans with a MAGI of $135,000 or less may invest in a Roth IRA; while the MAGI limit for married Americans is $199,000.

The Roth IRA can be a beneficial tax-planning tool. While the traditional IRA offers tax-deferred savings benefits, it can have a downside. Once you reach age 70½, IRS rules require you to begin withdrawing from these accounts through Required Minimum Distributions (RMDs). But Roth IRAs – which have accumulated more than $800 billion in assets since first becoming available in 1998 – allow you to potentially garner their tax advantages through conversions.

In a conversion, taxes are paid on any pre-tax assets in a traditional IRA or 401(k)-like plan (if you qualify) that are moved into a Roth. In 2010, income limits were lifted on conversions so, these days, you can convert your IRA assets to a Roth regardless of your income or marital status. However, it’s important to do these conversions carefully, because as of 2018, they are no longer reversible (called a recharacterization.)

Now is the time to give us a call, if you have tax-deferred retirement accounts and are concerned that RMDs could bump you into a higher tax bracket in the future. It’s a good idea to begin tax planning several years before retirement and keep your tax bill low with periodic checkups on your interest income, potential capital gains and losses, and other tax planning needs. This way, we can help you minimize a portion of the taxes you may have to pay.

Lack of knowledge is the biggest obstacle preventing Americans from investing in an IRA. According to a LIMRA Secure Retirement Institute (LIMRA SRI) study published in early 2019, only 34% of Americans believe they are knowledgeable about IRAs. Men are far more likely to say they are knowledgeable about IRAs than women. Forty-two percent of men consider themselves knowledgeable about IRAs, compared with just 27% of women. Of those who don’t own an IRA, nearly half (46%) felt they did not understand enough about IRAs to contribute to them.

When it comes to retirement planning, everyone can use a helping hand. It doesn’t hurt from time to time to get an external check on how you’re progressing toward your financial goals. Whether it’s what investment options might make sense for your traditional IRA, tax planning, Roth IRA conversions, guidance on saving for retirement or an income plan you can’t outlive, we’re here whenever you need us!

Contact Drew Financial Private Capital in Lutz, Florida at (813) 820-0069.

 

Sources:
“Happy Birthday, IRA! Congratulations on 45 Years,” September 12, 2019. Sarah Holden and Elena Barone Chism. Investment Company Institute. Retrieved from: https://www.ici.org/viewpoints/19_view_irabirthday
“Frequently Asked Questions About Individual Retirement Accounts (IRAs),” June 2019. Investment Company Institute. Retrieved from: https://www.ici.org/pubs/faqs/faqs_iras
“This is your last chance ever to reverse a Roth IRA conversion,” March 2018. MarketWatch. Retrieved from: https://www.marketwatch.com/story/this-is-your-last-chance-ever-to-reverse-a-roth-ira-conversion-2018-02-10
“LIMRA Secure Retirement Institute: Only 34 Percent of Americans Are Confident in their IRA Knowledge,” February 27, 2019. LIMRA Secure Retirement Institute. Retrieved from: https://www.limra.com/en/newsroom/industry-trends/2019/limra-secure-retirement-institute-only-34-percent-of-americans-are-confident-in-their-ira-knowledge/

 

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Aug 28
Love0

Christopher Drew Joins an Elite Group of Financial Professionals at Annexus NYC

By News

Exclusive Advisor Training Focused on New Retirement Solutions

 (Tampa, Florida) – Christopher Drew, President of Drew Financial Private Capital, attended Annexus NYC, a conference for elite financial professionals, to learn the newest advanced planning strategies. The invitation-only event, sponsored by independent retirement solution design leader Annexus, provided advisors with fresh insights and new tools to help clients grow and protect their retirement savings. The attendees engaged with some of the world’s largest investment banks and academic thought leaders, including Yale University Professor Emeritus Roger Ibbotson, one of the nation’s most influential experts in asset allocation.

“Traditionally, people nearing or in retirement seek to reduce risk by increasing their allocation to bonds, but today is different,” said Professor Ibbotson. “Today’s low interest rates and longer durations mean that investors may see negative bond returns going forward. Traditional thinking may no longer apply.”

“The financial markets are more complex than ever,” said Annexus Co-Founder Don Dady. “People choose their advisor to help them find solutions. Our goal is to provide advisors with innovative alternatives to help reduce exposure to market volatility, manage retirement risks, and prevent clients from outliving their retirement savings.”

Christopher Drew was one of just 100 elite professionals from across the nation invited to Annexus NYC. “The way Annexus has been able to bring Wall Street and Main Street together made this event truly unique in the industry,” said Drew. “Expert speakers addressed industry-level trends in index design and demonstrated how to eliminate downside risk, benefit from potential market growth, and guarantee lifetime income.”1

“Our program is designed to help already exceptional advisors become even better, said Annexus Co-Founder Ron Shurts. “We provide an unparalleled level of expertise designed around smarter strategies to help meet clients’ retirement goals. Annexus NYC helps elite advisors become even better equipped to serve their clients.”

Christopher Drew, a local financial professional who helps clients prepare for a more secure retirement, is with Drew Financial Private Capital located at 16021 N. Florida Ave, Lutz, FL 33549.16021

1 Guarantees and protections are based on the claims-paying ability of the issuing carrier.

About Annexus
Annexus designs solutions to help Americans grow and protect their retirement savings.
For over a decade, Annexus has developed market-leading retirement-focused insurance products. Find out more about Annexus and its products at www.annexus.com.

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Apr 18
Love0
Social Security

Are your Social Security benefits taxable?

By Tax Planning

The answer is: Yes, sometimes.

If you don’t have significant income in retirement besides Social Security benefits, then you probably won’t owe taxes on your benefits. But if you have large amounts saved up in tax-deferred vehicles like 401(k)s, you could be in for a surprise later.

AGI (Adjusted Gross Income) versus Combined Income.

You are probably familiar with what AGI, or adjusted gross income, means. To find it, you take your gross income from wages, self-employed earnings, interest, dividends, required minimum distributions from qualified retirement accounts and other taxable income, like unearned income, that must be reported on tax returns.

(Unearned, taxable income can include canceled debts, alimony payments, child support, government benefits such as unemployment benefits and disability payments, strike benefits, lottery payments, and earnings generated from appreciated assets that have been sold or capitalized during the year.)

From your gross income amount, you make adjustments, subtracting amounts such as qualified student loan interest paid, charitable contributions, or any other allowable deduction. That leaves you with your adjusted gross income, which is used to determine limitations on a number of tax issues, including Social Security.

Combined Income is a formula used after you file for your Social Security benefits.

Whether or not your Social Security benefits are taxable depends on your combined income each year, which is defined as your adjusted gross income (AGI) plus your tax-exempt interest income (like municipal bonds) plus one-half of your Social Security benefits.

The IRS provides a worksheet for this. (See the worksheet here: https://www.irs.gov/pub/irs-pdf/p915.pdf#page=16)

If your combined income exceeds the limit, then up to 85% of your benefit may be taxable. But in accordance with Internal Revenue Service (IRS) rules, you won’t pay federal income tax on any more than 85% of your Social Security benefits.

What are the combined income limits?

Social Security benefits are only taxable when your overall combined income exceeds $25,000 for single filers or $32,000 for couples filing joint tax returns.

If you file a federal tax return as an “individual” and your combined income is:

  • Between $25,000 and $34,000 – you may have to pay income tax on up to 50% of your benefits.
  • More than $34,000 – up to 85% of your benefits may be taxable.

If you file a “joint” return, and you and your spouse have a combined income that is:

  • Between $32,000 and $44,000 – you may have to pay income tax on up to 50% of your benefits.
  • More than $44,000 – up to 85% of your benefits may be taxable.

RMDs (Required Minimum Distributions) can be an unwelcome surprise.

Starting at age 70-1/2, you are required to start taking money out of your tax-deferred accounts, whether you need the income or not. These accounts include:

  • Traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • Rollover IRAs
  • Most 401(k) and 403(b) plans
  • Most small business retirement accounts

There are precise formulas for calculating how much you have to withdraw each year based on the IRS Uniform Lifetime Table. If you miscalculate, or if you or your plan administrator fail to move the money by December 31, you could face a 50% tax penalty; there is no grace period to April 15.

NOTE: The table goes up to age 115 and beyond. You can find the IRS life expectancy table as well as an IRS worksheet for calculating RMDs here: https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

Simplified RMD example for illustrative purposes only:*

Let’s say you are single, age 72, and you have one qualified account—$400,000 was the value of your 401(k) plan as of December 31 last year. You divide $400,000 by your life expectancy factor of 25.6 which give you $15,625.

This is the amount that you have to take out of your 401(k), which will count as part of your AGI.

Simplified Combined Income example for illustrative purposes only:*

To continue with our simplified example, let’s say you, our 72-year-old single person above, receives $2,800 per month in Social Security ($33,600 per year) and you don’t have any other source of income besides the RMD taken from your 401(k) account as illustrated above.

Based on the combined income formula:

AGI = $15,625

+ Non-taxable interest = $0

+ Half of Social Security = $16,800

—————

Your total combined income is = $32,425   

Because you are over the combined income limit of $25,000 for an individual, but less than the $34,000 which would require 85%, you would pay taxes on 50% of your Social Security benefit.

###

At Drew Financial Private Capital, we provide retirement planning and Social Security benefit optimization, and we work in conjunction with your CPA or tax professional to help you consider taxes and how to minimize them as part of your overall retirement plan. Call us at (813) 820-0069.

* This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local taxes or penalties. The information in this article is provided for general education purposes only. Do not rely on this information for tax advice. Check with your CPA, attorney or qualified tax advisor for precise information about your specific situation.

Sources:

https://www.investopedia.com/ask/answers/013015/how-can-i-avoid-paying-taxes-my-social-security-income.asp

https://www.investopedia.com/terms/t/taxableincome.asp

https://smartasset.com/retirement/how-to-calculate-rmd

https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf


References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

Mar 29
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It’s Tax Season for Your 2018 Returns – Will You Owe More?

By Tax Planning

This year, the deadline to file your income tax returns is April 15, 2019.

As of early February of 2019, Time Magazine1 reported that many Americans who had already filed their 2018 taxes were shocked by their lower refunds this year likely stemming from the “Tax Cuts and Jobs Act” law that passed in December 2017, which significantly overhauled the tax code in the U.S.

“The initial batch of tax refunds in the first two weeks of the season declined an average of 8.7% from last year as of Feb. 8, according to a report from the Internal Revenue Service. 1

“Because so many pieces of the tax code shifted, it’s difficult to tell why certain people are affected differently than others, according to tax specialists and financial experts. 1

“Those most at risk for receiving less money in their tax refunds are taxpayers who itemize their deductions and have no dependents, homeowners in high tax states and employees who have unreimbursed business expenses.” 1

Retirees in lower tax brackets who don’t itemize and who live in states with low taxes will probably not be affected, or may even pay less because of the higher standard deduction, which nearly doubled.

“The rise in the standard deduction might mean that retirees can achieve roughly the same overall deductible by taking the standard amount as they could by itemizing.”2

But there is much uncertainty as people approach this tax season with trepidation about their own situation.

Healthcare rule changes when it comes to taxes.

There are a couple things you should know about healthcare expenses this tax season.

  1. You may be able to deduct more for unreimbursed allowable medical care expenses. 2

For the 2018 tax year, the IRS allows you to itemize and deduct healthcare expenses if they totaled more than 7.5% of your AGI (adjusted gross income).

As an example, if your AGI is $45,000, you can itemize and deduct healthcare expenses from the 7.5% mark, or $3,375, up to your amount spent. In this scenario, if you spent $5,375 on allowable unreimbursed healthcare expenses, you will be able to deduct $2,000 of them.

For the 2019 tax year, this percentage will revert back to 10%, so the allowable deduction will be lower going forward.

  1. The ACA is still in effect.

For retirees who don’t have health insurance or Medicare yet, know that the ACA mandate and penalty for not having health insurance is still in effect for the 2018 tax year.

The federal penalty will disappear in 2019 per the new tax code. However, some states—like New Jersey, Massachusetts and the District of Columbia—will still charge penalties. And lawmakers in Vermont and Rhode Island and other states intend to impose new state penalties in the future.3

Regardless of the law changes, many retirees are shocked to find that they owe income taxes in retirement.

For retirees who have saved up a lot of money in tax-deferred accounts like traditional IRAs or 401(k) plans, when RMDs (required minimum distributions) begin at age 70-1/2, the tax ramifications can hit hard.

  1. Many people even have to pay taxes on their Social Security income.5

RMDs are taxable as income. For individuals, if your combined income* is between $25-$34,000 (or between $32-44,000 per year for couples), you may have to pay income tax on up to 50% of your Social Security benefits. More than that, and up to 85% of your benefits may be taxable.

*The IRS defines combined income as your adjusted gross income, plus tax-exempt interest, plus half of your Social Security benefits.6

  1. When you start RMDs makes a difference.4

As you approach 70 1/2, you can choose to take your first minimum withdrawal during the year you turn 70 1/2, or you can take it by April 1 of the year after you turn 70 1/2. Your choice can have significant tax implications, because if you don’t take your initial minimum withdrawal during the year you turn 70 1/2, you must take two—and pay the resulting double dip of taxes—in the following year.

  1. Calculations for withdrawals are tricky—and doing it wrong can be costly.4

For each year, you must take at least the required minimum withdrawal by Dec. 31 of that year or owe the tax plus a 50% penalty. There is no grace period to April 15.

The calculations for withdrawals require you to take your Dec. 31 prior year tax-deferred account balances and divide by your life-expectancy figure (from Table III in Appendix B of IRS Publication 590-B) based on your age as of the end of the tax year. You may be able to aggregate balances if you have multiple accounts and take the RMD from only one account, or you may not be able to, depending on IRS rules.

  1. You may be able to delay 401(k) distributions if you are still working after age 70 1/2.4
  2. You may be able to donate an IRA required distribution directly to a qualifying charity and satisfy the taxes which would have been due.4
  3. Roth IRA accounts don’t have distribution requirements in retirement.5

However, Roth 401(k) accounts do require withdrawals starting at age 70 ½. Income tax is generally not due on a Roth 401(k) distribution, except for any untaxed portion matched by an employer.

 

 

Don’t try to do this alone, we’re here to help.

As a service to our clients, we provide retirement tax planning in conjunction with your tax professional or CPA. Let’s talk about how we can create a plan now to pay the proper amount of tax later in retirement. Call Drew Financial Private Capital in Sarasota, Florida at (813) 820-0069.

 

This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local taxes or tax penalties. Please consult your tax professional, CPA, personal attorney and/or advisor regarding any legal or tax matters.

Sources:
1 “Many Americans Are Shocked by Their Tax Returns in 2019. Here’s What You Should Know.” Time.com. https://time.com/5530766/tax-season-2019-changes/ (accessed March 11, 2019).
2 “How Will the New Tax Law Affect Retirees?” Fool.com. https://www.fool.com/retirement/2019/01/07/how-will-the-new-tax-law-affect-retirees.aspx (accessed March 11, 2019).
3 “Changes to Obamacare in 2019 and the Effect on the Premium Tax Credit.” TheBalance.com. https://www.thebalance.com/changes-to-obamacare-and-insurance-4582310 (accessed March 11, 2019).
4 “Understanding the IRA mandatory withdrawal rules.” MarketWatch.com. https://www.marketwatch.com/story/understanding-the-ira-mandatory-withdrawal-rules-2015-03-09 (accessed March 11, 2019).
5 “7 New Taxes Retirees Face.” Money.usnews.com. https://money.usnews.com/money/retirement/iras/slideshows/new-taxes-retirees-face (accessed March 11, 2019).
6 “Avoid Paying Taxes on Social Security Income.” Investopedia.com. https://www.investopedia.com/ask/answers/013015/how-can-i-avoid-paying-taxes-my-social-security-income.asp (accessed March 12, 2019).

 

References to J.W. Cole Advisors, Inc. (JWCA) are from prior registrations with that company. J.W. JWCA and Advisory Services Network, LLC are not affiliated entities.

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