Stapleton Elder Law

Tax Benefits from a Tax-Free Transfer from an IRA to a Charity

Saving on income taxes and keeping your income below certain taxable levels, are just two of the benefits of making a tax-free transfer from your IRA to a non-profit organization. But mind the details; you likely need an estate planning attorney’s guidance.

Once you hit the mark at 70 ½, it’s time to start taking the RMDs from retirement accounts. This can send you into a higher income level. One way to manage this: make a tax-free transfer from an IRA to charity and have that count as the RMD. We know what your first question is going to be: why don’t I just take the money out and make a charitable donation? There’s more to it than you might think.

According to a recent Kiplinger article, “The Advantages of a Tax-Free Transfer From an IRA to Charity,” if you itemize, the tax deduction will appear to be identical. But let’s take a closer look.

The transfer is deemed to be a qualified charitable distribution, which keeps your required minimum distribution outside of your adjusted gross income. This can help you remain under the income cut-off for some other taxes and charges. In addition, for those who don't itemize their deductions, making the tax-free transfer can benefit from their charitable gift.

If you are required to take large RMDs from your retirement savings, you could be lifted into a higher premium level for Medicare. However, making a tax-free transfer of that RMD to charity keeps that sum out of the Medicare premiums calculation. If your AGI plus tax-exempt interest income is more than $85,000 for singles or $170,000 if married filing jointly, you'll have to pay higher Medicare Part B premiums. That could be a substantial difference: the monthly premiums of about $109 per month for most people who have their premiums deducted from their Social Security payments or $134 for new Medicare enrollees. Those subject to the high-income surcharge must pay from $187 to $428 per month for Medicare Part B in 2017, depending on their income—plus an extra $13 to $76 added to their premiums for their Part D prescription-drug coverage.

A lower AGI can also help you lower taxes on your Social Security benefits. You need to look at your provisional income, which is your adjusted gross income, not counting Social Security benefits, plus nontaxable interest and half of your Social Security benefits. If your "provisional income" is less than $25,000 and you file taxes as single or head of household—or less than $32,000 if you file a joint return—you won't owe taxes on your Social Security.

If you’re single and your provisional income is between $25,000 and $34,000—or between $32,000 and $44,000 if married filing jointly—up to 50% of your benefits may be taxable. If it’s more than $34,000 if single or more than $44,000 if married filing jointly, 85% of your Social Security benefits could be taxable. Keeping your RMD out of your AGI can help reduce your provisional income.

Here’s a key point to keep in mind: if you are over 70 ½, you are permitted to transfer as much as $100,000 tax free from your IRA to a non-profit. But—and this is very important—the funds must be transferred directly from your IRA to the non-profit, if they are to stay out of your AGI. An estate planning attorney who is knowledgeable about tax law will be your best source of help.

Reference: Kiplinger (May 12, 2017) “The Advantages of a Tax-Free Transfer From an IRA to Charity”

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Why You Might Want to Change Your Retirement Date

Having more money isn’t the only reason to extend your working life, but it’s certainly a factor.

Unless you are physically unable to continue working, there are a number of benefits to working past the traditional retirement age, according to a recent article in Kiplinger, “6 Reasons to Work Past Retirement Age.” All of them are worth serious consideration.

Employee Benefits. The added fringe benefits that accompany your paycheck can be worth hundreds or even thousands of dollars. That includes employer-paid life insurance and employer contributions to your 401(k). Don’t forget about health insurance, which can be cheaper than Medicare and provide better coverage. This coverage is valuable, if your spouse is younger than 65 and covered by your plan.

A Larger Pension. If you're fortunate enough to have a pension, you may get a greater payout by working a few more years. Pensions are based on your salary and years of service. Some calculate the benefit on your average earnings over the last three or five years of employment.  Others base it on your average earnings over all the years in which you've participated in the plan. If your income is still increasing your pension benefit could be better for every year you work.

You Enjoy Working. Many folks enjoy working, especially for the relationships, recognition, and  sense of fulfillment. It provides people with purpose and structure. If you’re not sure how you'll spend your retirement, maybe you should keep working until you do.

A Nicer Nest Egg. You need to have enough in retirement savings to last 25 years. If you think you won’t have enough savings and income, working longer is a wise solution. When you keep working, you'll have fewer years before you’ll need to dip into savings, and you can keep saving in your retirement accounts. Even if you don't invest further, it’s still tax-deferred growth.

More Social Security Benefits. The full retirement age for Social Security is now 66 for people born in 1943 to 1954 and goes up to 67 for people who were born in 1960 or later. However, for each year you delay taking the benefit past full retirement age, you get an increase of 8% in your benefit, until age 70. If you're healthy, it makes sense to delay taking the benefit until 70 to collect the bigger check, especially if you have a spouse who will benefit from an increased survivor benefit. A paycheck keeps the money coming in until you reach age 70.

Synchronizing Retirement with Your Better Half. Enjoying your retired life together, is a good reason to retire within a year or two of your spouse. If you married someone a bit younger than you, keep yourself busy by working a few more years so you’re not hanging around waiting for them to retire.

Reference: Kiplinger (January 2017) “6 Reasons to Work Past Retirement Age”

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There’s a Right Way and a Wrong Way to Downsize

Before your downsizing project for 2017 begins, start by reviewing these tips. Enthusiasm for a fresh start with less “stuff” sometimes leads people to make bad decisions that cannot be undone.

Downsizing includes more than moving to a smaller home, but according to this article,“8 things you need to know before you downsize in 2017,” from Starts at 60, doing it right can have a positive impact on your finances. Doing it wrong, can wreak havoc on your retirement and your estate plan. Before you take one more thing to the curb, consider the following:

1. Allow yourself plenty of time. Start the downsizing process early. Plan the move several years in advance, so you have time to see where you’d like to move and to crunch the numbers.
2. Ask for advice. Buying and selling a home can be a real emotional event, so ask a family member, friend, or financial adviser for a second opinion or a fresh pair of eyes to review the situation.
3. Review any impacts on your pension. You should determine what effect your move will have on your pension.
4. If you’re headed to a retirement community, figure out what would be left were you to move again. Many retirement communities charge what is called a Deferred Management Fee for each year you live there. For every year you live in the retirement village, you’re charged a fee, which is taken out of the proceeds when you choose to sell your home. It’s possible the amount you leave that retirement village with when you sell will be less than what you paid.
5. Consider regular fees the facility may charge. There may be a monthly fee to defray some of the expense of running the village.

Here are a few “Don’ts” to remember:

1. Don’t purchase a new home before selling your old one. Don’t sign a contract on a new home until you sell your old home. While you may have had some wiggle room while you were working, there’s little or no margin for error now. If you sell your home first, you eliminate extra stress, and you’ll know your financial status. This makes it easier to buy the next home.
2. Don’t be overly itchy to move when you’re not ready. If you have doubts that a move will make sense financially, there’s no harm in staying put. If you stay a little longer, you can avoid a stressful move.
3. Get help from a trusted estate planning attorney for any retirement community contracts. Buying a home is always a complex transaction. However, if you are buying a home in a retirement community or a continuing care retirement community, those contracts are even more complicated and may have a significant impact on your estate plan. Talk with an estate planning attorney who can review the contracts with an eye to your personal situation. Your estate planning attorney will also be able to tell you if the numbers work, or if you need to rethink your overall plan.

Reference: Starts at 60 (December 28, 2016) “8 things you need to know before you downsize in 2017”

To learn more about retirement planning, please visit our website.

AARP New York Survey Reveals Two African-American Generations Not Ready for Retirement

A survey from Siena College and AARP New York points to two generations facing serious retirement challenges as part of a larger change impacting New York City residents.

A telephone survey of 613 African-American residents of New York City between the ages of 36 to 70 are worried about having enough money to retire, as reported in Amsterdam (NY) News’ article, “Survey: Black New Yorkers struggling to save for retirement.” Drawn from a survey conducted by AARP New York and Siena College, “Countdown: New York’s Vanishing Middle Class,” the concern extends to 72% of middle-class Gen Xers whose annual earnings range from $40,000 to $120,000.

The survey found the cost of key necessities like housing, utilities, and food is having a huge financial impact, with 60% saying they’re just getting by, and 47% of middle-class Gen Xers don’t plan to live in New York when they retire.

The survey found that 56% of the city’s African-American Gen Xers hadn’t researched Social Security benefits, and 61% of both generations have failed to research Medicare benefits.

In addition, 74% haven’t written out a retirement plan with a budget, and 62% have no plan for care if they become sick or disabled.

 There was a total of about 50% who haven’t even discussed retirement issues with their life partners or families.

Not surprisingly against this backdrop, 63% of all of the survey respondents are frequently worried about having sufficient funds to maintain their standard of living in retirement.

The U.S. Labor Department recently issued a rule that will allow states to enact retirement savings plans for workers. New York’s Governor Cuomo launched a commission to study a lack of retirement savings and to propose solutions. With more than half of all 18 to 64 year old private sector employees lacking a traditional workplace retirement savings plan, the idea of the state creating such a plan is welcome, but may be too late for Baby Boomers.

Reference: Amsterdam (NY) News (December 1, 2016) “Survey: Black New Yorkers struggling to save for retirement”

Please visit our website to learn more about retirement planning.

 

Protect Your Retirement – Avoid These Three Mistakes

When retirement moves from being an abstract idea to becoming a real date on a calendar, many Americans find themselves with too many "would have's and should have's" when it comes to their retirement finances.

Reality kicks in when the year or actual date of your retirement is around the corner and you realize that your retirement finances aren't what you had thought they would be. For many, this means their retirement includes part time employment or not retiring at all. Harsh lessons, which can be avoided if you take the advice found in "3 Retirement Errors to Avoid" from CPA Practice Advisor.

Unfortunately, many folks don't spend a lot of time even thinking about retirement because they think it's a far-off time when money will have magically accumulated. That means no money to buy the condo in Cozumel, pay for the grandkids' education, or live a life of leisure. Someone in this situation might have to find a part-time job to make ends meet—and it's not out of the question that they could outlive their money. Don't end up without the money you need for retirement. Avoid these common mistakes.

1. Not understanding taxes. We know that most of the time our money is taxable right away, like earnings from employment or interest on savings. But with individual retirement accounts, the taxes can be deferred. There's also tax-free money, like municipal bonds, life insurance proceeds, and 529 education savings plans. You should try to move as much taxable money as you can to the tax-deferred or tax-free categories.
2. Acting without specialized advice. Don't think that one person can be an expert in all areas of planning. A financial advisor may handle your investment needs, but you should also work in concert with an eldercare and estate-planning attorney, especially if you are 60 or older.
3. Not appreciating the longevity risk. Modern medicine lets us live longer. But that can create a problem of outliving your money, and it also can mean increased odds of needing nursing home or other long-term care. These can be expensive. So ask yourself if you have enough money to deal with these expenses for your entire lifetime. The sooner you tackle the longevity risk, the more prepared you'll be to live a rich life.

You can't change the past, but as long as you are still breathing, you can still make changes and a plan that can improve your retirement finances.

Reference: CPA Practice Advisor (March 22, 2016) "3 Retirement Errors to Avoid"

Please visit our website to learn more about planning for your retirement. 

Make Your Retirement a Fulfilling and Enjoyable Experience, Not a TV Wasteland

Spending long days in front of the TV is no way to spend one or two decades of retirement. Most people underestimate the huge shift that retirement brings. Plan ahead, stay busy, and enjoy!

Failing to plan for the enormous changes that retirement brings leads many Americans to find themselves emotionally lost at sea when retirement finally arrives. In "The Biggest Oversight in Most Americans' Retirement Planning," Kiplinger's takes a look at what happens to people when they have failed to do any planning for this next exciting phase of life.

Many folks head into retirement with a sense of excitement and a bit of anxiety—but they haven't given much thought to their actual goals: they haven't spent sufficient time thinking about how best to use their unique skills and abilities in their future. Many folks do very little "avocational" planning when preparing for retirement and plan to just "take it as it comes." But those who put some time and effort into planning prior to the day they stop working will have more meaningful and interesting lives. You can devote your time of service to others, newfound creativity, or even start a new business.

If an individual uses good time management and active planning, retirement—and the freedom that comes with it—can be the best part of your life. But for too many people, retirement is a big disappointment. Loneliness, depression, and alcoholism are common afflictions of retirees.

But that's not you. You have a plan!

You're getting your finances ready for retirement. At the same time, you are going to set some worthwhile goals. Take time each week to determine where you excel, to define your interests, and to consider what types of things you'd like to learn and what experiences will give you the most satisfaction. Then, look for ways to employ those skills and goals. Retirement isn't the end of anything. Quite the contrary, when you plan and prepare, it's really the beginning of new pursuits.

The last thing you want to do is waste these precious days on cat videos or bad television shows! Start planning for your retirement in the same way you would any other phase of your life. What do you love? What makes you feel happy and fulfilled? What are you doing now in your spare time that you want to do more of? If you don't know, start on a journey of self-discovery. Ask people who know you well what they think you might enjoy. Above all, start planning now so that your retirement is fun, fulfilling and enriched with meaning.

Reference: Kiplinger's (October 2015) "The Biggest Oversight in Most Americans' Retirement Planning"

Please visit our website to learn more about preparing for your retirement years and beyond. 

 

How Millennials Can Retire Like Millionaires

With conflicting images of millennials as either living in their parents basement forever or striking it rich with an artisanal organic food truck, it's clear that retiring like a millionaire seems unlikely for most members of this new generation of young adults. However, it is possible for those in their twenties and thirties, if they adopt smart habits including a frugal lifestyle, regular savings and the power of time. Here's a study that proves it is possible: of the 1,000 Fidelity clients with more than $1 million in their Fidelity-managed 401(k) accounts, most earned less than $150,000 annually.

The one thing that all 401(k) millionaires have in common, according to a Forbes' article "Nine Ways To Be A Millionaire In Retirement," it is saving at a much higher amount than others. Whatever your career path may be and whatever your earnings level is, start saving early.

While millennials often have a competing priority with paying student loan debt, it's still important to make sure some of your money is going into retirement.

Live like a college student. Even if you are making very little, you should "mind the gap" - that is, the gap between what you spend and what you earn. Make sure there is a gap and keep your expenses low. Try to live like a college student when you're earning your first salary. Maybe have Ramen noodles and hot dogs on at least some evenings.

Track and evaluate. If saving seems like a task that is impossible to fathom, just look where your money is going. Take a three-month period and track all of your spending. You can use a tool like Quickbooks, Quicken, Mint, or, just use a debit card for all expenditures during that time so that your finances are automatically tracked. Keep track of where you spend your money, with that data, categorize things.

Slowly bump up your contribution rate. By the age of 25, you should be contributing at least of 10-15% (including your employer match) to your 401(k) savings plan. In order to ramp up to that contribution amount, start small (such as 6% if possible), then increase that percentage every six months.

Match…no, but really. Contributing enough to your 401(k) to take advantage of your employer's full match is one of the most effective personal finance tactics.

Check your "vest." If you've been taking advantage of your employer's 401(k) match, take a look at your company's vesting schedule. All of the money you put into your retirement account is yours, but you have to be fully vested to keep all of your employer's contributions.

Talk to an expert. It always helps to talk to an expert. Estate planning attorneys are always ready to assist you. Please visit our website to learn more!

The most important thing is to start saving early.

Reference: Forbes (October 9, 2015) "Nine Ways To Be A Millionaire In Retirement"

 

Unusual Case Points to Importance of Making Beneficiary Designations

For many Americans, the majority of non-real estate assets are their retirement accounts and life insurance policies. However, a large number of people forget to update their designated beneficiaries, which can lead to key assets going to unintended beneficiaries. An unusual fact pattern cited here reminds us of the importance of keeping beneficiary designations up-to-date.

Like millions of hardworking Americans, Austin Hardy's employer managed his retirement plan. Hardy may have been absent on the date that the HR department explained the importance of naming a death beneficiary for his plan; he either forgot or neglected to designate a beneficiary.

When he passed away, Hardy’s employer did the right thing: it followed the default rules of the plan. Those rules stated that if no surviving spouse or partner existed, then the plan should pass to a surviving child, whether biological or adopted.

Thus, the company transferred the plan contents to Hardy's biological daughter.

The problem was that she was not Hardy's legal daughter. She had been adopted by her stepfather.

His sisters sued, claiming that the plan assets should have gone to them, not the daughter. The court, however, disagreed with the sisters' position.

In the law’s view the daughter, despite the stepfather's adoption of her, was still Hardy's daughter and thus the plan policy was appropriately followed.

The Wills, Trusts & Estates Prof Blog reported on this case in a recent article titled "Girl Adopted By Stepfather Entitled to Biological Father's Retirement Plan."

This case is obviously a bit unusual. The fact pattern – someone passed away with a retirement plan with no death beneficiary who had a biological daughter who was subsequently adopted by another man – is not one that is likely to repeat on a regular basis. However, there are still lessons to be learned.

As unusual as that is, not keeping beneficiary designations up-to-date or neglecting to make them in the first place is all too common in estate planning.

As illustrated by this case, when you fail to designate a beneficiary of your retirement plan you lose control over who the beneficiary is and that means that it might be someone you would not have wanted to receive the money.

Be sure to review all of your beneficiary designations with your estate planning attorney.

Please visit our website to learn more!

Reference: Wills, Trusts & Estates Prof Blog (August 4, 2015) "Girl Adopted By Stepfather Entitled to Biological Father's Retirement Plan."

 

Prior Planning for Financial Bumps before and during Retirement Should Be a Priority

With two-thirds of Americans experiencing disruptions to their retirement planning resulting from divorce, major illnesses, unemployment or business troubles, the road to retirement has become bumpier than ever, according to a new TD Ameritrade survey. The challenges add up to $2.5 trillion in lost retirement savings. The news is gloomy, but knowing that there are and will be problems on the road to retirement reminds us that planning should be mindful of these kinds of problems, and responding to financial disruption in a timely manner is necessary for successful retirement planning.

The website Real Deal Retirement gives us three ways to stay on track during our journey toward retirement. The article, titled “Retirement Interruptus: 3 Ways To Prevent Disruptions From Derailing Your Retirement Plans,”gets right to the point:

1. Consider Alternate Retirement Realities. Remember that a favorable assessment of your retirement prospects from a retirement calculator doesn’t guarantee that your retirement’s going to go precisely to that plan. Just like the weather forecast, things can change. “The best-laid plans of mice and men…”

With that in mind, you should run through a variety of different scenarios to get a feel for how you might do under a variety of different conditions, such as higher inflation or lower investment returns. The article suggests you look at some worst-case scenarios like extended unemployment when you aren’t able to save, forced early retirement, or an accident with large medical bills or other long-term care needs in retirement that can take a big bite out of your nest egg.

2. Make Certain You Have a Safety Net. Once you have an idea what one of these alternatives may look like, look for ways to alter your planning to mitigate some of the possible damage. The thought most people have is to boost savings balances by investing more aggressively. This may be okay if you’re currently investing very conservatively (for example, with CDs and bonds). However, if you already have a very well-balanced portfolio that works with your risk comfort level, getting more aggressive could backfire and leave you even more vulnerable to a market crash.

If you’re still working, the article advises that a better route is to look for opportunities to save more—even if you’re very near retirement. You can still try to save a little more of your salary each year, which can significantly boost retirement account balances and make it easier for you to recover from a setback. This is backed up by the survey, which found that people who’d experienced a financial disruption said that saving a greater proportion of income (44%) and getting an earlier start on saving (36%) were the things they suggest to others in a similar situation.

If you’re already retired, spending less is the focus, instead of saving. Examine how you can eliminate spending without creating a major negative impact on your standard of living. Create a retirement budget that divides your spending into essential and discretionary categories to see what kind of wiggle room you have and identify possible areas to cut.

3. Get Going! If you have had your retirement planning disrupted, take corrective action right away. Waiting with the hope that the setback may just be temporary or that you might be able to fight your way through without changing things is just going to make it worse. The article suggests reducing spending, and that’s what 79% of the people in the survey did. However, for many—particularly those who are unemployed—the retirement contributions may be one of the first things to go. Using your savings should always be a last resort, and if you must do this, try to pull money out of your non-retirement accounts first. If you are forced to tap retirement accounts, try to minimize your taxes and early withdrawal penalties.

If you have a set-back when you’re retired, immediately analyze your retirement budget and pinpoint ways to cut back your withdrawals. The article warns that if you experience a hit to your nest egg—especially early into retirement—you can significantly increase the odds of running out of money during your lifetime. Remember to work those retirement calculations to get a sense of what level of spending you can reasonably expect to maintain without going through your money too quickly.

We all know that every road has some bumps and potholes, and some can’t be avoided. Talk with an experienced estate planning attorney and create a solid plan with some “what ifs” baked in for your retirement. If you add these into your planning and respond quickly if they occur, you should be able to minimize the damage.

Reference: Real Deal Retirement, “Retirement Interruptus: 3 Ways To Prevent Disruptions From Derailing Your Retirement Plans.”

 To learn more about planning for your retirement, please visit our website.

Retirees Need to Ask 6 Key Questions before Relocating

Thinking about pulling up stakes when you retire? Review this checklist of financial concerns first.

Moving during retirement is not just about the scenery. You need to understand the full financial impact that can come from relocation.

Morningstar’s recentarticle, titled “6 Questions to Ask before Relocating in Retirement,” sets out some key questions for you to answer:

Should I downsize? This depends on how many visitors you plan to have and how often. If you're moving far away from family, you may not expect many visits. Also, if you sell your home and buy a less-expensive home, you will probably be able to add the difference (minus fees and other expenses) to your retirement fund.

What's the cost of living at the new location?  You have to consider the total cost of living, which goes beyond taxes and includes expenses such as health care, food, and transportation. While real estate prices in popular "glamor" cities like New York and LA are usually higher than smaller cities or college towns, it's your total outlay that counts: you may be able to live in a smaller space in a big city and save money on downsizing. Look at all of the expenses.

How will relocating impact my cash flow in retirement? The article says to remember that it's what you keep after taxes and inflation that counts. Look at state income tax rates because there are a few states that don't have any income tax. These include Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming. But if you examine the tax practices of other states, you'll find variations. To understand the total impact relocating will have on your after-tax cash flow in each place you're considering, work with your estate planning attorney.

Are there going to be estate-planning concerns? Relocating and establishing residency in a new state means new laws. Speak with your estate-planning attorney before you make this relocation decision to see if your estate would be subject to higher taxes and/or greater restrictions in a new location. Does the new state have an inheritance tax? How will the state value your assets? Will your surviving spouse be shielded from taxes? What about long-term care expenses? All great questions for your meeting with your estate planning attorney.

Will relocating improve my quality of life? Will you be able to maintain or enhance your quality of life if you relocate? Will you be happy living farther away from your friends and family? That’s the big question.

Ultimately, the article says the decision to relocate really comes down to whether you can afford it and whether it will make you happier.

Reference: Morningstar (June 7, 2015) “6 Questions to Ask Before Relocating in Retirement”

To learn more about the estate planning and relocating in retirement, please visit our website.