Independent financial advice: IRA, Social Security, income tax, and all things financial
stressed and worried (Photo credit: Wikipedia)
I thought I’d share some of the things that go through my mind, financially, even though I’m “in the business” of being a financial planner and teach classes on finance and investments. The goal is to help readers understand that although we give an objective point of view when working with you there are times with our own financial well-being that we too have worries and concerns. We’re certainly not immune.
Photo courtesy of Lizzy Gadd on unsplash.com
As you may recall from this previous article, it is possible to use a rollover into an active 401(k) plan as an RMD avoidance scheme. Of course, this will only work as long as you’re employed by the employer sponsoring the 401(k) plan and you’re not a 5% or greater owner of the company. In addition, the rollover must be done in a timely fashion, prior to the year that you will reach age 70 1/2 in order to avoid RMD.
An example of where timing worked against a taxpayer (at least temporarily) recently came to me via the ol’ mailbag: Keep reading…
Photo courtesy of Lukasz Szmigiel on unsplash.com
For most folks, when you reach age 65 and have ceased regular work, filing for Medicare Parts A & B is an automatic thing. If you don’t file during the 3 months before or after your 65th birthday, you may have penalties to pay. This applies even if you have recently been laid off of work and are covered for health insurance under a COBRA plan. Part A carries no cost if you’re fully covered (40 quarters of coverage), but Part B requires a monthly premium.
When laid off from an employer who has provided health insurance coverage to you while employed, you have the option of continuing the health coverage for a period of time, up to two years. This continuation of coverage is called COBRA, named for the law that put it into place (Consolidated Omnibus Budget Reconciliation Act). You have to file in a timely manner for Medicare – COBRA coverage doesn’t remove that requirement.Keep reading…
English: Halo (Photo credit: Wikipedia)
Folks interested in engaging a professional for financial planning help and advice should generally seek out the advice of a CFP®. A CFP® has had the education, experience, ethics and exam (the Board’s 4 E’s) that qualifies he or she to hold the mark. We often encourage clients that they should look for this designation at a minimum before engaging with a financial planner and then meet with the planner to decide if the client and planner are a good fit.
Due to an excellent marketing campaign by the CFP® Board many clients understand what a CFP® is, what they do, and how they may be able to help. Many folks choose to work with a CFP® because they know that the CFP® is held to a higher standard. Some may believe that the CFP® is always a fiduciary – meaning the CFP® must always put the best interests of the client first. What a potential client may not know is that isn’t the case.
When your Social Security retirement benefit is subject to the Windfall Elimination Provision (WEP), you’re likely painfully aware of the reduction to your own benefit by this provision. What you may not be aware of is that the effect goes beyond your own benefit – your spouse’s and other dependents’ benefits are also impacted by this provision. However, the impact of WEP does not continue after your death. Keep reading…
Photo courtesy of Charles L. on unsplash.com
When you are using the Health Insurance Marketplace for your family’s health insurance, you may be receiving assistance with the premiums in the form of a premium tax credit. This credit is paid to the health insurance provider, allowing your monthly premium to be lower.
These premium credits are based upon your residence, income, family size, and eligibility for health insurance via other avenues, such as through a new employer. If something has changed in your life, you may be receiving too much or too little in premium tax credits. The IRS recently issued a Health Care Tax Tip designed to help you understand if you need to make a change to the premium credit you’re receiving to avoid unpleasant surprises at tax time. Keep reading…
Pocket Aces (Photo credit: John-Morgan)
If you’ve ever had a million dollar idea and perhaps even pondered taking that idea to the next level and turning it into a business, then reading this book will help you correctly identify the right direction you need to take.
Set in the bright lights and big city of Las Vegas the book takes us into the life of a struggling entrepreneur contemplating whether to remove his business from life support while finding himself moving closer and closer to the final table at the World Series of Poker.
Author Diana Kander does a remarkable job of tying together the similarities to a successful poker strategy and a budding entrepreneurial startup.
What I really enjoyed about the book was not only its quick to-the-point chapters, but Mrs. Kander’s amazing ability to tell the risks and pitfalls of starting a business though story – a story that follows the whirlwind plight of a man struggling to make sense of the downfall of what he thought was a sure thing.
Mrs. Kander’s background makes her more than qualified to write such a book (just read the book jacket or do a Google search). As for me, a business professor (among other hats I wear), this book will be required reading for my students. Hopefully my students won’t feel it’s required once they immerse themselves in the logic and wisdom the book offers. I’m hoping they go all in.
Photo courtesy of Manik Rathee on unsplash.com
You’re allowed to file for your Social Security retirement benefits when you reach age 62 (in general). Most advisors recommend that you delay filing until some later date to better maximize your lifetime benefits. But what do those advisors know anyhow?
At least that is what you were thinking when you first filed. After all, you’ve paid into the system for your entire working life, you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt, right? Gotta get the money while you can!
Then a couple of years pass and you realize that you short-changed yourself (and your spouse) by taking early benefits. Turns out that you didn’t need that money at 62 – you could have delayed. And you’ve come to realize that Social Security is not likely to go away, at least not in your lifetime. (Maybe those advisors were right after all?) Keep reading…
Photo courtesy of Philipp Henzler on unsplash.com.
Sometimes you need access to a previous year tax return copy, and dadgummit you just pitched the box of tax copies from 2011, thinking you couldn’t possibly need it again! There are ways to get this information – some easier than others.
First of all, if you prepared and filed your own return using one of the commercial programs, and you’ve maintained your access to the program over the years, you should be able to go back and re-print a copy of the return from that year. This is the quick and simple method.
If you had a tax professional prepare and file the return for you, she should have a copy of your return – if not the fileable copy, then at least a client’s or preparer’s copy, which should be adequate for fulfilling most requirements. Many preparers retain these copies, with supporting documentation, for many years for just this sort of purpose. Our office maintains copies of all returns we’ve filed, for example. Keep reading…
(Photo credit: McBeths Photography)
Over the last few weeks I’ve had the opportunity and fortune to work with graduate students on a number of financial and ethical issues presented to them in their classes. Of the many issues presented there was one issue that we discussed (argued) over more than any other topic; it was the suitability versus fiduciary standard.
Most of our readers know that our firm not only follows but embraces the fiduciary standard where we are legally bound to act in the best interests of our clients.
This brings me to the title question of this piece – should insurance agents provide financial, advice and or financial services?
Photo courtesy of Alicja Colon on unsplash.com.
When you are first subject to RMD (Required Minimum Distributions), which for most folks* is the year that you reach age 70½, you are allowed until April 1 of the following year to receive that first minimum distribution. For all other years you must take your RMD by December 31 of that year. For many folks, it makes the most sense to take that first year RMD during the first tax year (by December 31 of the year that you’re age 70½), because otherwise you’ll have two RMDs hitting your tax return in that year. However, in some cases, it might work to your advantage to delay that first distribution until at least the beginning of the following year – as long as you make it by April 1, you’re golden.
There may be many circumstances that could make this delay work to your advantage – maybe you’re still working in the year you reach age 70½ and your income is much higher than it will be the following year, for example. Keep reading…
Photo courtesy of Sunset Girl on unsplash.com.
What happens when a beneficiary doesn’t act in a timely fashion with regard to taking Required Minimum Distributions from the inherited IRA? In other words, what are your options if you’ve missed Required Minimum Distributions (RMDs) in prior years?
So, let’s say you inherited an IRA from your mother – this was her own IRA that she had contributed to or rolled over funds from a qualified plan at some point, and had designated you as the sole primary beneficiary. Things get really hectic and confusing after the death of a parent, and sometimes we don’t cover all of the bases properly… and in this example, you didn’t realize that you needed to begin taking Required Minimum Distributions (RMD) from your inherited IRA as of December 31 of the year following the year of your mother’s death. As of now, for example’s sake, let’s say we’re in the fourth year after your mother’s passing. (see Notes below) Keep reading…
Apple pie (Photo credit: Wikipedia)
From time to time we get asked by our clients and prospective clients why we manage our clients’ money the way that we do. Some even gravitate to our firm because of the way that we invest and our philosophy. Others shy away because they are looking for management that will beat the market and always make money and never lose money. Note: This is impossible. But hey, some folks still chase that illusion.
As many of our readers know our investment philosophy is pretty plain – like apple pie and ice cream. To make this summer analogy more apropos, when you go to the store to buy ice cream vanilla is generally cheaper and in more supply. As you peruse further into the freezer you start to come across more exotic flavors, combinations and brand names that not only look (and may taste) more appealing, but are also more expensive and you get less (.75 quarts instead of 1.75).
Granted these flavors look good initially, but eventually over time you’ve paid more for less.
Photo courtesy of Martin Staněk on unsplash.com.
Forever and a day, the rule of thumb has been that you should not use IRA funds to purchase an annuity – primarily because traditional annuities had the primary feature of tax deferral. Since an IRA is already tax-deferred, it’s duplication of effort plus a not insignificant additional cost to include an annuity in an IRA. This hasn’t stopped enthusiastic sales approaches by annuity companies – plus new features may make it a more realistic approach.
Changes in the annuity landscape have made some inroads against this rule of thumb – including guaranteed living benefit riders, death benefits, and other options. Recently the IRS made a change to its rules regarding IRAs and annuities that will likely make the use of annuities even more popular in IRAs: The use of the lesser of 25% or $125,000 of the IRA balance (also applies to 401(k) and other qualified retirement plans) for the purchase of “longevity insurance”, which is another term for a deferred annuity. Keep reading…
Photo courtesy of Rayi Christian W on unsplash.com.
This past week the US House of Representatives passed a bill (HR 4719, known as the America Gives More Act) which would re-instate the Qualified Charitable Distribution from IRAs and make the provision permanent. This provision expired at the end of 2013, as it has multiple times in the past, only to be re-instated temporarily time and again.
A Qualified Charitable Distribution (QCD) is when a person who is at least age 70½ years of age and subject to Required Minimum Distributions from an IRA is allowed to make a distribution from the IRA and direct the distribution to a qualified charitable organization without having to recognize the income for taxable purposes. This has been a popular option for many taxpayers, especially since the QCD can also be recognized as the Required Minimum Distribution for the year from the IRA. Keep reading…
Barack Obama signing the Patient Protection and Affordable Care Act at the White House (Photo credit: Wikipedia)
As much as I wanted to put the word unintended before consequence in my title, I had a hard time believing that what I’m about to write about was unintended.
As many of you are aware, the Affordable Care Act a.k.a. “Obamacare” is the law passed that requires, among other things, that everyone carry health insurance, subject to some specific exclusions. What I want to talk about is how this affected my insurance specifically and likely affected the insurance of many others.
Before the Act was passed my family and I enjoyed health insurance through our HSA. A health savings account allows a person or family to have a high deductible health insurance plan while also making tax deductible contributions to an account that can amass funds for medical expenses. Funds from the account that pay for qualified medical expenses are tax free. Self-employed individuals can also deduct their health insurance premiums as an above the line deduction.
This plan worked for us and still does, but some things have changed – mainly the cost of the plan.
In a nutshell, our monthly premiums increased from about $350 per month before the Act to now over $750 per month after the Act was passed. There are a number of different reasons why the price increased but the main reason was this: adverse selection.
Photo courtesy of Jake Hills on unsplash.com.
So you’ve seen your statement from Social Security, showing what your benefit might be at various stages in your life. But not everyone files for benefits at exactly age 62 or 66 – quite often there are months or years that pass before you actually file. This article will show you how to compute your monthly Social Security benefit, no matter when you file.
First of all, in order to compute your monthly Social Security benefit, you need to know two things: your Primary Insurance Amount (PIA) and your Full Retirement Age (FRA). The PIA is rather complicated to define, but for a shorthand version of this figure, you might use the figure that is on your statement from Social Security as payable to you on your Full Retirement Age (or “normal” retirement age). Keep reading…
Now here’s some legislation that I could get behind!
Recently, House Representative Steve Stockman (R-TX) introduced a bill in response to the IRS’ lame excuse of a “computer glitch” that purportedly erased all of the incriminating evidence from the agency’s computers. This was part of the testimony offered by former IRS Exempt Organizations Division director Lois Lerner in response to the accusation that her division targeted organizations critical of the current administration.
Stockman’s bill provides that if the IRS can use lame, flimsy excuses to avoid prosecution, taxpayers should be allowed to use similar excuses. The actual text of the bill follows below: Keep reading…
Image courtesy of stockimages at FreeDigitalPhotos.net
I wanted to post this article to see if any of our readers, both planners have an opinion on the question of whether you think the CFP® Board should require CFP® professionals to get recertified in order to keep the prestigious CFP® designation.
In recent years the Board has been marketing the CFP® designation as the trusted mark and gold standard when it comes to clients seeking professional financial planning. As you may or may not know there are no laws dictating who can call themselves a financial planner. In other words, anyone can say they’re a financial planner regardless of expertise, experience, ethics, or education (the Board’s 4 E’s).
To be a CERTIFIED FINANCIAL PLANNER™ requires much more rigorous work, testing and education, among others.
Photo courtesy of S. Charles on unsplash.com.
Divorcing couples often face the need to split up some retirement account assets. This can be done from a retirement plan such as a 401(k) or 403(b), or from an IRA. Depending on which type of account you’re splitting, the rules are very similar but are referred to by different names. For a qualified retirement plan (401(k) or 403(b) plan), the operative term is Qualified Domestic Relations Order or QDRO (cue-DRO). For an IRA, the action is known as a transfer incident to a divorce.
We discussed the QDRO in several other articles, so we’ll focus on the transfer incident to a divorce in this article.
Jim Blankenship, CFP®, EA
Phone 630-40-DUCKS (630-403-8257)
jim@blankenshipfinancial.com
Twitter: BlankenshipFP / Financialducks
Facebook: Jim Blankenship
LinkedIn: BlankenshipFP
Amazon: Author Page
Jim provides expert guidance for
your Retirement, Education Funding,
and Income Tax issues and concerns.
In addition to this blog, you’ll find Jim’s writings all around the internet, as he is a regular contributor to Forbes.com, TheStreet.com, and FiGuide. Several other sites also republish his work.
He has also written five books on Social Security, IRAs, 401(k) plans, and Medicare. See below for more on the books.
Sterling Raskie, MSFS, CFP®, ChFC®
Phone 630-40-DUCKS (630-403-8257)
sterling@blankenshipfinancial.com
Twitter: SterlingRaskie
LinkedIn: SterlingRaskie
Sterling provides expert guidance for your Retirement, Insurance, Education Funding, Investments and Income Tax issues and concerns.
In addition to this blog, you’ll find Sterling’s writings all around the internet. Sterling is also an adjunct professor teaching courses in math, finance, investments and insurance.
Jim Blankenship, CFP®, EA
Phone 630-40-DUCKS (630-403-8257)
jim@blankenshipfinancial.com
Twitter: BlankenshipFP / Financialducks
Facebook: Jim Blankenship
LinkedIn: BlankenshipFP
Amazon: Author Page
Jim provides expert guidance for
your Retirement, Education Funding,
and Income Tax issues and concerns.
In addition to this blog, you’ll find Jim’s writings all around the internet, as he is a regular contributor to Forbes.com, TheStreet.com, and FiGuide. Several other sites also republish his work.
He has also written five books on Social Security, IRAs, 401(k) plans, and Medicare. See below for more on the books.
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on Amazon at this link. This book includes all of the updates to retirement plans with passage of the SECURE Act.
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on Amazon at this link.
Social Security for the Suddenly Single can be found on Amazon at this link. This book is narrowly-focused on divorcee Social Security strategies and rules. It is also available in a Kindle version.
Sterling’s first book, Lose Weight Save Money, can be purchased by clicking this link. The book is also available on Kindle, which you can find at this Kindle version link.
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the paperback version, or the Kindle version.
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the Amazon ordering page.
In case you hadn’t already noticed, this blog doesn’t have much to do with ducks – or any waterfowl for that matter.
No, what we’re doing here is talking about all things financial; getting your financial house in order. Here in the Midwest, “getting your ducks in a row” implies organization, which is one of the outcomes of having a better understanding of your financial life.
I hope you find the answers you’re looking for among the articles here, and perhaps a smile. If you can’t locate your answer, drop me an email or give me a call – we’ll see what we can find for you.
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.