retirement planning Archives - The Free Financial Advisor

Retirement Bill in Congress

March 30, 2022 by Jacob Sensiba 2 Comments

Congress has a new retirement bill in the works. They’re calling it Secure 2.0 and it has a few transformational pieces to it that will change retirement saving and retirement income planning. Before we get too far into what this new bill looks like, let’s take a look at what the original Secure Act did.

Secure Act 1.0

The Secure Act was enacted on January 1, 2020, and was the largest retirement reform bill since the Pension Protection Act of 2006. The full title is Setting Every Community Up For Retirement Enhancement (SECURE). And it passed through Congress with a 417-3 vote.

The beginning age to which to start taking required minimum distributions (RMD) from retirement accounts (excluding Roth accounts) was moved from 70 ½ to 72.

People can make retirement contributions no matter what age, as long as they have earned income. The previous limit was 70 ½ when RMDs would begin.

Inherited IRAs (non-spouse beneficiaries) have to have the entire account withdrawn within 10 years of receiving it. This means that if someone passes away and their beneficiary is someone other than their spouse, that beneficiary needs to have the entire account withdrawn and closed within 10 years of receiving the inherited IRA. However, there are exceptions, including a surviving spouse, a minor child (the 10-year rule starts when a child reaches the age of majority), a disabled individual, a chronically ill individual, an individual who is not more than 10 years younger than the IRA owner.

Employees who work part-time, at least 500 hours per year, are now eligible to contribute to their employer-sponsored retirement plan.

Secure 2.0

What’s different with this new law?

For one, the vote passed 414-5. Not as lopsided as the previous one, but still an incredibly convincing tally. “Secure 2.0 is fundamentally designed to make it easier for people to save” – Susan Neely, American Council of Life Insurers President and CEO.

The catch-up contribution provision got a facelift. 401k account owners that are 50 and over are eligible to contribute up to $10,000 more than the maximum for those under 50.

The beginning age for required minimum distributions (RMD) also went up, from 72 to 75. The Yahoo Finance article noted that some reps took it a step further. “ My goal is to get rid of it completely.” – Representative Kevin Brady (R-TX).

The bill would also push employers to automatically enroll new employees into the company-sponsored retirement plan.

Small businesses that stare down the, sometimes, daunting expense of establishing and maintaining a company-sponsored retirement plan can receive assistance. They can receive credits for matching contributions.

One very progressive part of the bill that is sure to garner a lot of attention is the ability of people paying down student loans to save for retirement. The bill would allow employers to “match” a students’ loan payment as a retirement contribution. For example, if the student made a $100 student loan payment, the employer would contribute $100 to their retirement account on their behalf.

The bill introduces a SAVERS credit, which would give lower-income individuals a tax break if they save for retirement.

This is another transformative retirement bill. I’m very pleased society is taking steps to encourage individuals to plan and save for the future.

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

www.crgfinancialservices.com/

End-Of-Life Care Costs

March 23, 2022 by Jacob Sensiba Leave a Comment

End-of-life care is a treatment someone nearing death receives in the final days, weeks, months, or sometimes years of his or her life. During this time, medical care and support continue regardless of whether the patient’s condition is curable or not. Many receive professional medical care in hospitals, nursing homes, or even in their own home. Patients are then placed in either palliative care or hospice care, and the costs are paid by Medicare, Medicaid, private insurance, charities, the individual, or other payment programs. Here are some things to know about end-of-life care costs.

Eligibility for Medicare’s Hospice Benefit

The patient must be 65 years or older
Diagnosed with a serious illness
Certification from a doctor that he or she has six months or less to live
Agrees to forgo life-saving or potentially curative treatment
Hospice provider must be Medicare-approved

Medicare provides care for two 90-day periods in hospice, followed by an unlimited number of 60-day periods. At the start of each period of care, a doctor must re-certify that the patient has six months or less to live.

Medicare’s hospice coverage includes a broad range of services:

Nursing care
Medical social worker services
Physician services
Counseling (including dietary, pastoral, and other types)
Inpatient care
Hospice aide and homemaker services
Medical appliances and supplies (including drugs and biologicals)
Physical and occupational therapies
Speech-language pathology services
Bereavement services for families

Hospice costs not covered by Medicare

Room and board
Emergency care such as ambulance fees or emergency room costs
Treatment or prescription drugs attempting to cure illness

Hospice costs are paid for in the following manner: Medicare – 85.4%; Medicaid – 5%; managed care or private insurance – 6.9%; other (including charity and self-pay) – 2.7%.

Respite care is a short-term break for caregivers of terminally ill patients. The patient can stay for up to five days in a Medicare-approved nursing home, hospital, or hospice facility.

Some Costs

Studies showed 42% of people died at their home at $4,760 in their last month of life. Whereas in a hospital it cost $32,379. Dying in a nursing home was the second most expensive, hospice care was third, and the emergency room.

Now that all of this has been explained, there are some things you need to do or things you should do to prepare for these costs.

Planning

You have to save for it. A lot of retirement planning is determined by how much you are going to spend in retirement. Heck, that’s basically all of what retirement planning is. You need to save and plan for this.

Not everyone has to be concerned about it. If you have all of your debts paid off and your retirement account is in a place where you don’t have to be worried about running out of money, then you probably don’t have to think about it too much. That doesn’t negate the fact that you should plan, your planning just looks a little different. Instead of buying final expense life insurance, maybe you’re buying a plot in a cemetery.

Planning will look different for everyone, but your circumstances don’t excuse you from planning.

Final expense insurance is a life insurance product that’s purchased to pay for burial and/or funeral expenses. It’s also called burial insurance and senior insurance. In most cases, the benefit from the insurance product reimburses the costs incurred from burial and funeral, as it takes longer for those to get paid out.

End-of-life care is a necessity for most people. It’s important to plan for it.

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

Pros and Cons of Self-Employment

March 2, 2022 by Jacob Sensiba Leave a Comment

The number of businesses that have started since the start of the pandemic has shot through the roof. People realized how short life can be and decided to take their earning potential and work-life into their own hands. Here are a few stats to illustrate the self-employment picture in the U.S.:

As of 2019, the self-employed section of the population accounted for nearly 30% of total employment (Source).
As of November of 2021, there are 9.9 million self-employed people in the United States.
96% of self-employed people don’t want regular jobs (Source)

Business structures

Sole proprietorship – There is no separate business entity. You are the business entity. That means your assets and liabilities are your assets and liabilities. Banks are more hesitant to lend to sole proprietors than they are for other entity types.

Partnership (LP/LLP) – An limited partnership (LP) has one general partner with unlimited liability and all the other partners have limited liability. Creditors can come after all of the general partner’s assets including things they personally own. Limited liability partners can only lose what they put in. A limited liability partnership provides limited liability to all partners. Profits are paid through on personal tax returns, except for the general partner – they must pay self-employment taxes.

LLC – Very similar to the LLP in terms of how profits, losses, and liabilities are treated. Profits are passed through to employees on personal returns. However, members of the LLC are required to file and pay self-employment taxes.

Retirement plan options

As a self-employed individual, you have a few options when it comes to retirement accounts – Traditional IRA and Roth IRA (available to everyone), SIMPLE IRA, Solo 410(k), and SEP IRA.

Traditional IRA and Roth IRA – Contribution limits up to $6,000 ($7,000 if you’re 50 and older). Withdrawals prior to 59 ½ are subject to a 10% tax penalty unless certain conditions are met.

SIMPLE IRA – available to employers with fewer than 100 employees. Contribution limits up to $14,000 ($17,000 if 50 or older). Employer match available.

Solo 401(k) – Contribution limit is $61,000 ($67,500 if 50 or older). Available to self-employed individuals and self-employed individuals that have their spouse as their only employee.

SEP IRA – Contribution limit is 25% of employee compensation up to $61,000.

Click here for more information about business retirement plans.

Be your own boss

You get to set your own hours and work with whoever you want to. There’s no one to tell you what to do and how to do it. For people that like to make their own schedule and like to go to the beat of their own drum, self-employment makes a lot of sense.

Earning potential

There’s no ceiling on your earning potential. You don’t have a salary range, you make what you make. You can make $10,000 or you can make $10 million. That’s a double-edged sword though, your effort determines your income. You will only make money if you work for it. Someone who isn’t a self-starter, should not be self-employed.

Costs

You have to pay for everything. Whatever the cost of business is for your sector or industry, that’s on you. Health insurance, you have to pay for that. There’s no business or employer that can foot those costs for you. Same with your retirement plan, a lot of employers offer an employee match. If you’re the business owner and the employee, ALL of your contributions are your responsibility.

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

What To Do With Your Old 401k

February 16, 2022 by Jacob Sensiba Leave a Comment

When you leave your job and you have a 401k, there are a few things you can do with it. You can leave it there, you can cash it out, you can roll it into an IRA, or you can roll it into a retirement plan with your new employer. So what should you do with your old 401k?

Theoretically, you have four options.

Withdrawing your funds

If you are under the age of 59 ½ and you withdraw the money, you’ll have to pay a tax penalty on it. UNLESS, you meet some of the exceptions: medical expenses, your first, primary residence (up to $10,000), health insurance premiums while unemployed, distributions from an inherited IRA, pay off an IRS tax levy, higher education expenses, as well as a few others.

If you don’t meet any of those criteria and you’re under 59 ½, you’ll have to pay that penalty. It’s not worth it. UNLESS you’re using that money to pay off a credit card. Credit card interest rates are usually well above 10%. So if you’re saving yourself from paying a 27% interest rate, theoretically, you’re making a 17% return on your money (27–10=17). But this calculation doesn’t account for taxes so you might come out even, or behind.

95% of the time, it makes the most sense to pursue other options.

Keep it where it is

Some people will leave their old 401k with their previous employer. I think a lot of that has to do with laziness, but it could be a good, rational decision as well. The primary factor has to do with cost. What are the expenses of the 401k? Typically, if it’s a large employer and/or a large plan with a lot of assets, the fees are going to be low.

That might be a good reason to leave it. The plan might also have good investment options. If the fees are reasonable, or at least average, then the investment options might be reason enough to stay.

Roll it to your new employer

Nine times out of ten, I’ll have people roll their old 401k into their new one. If they’re able to. Some employers don’t allow income transfers. Having everything with one firm makes managing it so much easier.

The only time I don’t think it would be appropriate is if the new firm has high fees, but it’s also important to compare the new fees to the fees of the alternative. That alternative is rolling it into an IRA at a separate firm.

Roll it into an IRA

As an independent financial advisor, this option is best for me, but not typically best for the client. If you take a standard fee for a financial advisor (1.00 %) and compare it to the standard expense paid by a 401k participant. Employers with 2,000 employees pay below 1% and employers with 50 or fewer employees pay 1.25%. Here’s some more info on that.

That might be the case if it’s a small plan. The large plans, however, can have ALL IN fees of around .5%.

As is the case with a lot of things in the finance world, the answer is not black and white. You need to compare and contrast your options and then make a decision. Here are things to consider: cost, investment options, ease of management, and customer service. How do the fees compare? What are the investment options? Do you have everything in one place and is it easy to make changes? Can you get in touch with someone if you have problems/questions?

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

What’s a Thrift Savings Plan?

January 26, 2022 by Jacob Sensiba Leave a Comment

A thrift savings plan is a retirement plan available to federal employees and members of the uniformed services.

Real quick…Uniformed services are bodies of people in the employment of a state who wear a distinct uniform that differentiates them from the general public. Their purpose is to maintain the peace, security, safety, and health of the public they serve.

Back to it. A thrift savings plan is a defined contribution plan, like a 401k, that offers federal employees the same benefits as people who work in the private sector.

In this article, we learn about what a thrift savings plan is, as well as the rules and regulations.

What is it?

As mentioned in the introduction, a thrift savings plan (TSP) is a defined contribution retirement plan for federal employees.

A TSP includes deferred contributions from employees and can include matching contributions from the federal agencies. The employee also has the option of contributing pre-tax to a Traditional TSP, or post-tax to a Roth TSP.

If applicable, you can rollover a previous 401k or IRA into a TSP, and vice versa if you retire or move back into the private sector.

Investing

Currently, Blackrock is providing the investment products used in the Federal TSP. The investment options include:

The Government Securities Investment (G) Fund
The Fixed-Income Index Investment (F) Fund
The Common-Stock Index Investment (C) Fund
The Small-Capitalization Stock Index Investment (S) Fund
The International-Stock Index Investment (I) Fund
Specific lifecycle (L) funds designed to include a mix of securities held in each of the other five individual funds

Rules and Regulations

Not only is it a retirement plan, but it’s also a government-sponsored retirement plan. Obviously, there are going to be some regulations that accompany it.

The TSP contribution limit for 2022 is $20,500. The government has a sliding scale match, starting at 1% and topping out at 5%. The match is available even if you don’t contribute, though it is at the 1% base amount. It’s a percentage for a percentage match. If you contribute 2%, the match is 2%. If you contribute 5%, the match is 5%.

Fees are considerably lower with TSPs, usually .05%. Like IRAs, TSPs also have required minimum distributions that must start at 72. IRAs have an early withdrawal penalty of 10% if you pull money before 59 ½ years of age. TSPs will waive that 10% penalty if you retire at 55 or older.

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

Retirement Costs to Consider

January 5, 2022 by Jacob Sensiba Leave a Comment

You save for years and years…decades and decades. When you’re saving for retirement, an important consideration to keep in mind when you set your nest egg goal is your retirement costs.

When determining and estimating retirement costs, you need to consider what the average expenses are in general and for the retired folks in your area/state. Once you figure out the generalities, you need to adapt it to your situation.

Some items to consider:

Travel – Will you stay in your current home? Will you move to a warmer state or a state without income tax? Do you have family spread around the country? Will you take vacations on an annual basis? If you’re planning on traveling every year, possibly multiple times per year, it’s important to factor those costs into your monthly/annual budget – so you can save for it.
Healthcare costs – When you get older, your body doesn’t typically work as it has in the past. You are also more susceptible to illness (as we’ve seen over the past two years). As a result, your healthcare costs go up.
Housing – There are a few things to consider when determining your housing costs. Will you stay put or will you move? If you move, will you downsize? If you move, will you move to a different state? Does that state have income taxes? What do you anticipate energy costs will be?

Typical retirement costs

People 65 and older have spent an average of $4,847. On average, utilities, public services, and fuel cost an additional $3,743.

On average, Americans spend $10,160 per year on transportation. Retirees spend a little less. Anywhere between $4,963 and $6,618.

The general American population spends $5,204 on healthcare. Retirees spend between $6,792 and $6,619.

American retirees spend $6,303 on food. They also spend, on average, $2,282 on entertainment.

Expect to spend between 55%-80% of current expenses in retirement.

There are 9 states without a state income tax – Alaska, Florida, South Dakota, Tennessee, Texas, Washington, and Wyoming.

These are the states with the cheapest monthly utilities – Idaho ($343.71), Utah ($350.17), Montana ($359.03), Washington ($369.18), and Nevada ($3376.93).

Conversely, here are the top 5 most expensive ones – Hawaii ($730.86), Alaska ($527.96), Rhode Island ($521.98), Connecticut ($496.07), and New York ($477.31).

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

Can an Employer Charge Fees to Turnover Your 401(k) After You Quit a Job?

May 3, 2021 by Tamila McDonald Leave a Comment

Nobody wants to pay fees to turnover your 401(k). When you quit a job, you usually lose access to the various benefits your former employer provides. However, while the company may manage your 401(k), that doesn’t mean you don’t have a right to the funds. In some cases, you may even be required by your former employer to move the money out of their program.

While you may have the option of leaving your retirement savings in place, there are also benefits to rolling over your 401(k). However, you may be worried that your former employer will charge you a fee to make that happen. If you want to ensure you’re fully aware of the potential costs, here’s what you need to know.

Can an Employer Charge Fees to Turnover Your 401(k) After You Quit?

Generally, no, a former employer can’t charge a fee if you are rolling over your 401(k) into a new retirement account after quitting. They have to turn over the balance that belongs to you. At a minimum, this means your personal contributions, along with any vested matching funds from your employer.

Now, if you have a match from your employer but it isn’t fully vested, then the employer can keep that money. Until it vests, it isn’t technically yours. So, while losing the unvested match may feel like a fee, it actually isn’t.

It’s also important to note that you may have to contend with fees when you roll over your 401(k) from the company or program that is managing the receiving retirement account. All retirement programs come with costs, and they can vary from one program to the next.

However, there usually isn’t any fee to actually complete the rollover. Instead, the new account will come with unique maintenance and administration fees, commission costs, or similar expenses.

You may also have to deal with taxes or withdrawal penalties. When you are not of retirement age and choose to cash out your 401(k) when you leave your former employer, you’ll have to deal with both. If you are of retirement age, then you’ll bypass any early withdrawal penalties but will still owe taxes in most cases.

If you choose to roll over your 401(k), you may or may not have to pay taxes. That will depend on how the rollover is managed, as well as the kind of account receiving the funds.

Can You Keep Your 401(k) With Your Former Employer?

If you like the 401(k) program your former employer offered, keeping it in place may seem like a good idea. However, whether that is an option depends on the company’s program and policies, along with other factors.

With a 401(k), the employer is responsible for the program’s management, and that comes with costs. As a result, they may not want to shoulder that burden for former employees. Instead, they require them to transition the money out of that account and into another one, such as by rolling it over into a new employer’s 401(k) or an IRA.

Mandating that you move the funds is more common for 401(k)s with contributions made – and earnings achieved – during your time with that employer totaling to less than $5,000. It isn’t actually the balance that matters; it’s the amount of money added to your account while you were working for that company.

For example, if you rolled over a previous 401(k) worth $9,000 and then contributed $4,000 to the account while working with the new employer, your balance would be $13,000. However, only that $4,000 is factored into this decision process.

Contribution Factors

With contributions below $5,000, the expenses associated with managing the account may seem unreasonable to them, and they are perfectly within their right to tell you to move the money.

If the contributions are below $1,000, the company might just cut you a check for the balance. In most cases, this is something you want to avoid, as you’d end up owing taxes on the money and may also have to pay an early withdrawal penalty, depending on your age. Luckily, you usually have 60 days to transition the funds into a different kind of retirement account, giving you a pathway for avoiding the fees and taxes.

If the contributions are between $1,000 and $5,000, your former employer may even initiate an involuntary cashout. With this, they transition your money to an IRA of their choice, suggesting you don’t take other action. To avoid this, you’ll need to handle a rollover within 60 days, giving you the ability to choose the destination.

For accounts with contributions above $5,000, you can typically keep the money in place. This can be beneficial if there is a unique aspect of the program that you can’t get in your new employer’s plan or with an IRA. For example, if the fees are far lower than what’s common or there are investment options that are hard to access otherwise, it could be worth leaving the savings in place.

However, you won’t be able to make new contributions to a former employer’s 401(k) plan. Instead, it will simply exist as-is, only growing based on the investments themselves.

What It Means to Rollover a 401(k)

Rolling over a 401(k) simply means transitioning the money into a different retirement account. It isn’t a withdrawal, as you won’t actually gain access to the cash. Instead, it’s shifting the held assets straight into another similar retirement plan.

Generally, you have two options for rolling over a 401(k). First, if you have a new job with an employer that has a 401(k) or similar retirement plan, you might be able to roll over the money into that account. This would allow you to centralize and consolidate your 401(k) savings into a single place, which could make it easier to monitor and manage.

Second, you could roll over a 401(k) into an IRA. With this option, you may get access to a wider range of investment opportunities, have the ability to choose a company with a better fee structure, or, if you already have an IRA, consolidate some of your retirement savings.

With a 401(k) to IRA rollover, you will be responsible for overseeing the account. If you decide to roll over your 401(k) into your new employer’s program, they’ll handle most of the management, though you may still need to set asset allocations or make similar decisions.

Should You Rollover your 401(k)?

Whether you should roll over your 401(k) depends on several factors. First, it may not be optional, particularly if your contributions are under $5,000.

Generally speaking, if your 401(k) contributions are below $5,000, it’s wise to plan for a rollover. There is a decent chance the company may require it, so it’s best to prepare for that situation. However, if you like your 401(k) offerings and the company is fine with maintaining your account, you can always opt not to initiate the rollover.

If your balance is below $1,000 and your former employer would cut you a check for that amount, rolling it over is more urgent. If you don’t, you’ll owe taxes, as well as an early withdrawal penalty if you aren’t of retirement age.

For contributions above $5,000, then you’ll want to look at the virtues of the program. If it has a low fee structure, unique investment options, or other benefits you can’t get elsewhere, then you may want to leave it in place. If not, then exploring your rollover options is wise, as it may let you pay less in fees, access investments you can’t tap currently, and more.

Have you ever had an employer try to charge a fee to turn over your 401(k) after you quit a job? If so, what did you do? Share your thoughts in the comments below.

Read More:

Tamila McDonald

Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.

Annuities and Taxes: Here’s What You Need to Know

March 1, 2021 by Tamila McDonald Leave a Comment

Annuities can be a reliable source of income in retirement. Once you begin receiving benefits. You’ll receive a set amount of money each month or year for the rest of your life. Even if you live for decades more. However, annuities can come with tax implications. Both on the front and back ends. If you want to find out more about annuities and taxes. Here’s what you need to know.

Annuities and Taxes – Qualified vs. Non-Qualified Annuities

First, it’s important to understand that how an annuity is taxed does vary depending on the type of annuity involved, especially how it was funded.

Qualified annuities are funded with pre-tax dollars. In most cases, these involve principal payments from a type of tax-deferred retirement account, like a 401(k) or a traditional IRA. However, there may be other approaches available, as well.

When you make withdrawals from a qualified annuity, you pay taxes on the money just as you would other traditional kinds of income. Since none of the money has been taxed, every dollar in the withdrawal is treated the same.

Non-qualified annuities are funded with after-tax money. With those, when you make withdrawals, you’ll only owe taxes on earnings, not the deposited amounts. The money used to fund the annuity has already been taxed, so it won’t be taxed again. However, the earnings haven’t, making them subject to taxation.

Usually, with non-qualified annuities, the taxed amount is determined by the exclusion ratio. This calculation determines how much of an annuity income payment is taxable by separating the portion of the payment funded with the principal from the part funded by interest earnings.

In some cases, annuities purchased with funds from a Roth 401(k) or Roth IRA are tax-free. However, very specific conditions have to be met for that to happen.

Tax Rates on Annuities

When you’re receiving income from an annuity, the taxable amount is taxed based on traditional income tax rates. Annuities aren’t eligible for capital gains rates, which are often lower than income tax rates.

If you need to estimate how much you’ll owe, use the traditional tax tables from the IRS. That will give you the most accurate picture, at least on a federal level.

In some cases, you’ll also need to pay taxes on the state level. State income tax rates vary, and some may exclude annuities – as well as other kinds of retirement income – while others do not. Additionally, not all states have an income tax in the first place. As a result, you’ll need to research rules in your area to determine how much you may owe.

Depending on where you purchase your annuity, you may also owe a state premium tax. Some states tax insurance premiums, including during the sale of annuities. If you live in one of those states, you may see a 1 to 3.5 percent tax. However, some states waive the fee under certain circumstances, such as if you make the purchase using funds from a qualified retirement plan.

When Withdrawal Timing Impacts Taxes on Annuities

Another factor in how money from an annuity is taxed is when withdrawals are made. Usually, if you take any money out before you reach the age of 59 ½, you’ll owe a penalty of up to 10 percent to the IRS. However, by waiting until you’re at least 59 ½, you can avoid this entirely.

Additionally, if you take a lump sum instead of annuity income payments, at a minimum, all of your earnings are taxed right away. If you funded the annuity with pre-tax dollars, then the entire lump sum, including both the principal and earnings, are taxed immediately.

Inherited Annuities and Taxes

If you inherit an annuity from another person, the same tax rules apply to you as would to the deceased. As a result, if the annuity was qualified because it was funded with pre-tax dollars, you’ll owe taxes on the entire value of any withdrawals. If it was non-qualified, then you’ll only owe taxes on the earnings.

Ultimately, annuities are fairly simple to understand from a tax perspective. Earnings are typically taxed as income, and withdrawals from principal only are if the annuity was funded pre-tax. While your income tax rates may vary depending on your total income level, how your annuity factors in is reasonably straightforward.

Is there anything else people should know about annuities and taxes? Share your thoughts in the comments below.

Tamila McDonald

Mistakes to Avoid in Retirement

May 27, 2020 by Jacob Sensiba Leave a Comment

In many finance websites, blogs, and articles, a lot has been said about how to prepare for retirement, but I believe there hasn’t been enough written about what to do when you get there. More specifically, there’s a lack of content about mistake, or mistakes, to avoid.

In this article, we’ll explore several mistakes to avoid when you reach this milestone.

Spend beyond your means

This seems obvious, but once the psychological barrier of spending versus savings is breached, people (not everyone) develop this mentality of “I saved for 40 years for this moment, why shouldn’t I enjoy it?”

You should enjoy it. You worked your butt off for it, right? There are strategic ways to do this, however. The mistake is going gangbusters right away.

Create a budget/spending plan – Your budget in retirement will be different than your budget before retirement. Create line items for everything, and get real granular with your discretionary spending (i.e. sub line items to breakdown where the discretionary spending is actually going).
Plan for healthcare – Healthcare costs, generally speaking, will be your largest expense in retirement. Plan accordingly.
Income strategy – More than likely, you’ll have a few different income sources (social security, pension, retirement distributions, etc.). Create a line item for each source.
Senior discounts – Take advantage of every single one. There might be a psychological hesitation with this, as it forces you to come to terms with your age/where you are in life
Spoil grandkids – Every grandparent wants to spoil their grandkids to death, but it must be done within reason. Get creative and be strategic about when and how much.

Make Quick Decisions

Another mistake is making quick decisions. Don’t do it. Any decision you classify as BIG needs to be well thought out. This could be anything like moving, downsizing, vacations, or eliminating a vehicle.

I would argue that any decision about an expense that’s not in your budget/spending plan, should be thought about for several days. My rule of thumb is a week. By then, the euphoria of such a purchase has gone away, then you think more logically about it.

Investing Aggressively

Over the years, a big mistake clients make is the desire to invest more aggressively than they should. Oftentimes, this is to compensate for an inadequate savings rate during their working years or a significant market pullback that hurt their portfolio.

While capital appreciation is still an investment objective in retirement, it’s no longer the primary goal.

This primary goal should be capital preservation. Limiting losses on what you have. This has less to do with time and more to do with your decreasing ability to go out and make more money. Allocate your portfolios accordingly.

Ignoring Estate Planning

Estate planning is a key ingredient to your financial planning recipe. It mustn’t be ignored. Every debt and asset you have needs to be accounted for, listed, and given a task for when you pass.

Estate attorneys can be expensive, but I believe it’s 100% necessary to find one you trust, so your estate is well taken care of.

Isolating Yourself

Your social life is more important than ever. Countless studies show that people with strong relationships outlive those that don’t. So the mistake here is not making your social life a priority.

Join a community, volunteer, retain, and nourish friendships. Whatever flavor of social life sounds desirable, make it a priority.

Letting Yourself Go

Taking care of your mind and body is always important, but especially now. It will keep you healthy, therefore, lowering your healthcare expenditures, but it’s also another way for you to meet people.

Go for walks with neighbors and/or friends. Join a gym. Many of which have reduced rates for seniors. Additionally, many health insurance companies have “silver sneaker” programs that offer inexpensive services and programs for seniors.

Expecting it to be easy

This is a BIG life change and the transition will not be easy.

Not only will you shift from saving to spending, but those social connections you developed over your working years can reduce in frequency and strength.

Go easy on yourself and be patient.

Taking Social Security too early

Unfortunately, there are situations and scenarios where taking Social Security Income (SSI) distributions early is necessary. However, for those of you where this does not apply, speak with a trusted advisor about optimizing your SSI strategy.

Getting Swindled

Scammers adapted. They’re smart and they know how to target susceptible people. Unfortunately, elderly individuals are inherently more at risk than the general population.

Any email, phone call, or text that you receive (unsolicited, of course) should be greeted with a fair amount of skepticism. Don’t willingly give out any pertinent information (name, DOB, social security number, etc.).

Doing it alone

A BIG mistake people make is thinking they can plan by themselves. It would behoove you tremendously to consult with several experts. Estate attorneys and financial advisors should be at the top of this list.

Do your research, check online reviews, and get testimonials from trusted contacts. Having capable professionals in your corner could set you up for success and put your mind at ease.

Just Entering The Workforce? Let’s Talk About Retirement

December 10, 2019 by Susan Paige Leave a Comment

Can you remember the first day you worked and earned money? It might have been babysitting for your neighbor’s kids or a retail job at the local mall. As a kid, you might have imagined your parents going to work as something that just happened. You didn’t think of the financial ramifications or why going to work was important.

The older you got, the more likely you were to start seeing the value of money. Want to go to the movie with your friends? Want to purchase a new video game? All those things cost money.

So, you got a job and chances are, you weren’t the best saver. Money was for activities and fun.

But now that you’re entering the real workforce, there are lots of other things your money is going to such as rent, groceries, utilities, and retirement.

Retirement? But you just started working!

Even though you might be 40+ years from retiring, it’s never too early to start thinking about the day when you hang it up. Below, we have some tips and questions you should be asking yourself and those around you when it comes to your retirement.

Does Your Work Have Retirement Benefits?

While a pension was the norm for your grandparents and maybe even your parents, roughly just 54% of businesses these days offer pension plans for their employees. While that may seem like a solid number, the financial crisis of 2009 put a real dent in those numbers and they have been slow to recover.

While your work may not offer a pension, they may offer other benefits like a 401(k) or a 401(a). 401(a) plans are typically offered by government or nonprofit institutions and participation in these plans is often mandatory. Contributions are determined by the employer and can be either pre or post-tax.

401(k) plans are the opposite. They are more popular in the private sector, don’t have a contribution limit, and participation is not mandatory (although it might be).

Contribution is pretty simple, that you take X amount of money out of your paycheck and put it towards these plans each month. Money accrues and grows over time.

Let’s say you need the money, can you take it? Of course, it’s your money but it comes at a cost. The IRS will take a 20% as a penalty for early withdrawal. There are certain stipulations to withdraw money without the penalty, but they are never guaranteed.

Your Personal Savings

Hopefully, you aren’t living paycheck to paycheck and you’re putting away a certain amount of money each month. That could be saved for an emergency or saving up to make a big purchase.

It’s important to set up a personal savings plan because that money could be put into an individual retirement account (more on that later).

Budgeting is boring but highly necessary. Whatever you’re putting away each month should be treated like your 401(a) or 401(k). It should be untouchable. Make sure to take a certain percentage of your savings and plan to put that towards your retirement.

Individual Retirement Accounts

You might have seen this written as IRA and they are pretty common. The idea is that you yourself put money into a non-Roth or Roth IRA each year (up to $5,500 maximum) and that money is invested.

Many people seek out the advice of financial planners to help them plan a strategy for their IRA. The biggest difference between the two lies within the taxes.

Traditional IRAs mean your contributions are taxed in the year they are made. With a Roth IRA, you’re not going to be taxed when you start making withdrawals.

It’s important to note that not everyone is eligible to contribute to a Roth IRA and access can be restricted if you are using a 401(k).

The best thing to do is to meet with a financial planner and discuss your options. Ask your parents or others who might have a contact they can set you up with. They can help you do much more than just manage your retirement, but help manage your entire portfolio as well and give tips on sound money management policies.

Even though it may seem silly, it’s never too early to start thinking about your retirement.

Image source: Flickr.

Secure Act 1.0

Secure 2.0

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Eligibility for Medicare’s Hospice Benefit

Medicare’s hospice coverage includes a broad range of services:

Hospice costs not covered by Medicare

Some Costs

Planning

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Business structures

Retirement plan options

Be your own boss

Earning potential

Costs

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Withdrawing your funds

Keep it where it is

Roll it to your new employer

Roll it into an IRA

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What is it?

Investing

Rules and Regulations

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Typical retirement costs

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Can an Employer Charge Fees to Turnover Your 401(k) After You Quit?

Can You Keep Your 401(k) With Your Former Employer?

Contribution Factors

What It Means to Rollover a 401(k)

Should You Rollover your 401(k)?

Annuities and Taxes – Qualified vs. Non-Qualified Annuities

Tax Rates on Annuities

When Withdrawal Timing Impacts Taxes on Annuities

Inherited Annuities and Taxes

Spend beyond your means

Make Quick Decisions

Investing Aggressively

Ignoring Estate Planning

Isolating Yourself

Letting Yourself Go

Expecting it to be easy

Taking Social Security too early

Getting Swindled

Doing it alone

Related reading:

Does Your Work Have Retirement Benefits?

Your Personal Savings

Individual Retirement Accounts