Decide When To Start Social Security Benefits

question-marks-2215_640Whether you should take social security retirement benefits at the earliest possible date or defer benefits until reaching normal retirement age (or even age 70), depends on several factors. For example, you’ll want to consider your overall health and life expectancy, your plans to earn income before reaching normal retirement age, anticipated returns on your other investments, and, surprisingly, your guess about the future of the social security program. As you can tell, the decision isn’t one-size-fits-all.

For instance, say your savings won’t cover ongoing expenses and you need to rely on social security income to make ends meet. In that case, deferring social security benefits may not be an option for you.

But if your financial circumstances offer more financial flexibility, deferring your benefits can be an advantage. For each year, you delay (up to age 70), the payouts increase. In addition, if you plan to earn significant income between age 62 and your normal retirement age (65-67, depending on the year you were born), putting off your social security benefits may make sense. That’s because any benefits in excess of specified limits ($15,720 in 2015) will be reduced. You’ll lose $1 of benefits for every $2 in earnings above the limits. Note that you won’t lose any social security benefits (regardless of earnings) once you reach full retirement age.

On the other hand, let’s say you’ve accumulated a healthy balance in your 401(k) and expect that account to generate a good annual return. Under this scenario, you might be better off leaving your retirement savings alone and taking your social security benefits early to cover living expenses.

Or perhaps your family has a history of health problems and you don’t realistically expect to live into your 80s. Again, taking social security benefits at age 62 might be a good choice.

For help with this important decision, please give us a call.

Create a road map to retirement

above-736879__180Preparing for your retirement is a journey. And like most journeys, success or failure often hinges on decisions made early in the trip. Consider some of these pointers as you develop your personal road map to retirement.

A solid retirement plan begins with an honest assessment of what your golden years will look like. Will they involve exotic travel, special purchases, or carefree living? Or do you plan to live modestly, perhaps working part time? A possible hint might be to consider how you are living right now. Many people assume that their living costs will decline later in life, but they often stay about the same or even increase.

Once you know how you want to live, it’s time to take stock of your assets. Are your investments where they should be, or do you have some catching up to do? Keep in mind that those 50 years and older can contribute an extra amount each year into their 401(k) or IRA to help get up to speed. And no matter what career stage you are in, be sure to take full advantage of the matching provision in your employer’s plan.

Like any excursion, your path to retirement will need an occasional tweaking to stay on course. As your working years draw to a close, consider shifting your asset allocation from higher risk securities to those with less price volatility and steadier cash flows. And along the way, take steps to keep your household budget in check. Think hard before incurring additional debt that might stymie your retirement plans. Analyze your spending to see what you really need to live on.

Finally, assemble a team of professionals to help chart your path. You might need to coordinate life and health insurance, estate plans, and tax issues to achieve your retirement goals. If you need assistance, give our office a call.

There’s a new arrival called myRA

baby-220318__180A new simplified Roth IRA is the newest retirement plan. The account is called a myRA (short for “my retirement account”). It’s funded by having your employer make direct paycheck deposits to your account. The contributions to your myRA are invested in government-guaranteed Treasury securities. A myRA isn’t connected to your employer; it belongs entirely to you and can be moved to any new employer that offers direct deposit capability. The annual contribution limits that apply to regular Roth IRAs apply to myRAs. To find out more about myRAs, contact our office.

8 documents that should be included in your estate plan

Estate planning is not just a task for the wealthy. Even though federal tax implications kick in only if your estate exceeds $5,430,000, there are other issues that make estate planning important for most individuals.

Start your estate planning by meeting with an attorney and your accountant. They can instruct you in the essentials of estate tax law and the requirements for establishing an estate plan. A key part of estate planning is compiling the documents that will accomplish your goals.

download (2)A basic estate plan should include the following 8 documents:

  • Your will, which should name the guardian you choose for your minor children and an executor (personal representative) to carry out your instructions.
  • A listing of your assets. Include your home and other properties, pension and retirement accounts (401(k) & IRAs), investments (noting the cost basis), automobiles, jewelry, and any other assets.
  • Life insurance information such as your insurer, your policy number, the amount of insurance, and the location of your policies.
  • Financial and business records, including real estate deeds, tax returns and related support papers, your social security number, investment statements, and stock and bond certificates.
  • Funeral instructions, including your burial wishes and people to be notified upon your death.
  • Medical information and a list of your doctors.
  • Durable power of attorney, designating the individual(s) you select to act on your behalf if you’re incapacitated.
  • Health care proxy naming the individual(s) you want to make health care decisions for you if you aren’t capable.

Keep your original documents in a fireproof safe or with your attorney. Put your list of documents and the copies in a binder at home and tell your executor where the documents are located. If you would like assistance with your estate planning, please contact our office.

Don’t overlook the April 1st deadline

You may be approaching an important deadline if you have retirement accounts and you turned 70½ last year. Generally, you must begin withdrawing money from tax-favored retirement plans in the year you turn 70½. However, you may postpone your first withdrawal until April 1 of the year after you turn 70½. That means you have until April 1, 2015, to complete your required 2014 distribution. period-481478__180

The minimum distribution rules don’t apply to your Roth IRA accounts. And if you are still working at age 70½, you are generally not required to withdraw funds from a qualified employer-sponsored plan until April 1 of the calendar year following your actual retirement.

If you postponed your first distribution, you must take two distributions this year – one for 2014 and one for 2015. Your 2014 distribution must be completed by April 1, while your 2015 distribution must be completed by December 31, 2015. After that, you must take a distribution by December 31 each year until your retirement funds are depleted.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are and is the sole beneficiary of your IRA.

Make sure you notify the holder of your retirement account in time to complete your distribution. Follow up to ensure that the transaction will be completed on time. You may withdraw more than the required amount, but if you fail to take at least the minimum distribution on time, you are subject to a 50% penalty tax.

Don’t overlook this important distribution deadline. Call our office if you would like assistance in planning your retirement withdrawals.

4 Tax-Smart Decisions for 2015

Were you less than satisfied with your financial situation at the end of 2014? If so, making tax-smart decisions in 2015 could provide a helpful course correction. Here are some suggestions to get you started on the right path.ball-275711__180

1. Get structured. That out-of-control feeling from last year might be due to a lack of organization. Set up a simple filing system to arrange your tax papers and records. Once you’re organized, review your monthly expenses and establish a budget you can live with. Online tools can help make that job much easier, or you can give us a call. We’ll be happy to help.

Next, take your planning a step further and create an emergency fund. Consider setting aside six months of living expenses in an account you can tap easily.

2. Be strategic. Examine your investment portfolio for potential tax savings, such as selling stocks that are worth less than you paid to offset your capital gains. You might also donate appreciated stock that you have held for more than one year to charity and avoid capital gains altogether. With the new tax on unearned income to watch out for, consider buying investments that pay tax-free income, such as municipal bonds.

3. Look again. Some everyday tax moves deserve a second look. Review your employer’s list of benefits to make sure you are making the most of them, including the lesser-known perks, if available, such as flexible spending accounts, commuting reimbursements, and employer-paid college expenses. If you have a qualified high-deductible health insurance plan, consider the benefits of a health savings account.

This is also a good time to analyze your tax withholdings and estimates for 2015. Changes to your job, marital status or dependents, a new home, or a serious health issue – all of these life events can affect your tax situation. Adjustments now can put extra money in your pocket when you need it most.

4. Go long. In addition to strategies that yield immediate benefits, think about your long-term finances. Take full advantage of your employer’s retirement matching program. Consider contributing the maximum allowed by law, especially if you are nearing retirement age. In 2015, you can contribute up to $18,000 to your 401(k) plan, plus a $6,000 catch-up contribution if you’re age 50 or over.

Are you ready to think really long term? Review your will and estate plan. Even though the current high-dollar exclusions may shield you from the estate tax, there are still good reasons for you to have a solid plan in place.

If looking back at 2014 leaves you thinking you should have managed things better, take steps now to get your tax and financial plan back on track.

Supreme Court denies bankruptcy protection for inherited IRAs

thYour retirement funds are protected from creditors even if you file for bankruptcy, with only a few limitations. This protection extends to funds in all government-qualified pension plans, including IRAs (traditional and Roth), 401(k)s, 403(b)s, Keoghs, profit sharing, money purchase, and defined benefit plans. A recent U.S. Supreme Court decision has held, however, that an inherited IRA is not a “retirement fund” and therefore doesn’t qualify for bankruptcy protection.

An inherited IRA is a traditional or Roth IRA that a deceased owner has bequeathed to a beneficiary. It differs from a “true” retirement account in three ways:

  1. The beneficiary is not allowed to contribute additional retirement funds to the inherited IRA.
  2. The beneficiary, regardless of age, may withdraw funds from an inherited IRA in any amount and at any time without penalty.
  3. The beneficiary, regardless of age, is required to take annual minimum distributions from any inherited IRA.

Based on the above characteristics, the Court unanimously concluded that with respect to beneficiaries, inherited IRAs are “not funds objectively set aside for one’s retirement” and instead constitute a “pot of money that can be used freely for current consumption.”

Although the Court didn’t specifically address it, there is a possible option available if (and only if) the beneficiary is the spouse of the decedent. Spouses are permitted to roll over funds from inherited IRAs into their own IRAs, which would presumably bring those funds back under bankruptcy protection. The funds would, however, become subject to the rules that apply to non-inherited IRAs, such as penalties for withdrawals before age 59½.

Certain other strategies may be available if you have inherited or are likely to inherit an IRA and you are interested in possible bankruptcy protection. Call us for an appointment to discuss your options.

Self-employment gives you some tax breaks

When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.untitled

  • Save for retirement. When you’re self-employed, you’re allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
  • Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That’s because your child’s earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
  • Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an “above the line” deduction, subject to certain restrictions.
  • Take business-use deductions. Self-employed individuals can also deduct “mixed-use” items directly against their business income. Use your car for business and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.
  • Please give us a call to find out more about the tax breaks available to self-employed individuals.