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Zach Abraham

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

By | Tax Planning | No Comments

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

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

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

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

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

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

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

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

Healthcare rule changes when it comes to taxes.

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

  1. You may be able to deduct more for unreimbursed allowable medical care expenses2.

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

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

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

  1. The ACA is still in effect.

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

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

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

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

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

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

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

  1. When you start RMDs makes a difference.4

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

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

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

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

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

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

 

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

As a service to our clients, we provide retirement tax planning in conjunction with your tax professional or CPA. Let’s talk about how we can create a plan now to pay the proper amount of tax later in retirement. You can reach Bulwark Capital Management in Silverdale, Washington at 253.509.0395

 

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

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

 

Financial Vows for Money-Savvy Couples

By | Financial Planning, Lifestyle | No Comments

February is a good time to celebrate your relationship with your significant other—and renew your commitment to your mutual financial success. Here are some ideas to say “I do” to this month.

  • Vow to protect yourselves from emergencies

During the government shutdown early this year we learned that 40% of Americans don’t have enough money set aside to handle even a $400 emergency. Whether you determine you want an amount equal to six months’ or 12 months’ worth of living expenses, vow to set aside an emergency fund in liquid, readily-accessible accounts so that you have adequate cash on hand should you need it.

  • Vow to protect your family finances by shifting risk

Along the same lines as an emergency fund, work with a financial advisor to determine how much risk you both face from other potentially life-altering events. What would happen if one of you suddenly became unable to work or function due to a disability? What if you required nursing care? What if one of you suddenly passed away?

Insurance companies offer policies designed to shift many of life’s unexpected financial risks away from your family. Be sure to compare policies offered by multiple highly-rated insurance companies to help ensure you get the best coverage for your premium dollar.

  • Vow to put an estate plan in place (or update your current plan)

If one or both of you have children from a previous marriage, make sure all of your documents are in order so that family squabbling is reduced to a minimum if one of you predeceases the other. Most experts say that you should have at least some of your assets transfer immediately lest one of you remarries or other circumstances change and money that you expected would pass to your biological children gets spent by an unintended party.

Similarly, did you know that the beneficiaries you designate on retirement accounts and insurance policies and similar accounts take precedence over your wills and/or trusts? If you haven’t looked at that old 401(k) for decades, chances are that your ex-spouse might inherit that money regardless of your true wishes or life circumstances at the time of your death.

All of your documents need to be reviewed on a regular basis—let’s get together as soon as possible.

  • Vow to make saving and retirement planning a priority for you both

Even though retirement accounts are held separately, it’s important to have a shared vision about your retirement together. Be sure to meet with your retirement planner or financial advisor to discuss your future goals and time horizon. Other financial goals should also be prioritized so that you’re both on the same page, like saving up for the kids’ college expenses or the daughters’ weddings.

  • Vow not to keep secrets about money and keep the communication flowing

Hopefully you’ve been honest from the beginning of your relationship about your level of debt, how you handle sticking to a budget, or whether or not you have a low credit score. Understanding each other’s financial position and money habits is the first part of being able to take control of your finances together in order to achieve mutual goals as a couple.

And remember that it’s important that both of you understands your overall combined financial picture, even if one of you pays the bills or the other takes the lead role in investing. Don’t delegate this, make it a point to stay in the loop with financial decisions. Even if you have separate bank accounts to handle the day-to-day finances, you both need to understand where you’re at and where you’re headed when it comes to your financial future as a couple, especially your plan for retirement.

Even if it doesn’t seem exactly romantic, talking about money can make your relationship a more perfect union for the long-term. Aiming “for richer” rather than “for poorer” together can strengthen your matrimonial bonds.

We’re here to help. Call us at Bulwark Capital Management in Silverdale, Washington at 253.509.0395.

 

Sources:
CNN, “40% of Americans can’t cover a $400 emergency expense.” https://money.cnn.com/2018/05/22/pf/emergency-expenses-household-finances/index.html (accessed February 11, 2019).
Forbes, “6 Financial Vows Couples Should Take To Heart.” https://www.forbes.com/sites/judithward/2019/01/23/6-financial-vows-couples-should-take-to-heart/?ss=personalfinance#1a8149385241 (accessed February 11, 2019).

 

Managing Your Finances

By | Lifestyle | No Comments

We work with dozens of people to help them create retirement plans. But in order to get to a successful retirement, there are thousands of small decisions along the way. Like, should you drive through your local coffee place and grab a latte this morning? Go with the office gang for lunch at that little bistro across the street, which usually costs you around $15? Should you order pizza delivered for dinner tonight because you didn’t go to the grocery store yesterday? Grab that new shirt because it’s 50% off?

Sticking to a budget is the beginning of mastering your money. But why do so many of us find it difficult?

A recent article in Forbes magazine may hold some clues as well as ideas about how to take control of your discretionary expenses. The author, Thomas Dichter, advocates writing every expenditure down, to the penny, as well as calculating how well you met your budget on an annual basis. (He usually comes within 1% of his goal, and many times comes in under, which he attributes to his meticulous record-keeping.)

Mr. Dichter explains how he started the process:

I forced myself to write down what I had spent under each category. After a week my inner accountant had emerged and I kept at it. By month six I noticed something magical: the act of tracking expenses had a feedback effect on my spending. My expenses in the categories that all of us tend to ignore (take-out food and coffee, a candy bar at a vending machine, impulse buying a shirt, or a magazine at the check out line, etc.) were going down, not because I wanted to deny myself, but because I could see what was happening.

At the end of that first full year those few minutes a day of what became compulsive recording paid off. It took me about a half hour to add up each category and then total it all (a side benefit became obvious when I had to do my taxes). Then I compared that total to my take-home income for the year and saw I was ahead, for the first time in my life. I decided to do a budget for the next year, using the past year’s expenses as a guide. At the end of that year I saw I had come within 1% of my budget estimate. Passing that self-imposed test soon became an annual goal. Each year on December 31st, I see how close I’ve come to my budget estimate of twelve months earlier. Usually I come within that 1%, sometimes over but more often under.

The author goes on to say that he believes that easy access to credit, along with an economy based on consumption, contributes to the overspending problem in America. And the main excuse for resisting his simple method—“I don’t have time”—is just a cover story for other, deeper reasons. For example, he believes that some people don’t really want to know what they spend, because it might rock their feeling that “everything is okay.” Some operate on the subconscious wavelength that it’s better to risk their financial future rather than turn into some kind of accounting nerd or tightwad.

As financial advisors who work with people every single day, we are here to tell you that managing your finances is possible, and might even be easier than you think. Let’s talk. Call us at Bulwark Capital Management in Silverdale, Washington at 253.509.0395.

 

Source:
“A New Year’s Resolution To Manage Your Finances: Why Is Sticking To It So Hard?” by Thomas Dichter, Contributor, Forbes.com. https://www.forbes.com/sites/thomasdichter/2019/01/01/a-new-years-resolution-to-manage-your-finances-why-is-it-so-hard/#38ef8202106f (accessed January 14, 2019).

 

5 Tips for Setting Better New Year’s Resolutions

By | Financial Planning, Lifestyle | No Comments

If you typically give up on your goals by March, you’re not alone. Try these tips for 2019.

  1. Go ahead and set them again.

Even if you’re one of the majority of people who have set New Year’s Resolutions in the past but gave up on them within a few weeks, try again. Because there is good news about setting goals, even if you haven’t quite mastered the follow-through.

According to one study published in the Journal of Clinical Psychology, people who set New Year’s resolutions are 10 times more likely to actually change their behavior than people who don’t make these yearly goals. Tony Robbins says, “Setting goals is the first step in turning the invisible into the visible.” So go ahead and write down your objectives for 2019.

  1. Make sure you actually want what you say you want.

Some of the most common resolutions include losing weight, making better financial choices, and eating healthier. All of these sound great—if they’re what you really want. For instance, make sure losing weight is your desire, not something you read about—or a photo you compared yourself to—in a magazine.

If you typically set goals for things you think you should want, instead of what you really do want, you will not succeed because you’re not really motivated. (And frankly, who cares, because you didn’t want that stuff anyway.) Dig deep this year to try to find out what your deepest desires are, and why.

  1. Replace a bad habit with a good habit.

At the end of the day, goals are one thing, but day-to-day habits are another. An article in Psychology Today puts it this way:

“A lot of New Year’s resolutions have to do with making new habits or changing existing ones. If your resolutions are around things like eating healthier, exercising more, drinking less, quitting smoking, texting less, spending more time ‘unplugged’ or any number of other ‘automatic’ behaviors then we are talking about changing existing habits or making new habits. Habits are automatic, ‘conditioned’ responses. You get up in the morning and stop at Starbucks for a pastry and a latte. You go home at the end of work and plop down in front of the TV.”

According to the article, there are three facets necessary to changing habits. You must choose a small action, attach it to an existing habit, and make it easy to do for three to seven days in a row.

For example, “Get more exercise” is not small. “Take the stairs each morning to get to my office, not the elevator” is a small, actionable, better resolution to make. Your existing habit of walking to the elevator can be changed to walking to the stairs, and it will become a new habit within just a week of practice.

  1. Create a new “story” about yourself.

“The best (and some would say the only) way to get a large and long-term behavior change, is by changing your self-story,” according to science.

Whether you realize it or not, you make decisions based on staying true to your unconscious self-stories, and you strive to be consistent. If you have a story about yourself that you are “realistic” because of things that have knocked you down in the past, you may have a story about yourself that keeps you in a state of cynicism about your life.

You can rewrite any story you have about yourself that might be holding you back. It’s kind of like writing a script for your own movie—you are the lead character, and the movie is your life unfolding. Instead of Mr. Cynic, moping along chained to his past, you are now your own hero, Mr. Positive, who takes new actions every day to improve the lives of others based on his experiences.

“The technique of story-editing is so simple that it doesn’t seem possible that it can result in such deep and profound change. But the research shows that one re-written self-story can make all the difference.”

  1. Tell people—or not.

For some people, telling their friends and family members keeps them on-track, holding them more accountable on the path to achieving their resolutions. But if you have friends and relatives who tend to shoot holes in your dreams, or sabotage your goals in subtle or obvious ways, keep your goals to yourself.

Consider surrounding yourself with supportive people for the year, limiting communication to “small talk” with people who aren’t on board. Take notice of people who drain your energy instead of energize you, and make choices accordingly. You have the perfect right to say “no” or “yes” more often to the activities you decide to engage in, and the people you elect to spend time with.

Have we scheduled your annual review? Let’s meet and review your financial plan in light of next year’s short- and long-term objectives. Please call Bulwark Capital Management in Silverdale, Washington at 253.509.0395 or email us at invest@bulwarkcapitalmgmt.com.

5 Things to Know About Long-Term Care

By | Long Term Care | No Comments

November is long-term care (LTC) awareness month. Here are five things you should know.

 

  1. There are different types of facilities providing increasing levels of care.1

If you hear the words “long-term care” and automatically think “nursing home,” you should know that long-term care encompasses a wide range of options and a progression of choices. The most self-sufficient seniors might live in independent retirement living facilities, while assisted living often adds medication management, daily personal care, meals and housekeeping.

Continuing care retirement communities (CCRCs) offer a tiered approach so that seniors can transition on site as they require more services. Adult foster care is available in private homes run by trained caregivers—there are even special homes designated for military veterans with chronic medical conditions overseen by the Dept. of Veterans Affairs.

Of course, nursing homes are also part of the spectrum, offering 24-hour supervision, nursing care, help with daily living activities and three meals per day. Secured memory care units, which are more expensive, are often located within nursing homes to provide a safe but more homey environment for people suffering with Alzheimer’s or dementia. Skilled nursing facilities (SNF) are not identical to nursing homes—they often staff doctors and nurses around the clock and offer physical rehabilitation services. People in these facilities may be bedridden, need two people move them, and require dialysis or other intensive treatments.

 

  1. Statistics vary on how many people will need long-term care.

With 10,000 people turning 65 every single day in America until around year 20302, there are varying statistics regarding the need for long-term care—some as high as 75%.3 In late August, Morningstar put together their 2018 updated statistics, placing the percentage of people 65 or older who will need long-term care at 52%, the majority female.4

 

  1. Alzheimer’s dementia is on the rise due to longevity.5

According to the Alzheimer’s Association, “Someone in the United States develops Alzheimer’s dementia every 66 seconds.” An estimated 5.5 million Americans—one in 10 people age 65 and older (10%)—are living with Alzheimer’s dementia, almost two-thirds of them women.

In addition to gender, race evidently also plays a role in the risk of developing the disease. Hispanics are about one and one-half times as likely to have Alzheimer’s or other dementia as whites, while African Americans are about twice as likely to have Alzheimer’s or other dementia as whites.

 

  1. Long-term care costs are high, and rising.

According to Genworth’s 15th Annual Cost of Care Survey, the “blended annual median cost of long-term care support services has increased an average of 3% from 2017 to 2018, with some care categories exceeding two to three times the 2.1% U.S. inflation rate.” 7

Annual National Median Costs 2018 8

Homemaker Services: $48,048

Home Health Aide: $50,336

Adult Day Health Care: $18,720

Assisted Living Facility: $48,000

Semi-Private Room in a Nursing Home: $89,297

Private Room in a Nursing Home: $100,375

Most expensive states in order are Alaska, Hawaii, Massachusetts, New Jersey, Connecticut, New York, New Hampshire, North Dakota, Vermont, Delaware, Maine, Washington, Minnesota, Oregon and California.7

 

  1. Hybrid policies are now more popular than standalone LTC policies.9

When it comes to helping people solve the problem of potentially needing long-term care, hybrid whole life, hybrid indexed universal life (IUL) and hybrid annuities have been more popular than traditional long-term care policies, and they are becoming more popular every year.

The reasons for the rise in popularity have to do with a combination of factors, including the rising cost of standalone LTC policies as well as the attractive features of some new hybrid annuities and life policies.  The elimination of the “use it or lose it” nature of typical long-term care insurance policies, in some cases providing a death benefit if the policyholder does not need long-term care during their lifetime, is often cited as the most attractive feature of hybrid policies.

 

 

If you would like more information about how to make sure you are covered for long-term care if you need it, please call Bulwark Capital Management in Silverdale, Washington at 253.509.0395 or email us at invest@bulwarkcapitalmgmt.com.

We can help you compare your many new LTC policy options!

 

 

Sources:
1 “What’s the Difference Between Types of Long-Term Care Facilities?” USNews.com. https://health.usnews.com/wellness/aging-well/articles/2018-10-30/whats-the-difference-between-types-of-long-term-care-facilities (accessed November 5, 2018).
2 “Baby Boomers Retire,” Pewresearch.org. http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/ (accessed November 5, 2018).
3 “Long Term Care Statistics,” LTCtree.com. https://www.ltctree.com/long-term-care-statistics/  (accessed November 5, 2018).
4 “75 Must-Know Statistics About Long-Term Care: 2018 Edition,” Morningstar.com. https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html  (accessed November 5, 2018).
5 “Alzheimer’s Is Accelerating Across the U.S.,” AARP.org https://www.aarp.org/health/conditions-treatments/info-2017/alzheimers-rates-rise-fd.html (accessed November 5, 2018).
7 “Top 15 Most Expensive States for Long-Term Care: 2018,” Thinkadvisor.com. https://www.thinkadvisor.com/2018/10/24/top-15-most-expensive-states-for-long-term-care-20/   (accessed November 5, 2018).
8 “Cost of Care Survey 2018,” Genworth.com https://www.genworth.com/aging-and-you/finances/cost-of-care.html (accessed November 5, 2018).
9 “Why hybrid policies are so popular,” Thinkadvisor.com. https://www.thinkadvisor.com/2018/03/28/why-are-the-new-hybrid-ltc-policies-so-popular/  (accessed November 5, 2018).
Further reading:
“How clients can use annuities to pay for long-term care,” Financial-planning.com. https://www.financial-planning.com/news/as-ltc-insurance-prices-rise-long-term-care-annuities-gain-popularity (accessed November 5, 2018).
 “Could Your Long-Term Care Premiums Be Hiding in Plain Sight?” Morningstar.com. https://www.morningstar.com/articles/879259/could-your-longterm-care-premiums-be-hiding-in-pla.html (accessed November 5, 2018).
“Hybrid policies for long-term care,” Chicagotribune.com. https://www.chicagotribune.com/business/sns-201806261243–tms–savingsgctnzy-a20180626-20180626-story.html (accessed November 5, 2018).
“Hybrid Policies Allow You to Have Your Long-Term Care Insurance Cake and Eat It, Too,” Elderlawanswers.com. https://www.elderlawanswers.com/hybrid-policies-allow-you-to-have-your-long-term-care-insurance-cake-and-eat-it-too-15541 (accessed November 5, 2018).

Top 5 Things Baby Boomers Should Know

By | Retirement | No Comments
  1. The Social Security COLA (cost of living adjustment) in 2019 will be 2.8%.

This is the largest COLA increase from the Social Security Administration since 2012.1

  1. Social Security benefits are often taxed.

If you work and are at full retirement age or older, you can earn as much as you want and your benefits will not be reduced; however, you may have to pay taxes on them. If your annual combined income is from $32-$44,000 filing jointly, you may have to pay taxes on 50% of your benefits. If your income is more than $44,000 filing jointly, then you may have to pay taxes on up to 85% of your benefits.2

Social Security calculates “combined income” by adding one-half of your Social Security benefits to your other income.2

  1. RMDs can have a profound effect on taxes.

Many people forget that RMDs (Required Minimum Distributions) begin at age 70½. You are required by the IRS to start withdrawing money annually from your 401(k)s, traditional IRAs and other tax-deferred accounts using a precise formula, and you must do so by December 31st of each year or owe the income tax plus a 50% penalty.

Since you’ve never paid taxes on this money, you will owe income tax on your withdrawals based on your tax bracket for the year, and the income from your withdrawals are added in to the combined income amount that Social Security calculates. Some Baby Boomers are shocked at the amount of income tax they will actually owe, and come to the realization that their nest egg is actually much less than they thought.

RMDs, tax planning and income planning are the major reasons having a retirement plan in place is so important.

  1. Medicare isn’t free.

Not only is Medicare not free, but the premiums are usually deducted from your Social Security check.

Medicare health and drug plan providers often make changes to their policies each year, including changes to costs, coverage, deductible and coinsurance amounts, and what pharmacies and providers are in their network, so it pays to do your homework every year. Medicare Open Enrollment runs from October 15 through December 7, and this is your opportunity to make new choices and pick plans that work best for you; changes made are effective as of January 1, 2019.

During Medicare Open Enrollment you can sign up for a Medicare Prescription Drug (Part D) Plan, switch plans, drop your Part D coverage altogether, switch from Original Medicare to a Medicare Advantage plan or select a Medicare Advantage plan from another provider.

You should review drug costs because the prices of some brand-name drugs could be lower next year. As part of the recent tax plan changes, some drug manufacturers will pay more of the costs for enrollees in the drug coverage gap (also known as the “donut hole”) starting in 2019.3

  1. Everyone should have an estate plan

Estate plans are for the people you leave behind when you pass away. Here are some things you should be aware of:

  • An estate plan helps ensure your final wishes get carried out, and also let your family, trustees and health care providers know what your wishes are in terms of finances, possessions and end-of-life health desires.
  • Having a trust in place usually allows your estate to avoid probate court and keeps your finances private.
  • A will allows you to name guardians for minor children and to specify how possessions will be distributed. But if you have only a will in place, your estate will have to go through probate court, which could be a lengthy and costly process for your heirs. Probate also leaves your finances open to public scrutiny.
  • Beneficiaries you have named on individual life insurance policies, 401(k)s and other financial accounts take precedence over your estate planning documents. There have been cases where a former spouse has received financial benefits that weren’t intended, simply because the beneficiaries were never changed on individual accounts. Make sure you review and make updates to all documents on a regular basis.
  • The estate tax exemption, which was doubled by the latest tax legislation to $22.36 million per couple until 2025, means that you should investigate to see if or how you might be able to take advantage of the favorable tax laws while they exist.4

 

For more information about these issues as well as many other retirement issues, please call Bulwark Capital Management in Silverdale, Washington at 253.509.0395 or email us at invest@bulwarkcapitalmgmt.com.

 

Sources:
1 “Social Security Benefit to Increase 2.8 Percent in 2019,” AARP.org. https://www.aarp.org/retirement/social-security/info-2018/new-cola-benefit-2019.html (accessed October 16, 2018).
2 “Benefits Planner | Income Taxes And Your Social Security Benefit,” SSA.gov. https://www.ssa.gov/planners/taxes.html  (accessed October 16, 2018).
3 “Medicare ‘Doughnut Hole’ Will Close in 2019,” AARP. https://www.aarp.org/health/medicare-insurance/info-2018/part-d-donut-hole-closes-fd.html (accessed October 9, 2018).
4 “How the new tax law upends estate planning,” Financial-planning.com https://www.financial-planning.com/news/how-the-new-tax-law-changes-estate-planning-trusts-income-tax-planning  (accessed October 17, 2018).

Estate Planning Basics

By | Estate Planning | No Comments

October is “Estate Planning Awareness Month.” Here are some basics about estate planning that everyone should know.

Everyone should have a plan

Even if you think “you’re not rich enough” to have an “estate,” unless you’re homeless or destitute you should have an estate plan in place. Estate plans provide for the people you leave behind when you pass away, and help ensure that your final wishes get carried out. The last thing you want is your family members fighting over dishes or fishing poles when you’re gone, or having to sell the family home or take other drastic measures just to get by.

Often estate plans help reduce taxation to heirs. Even though the estate tax exemption doubled to $11.18 million for singles ($22.36 million for couples) as a result of the tax legislation passed last December, the exemption drops back down to 2017 levels after 2025, so it’s important to plan now to help take best advantage of estate tax laws for your particular situation.1

There are important differences between wills and trusts

  1. Having a trust in place usually allows your estate to avoid probate court and keeps your finances private. Trust assets are usually distributed by the trust executor once a death certificate has been issued and funds are available immediately to your family. If there are no estate planning documents, or if there is just a will in place, your family will have to go through probate court, which can take a very long time in some states, and can be very costly in terms of legal fees. Additionally probate court proceedings are generally published in the newspaper so that your financial situation and your assets become public knowledge. 2
  2. A will is the document used to specify guardians for minor children. 2
  3. It is often recommended that a will be used with a “pour-over” provision for all assets not specifically named in a trust; and/or that an exhibit or list of items be attached to a will to name individual gift recipients, be the items large or small, valuable or just sentimental.

Beneficiary designations take precedence

Beneficiaries you have named on life insurance policies, bank accounts and/or 401(k)s or IRA accounts take precedence over your estate planning documents. 3 This is extremely important to address, and all docs should match so that there are no conflicts or surprises later. Life changes such as divorces, deaths or birth of new children/grandchildren require that your documents and beneficiaries be updated. That’s why regular reviews are critical—we recommend annual reviews of all your documents, policies and accounts.

Attorneys may not know financial ramifications

Estate attorneys can create the documents you need, but they may not know about all the ins and outs of investments and insurance policies that can help expedite efficient wealth transfer, reduce potential problems and/or mitigate taxation as laws morph and change. Most experts agree that you need a team which includes your estate attorney, your CPA or tax preparer, and your financial advisor or wealth planner.

The importance of digital assets

Online assets are a new area of estate planning that need to be incorporated into your plan. The Uniform Fiduciary Access to Digital Assets Act, which has been passed in most states, provides that an owner of digital assets can specify who will be able to access and dispose of any digital assets after death so that email accounts, social media accounts, PayPal accounts, domain names, intellectual property stored on a computer and other things like virtual currency can be accessed by heirs. 4

Let’s work together to update or create your estate plan. Call the financial advisors at Bulwark Capital Management in Silverdale, Washington at 253.509.0395 or email us at invest@bulwarkcapitalmgmt.com.

 

Sources:
1 “How the new tax law upends estate planning,” Financial-planning.com https://www.financial-planning.com/news/how-the-new-tax-law-changes-estate-planning-trusts-income-tax-planning  (accessed October 18, 2018).
2 “Will vs Trust: Knowing The Difference,” Investopedia.com.  https://www.investopedia.com/articles/personal-finance/051315/will-vs-trust-difference-between-two.asp (accessed October 18, 2018).
3 “Why Beneficiary Designations Override Your Will,” Thebalance.com. https://www.thebalance.com/why-beneficiary-designations-override-your-will-2388824 (accessed October 18, 2018).
4 “The Big Hole in Estate Plans: Digital Assets,” Thinkadvisor.com.  https://www.thinkadvisor.com/2018/10/04/the-big-hole-in-estate-plans-digital-assets/ (accessed October 18, 2018).

 

Resist Tapping Into Your 401(k), Employer-Sponsored Plan If You Can

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‘Leakage’ can erode assets and negatively impact your retirement wealth

If you find it difficult to save or pay for big financial emergencies when they arise, tapping into a pot of money can be tempting – even if it’s your 401(k)-style employer-sponsored plan.

But if you’re able to resist, rewards do come from the power of compounding. The problem, though, is that a small percentage of Americans take early withdrawals and withdrawals after age 59½ from their 401(k)s each year or cash out of their plan when they switch jobs.

A large percentage – typically about 20% of plan participants – have loans outstanding. They’ve used loans from their 401(k) to, among other things, pay down high interest credit card debt, make home improvements, buy a home or refinance a mortgage, or pay outstanding bills. Some don’t repay the outstanding loans they’ve taken, however.

This “leakage” – as the industry refers to it – has financial consequences. For example, the remaining balance of policy loans that aren’t repaid because of a job loss or default may be treated as a lump sum distribution and subject to income taxes and the 10% penalty tax. Moreover, a lower account balance due to leakage means less money in retirement.

An analysis by Alicia H. Munnell and Anthony Webb at Boston College’s Center for Retirement Research compared some scenarios. They found that the 401(k) wealth of a 60-year-old plan participant who began contributing at age 30 could be reduced by about 25% because of leakage compared to a participant who didn’t withdraw, cash out or fail to repay loans. The reduction in plan wealth was similar – 23% – for an individual who rolls over money from a 401(k) plan three times during his or her career with the initial rollover into an Individual Retirement Account (IRA) at age 30.  (The research, published in 2015, includes a few assumptions such as contribution rates, employer match and annual investment return rates. You can find more details here 1.)

The good news is that employers are focusing on decreasing leakage and many are turning to financial wellness programs to improve employee financial behaviors, according to Fidelity Investments. And loan usage has been trending lower in recent years, according to Fidelity’s second quarter analysis of retirement plan accounts.

That analysis found that the percentage of employees with a 401(k) loan fell to 20.5%, its lowest percentage since 2009’s second quarter when it was 19.9%. Among Gen X workers, who historically have the highest outstanding loan rate, the percentage dropped for the third straight quarter to 26.4%. The data is based on Fidelity’s analysis of 22,600 corporate defined contribution (DC) plans and 16.1 million participants as of June 30 2.

While participants may have good intentions for what those 401(k) loans are earmarked for, the loans could hold back participants from fully achieving their financial retirement goals. That’s because participants with outstanding loans might reduce their plan-saving amounts to pay off the loans, or stop saving altogether until the loan is paid off and they recommit to deferring some of their salary to their 401(k)s.

Kevin Barry, Fidelity’s president of workplace investing, noted that the stock market’s performance over the past several years has “definitely” helped retirement savers. But now would be a good time for investors to take a moment and make sure they’re doing their part to meet their retirement goals.

“Markets may go up and down, but there are a number of steps individuals can take, such as considering a Roth IRA, increasing your savings rate and avoiding 401(k) loans, which can play an important role in their long-term savings success,” Barry said, in a news release.

Now, indeed, is as good a time as any to connect with your retirement goals. Call us for a detailed financial and retirement income strategy session or overview that fits with your needs and goals.

We’re here to help you stay on track!  Call Bulwark Capital Management in Silverdale, Washington at 253.509.0395 or email us at invest@bulwarkcapitalmgmt.com.

 

 

Sources:
1 “The Impact Of Leakages On 401(k)/IRA Assets,” Alicia H. Munnell and Anthony Webb. Boston College’s Center for Retirement Research, February 2015. http://crr.bc.edu/wp-content/uploads/2015/02/IB_15-2.pdf
2 “Fidelity Q2 Retirement Analysis: Account Balances Rebound, While Auto Enrollment Continues to Drive Positive Savings Behavior,” Fidelity Investments, August 16, 2018. https://www.fidelity.com/about-fidelity/employer-services/fidelity-q2-retirement-analysis-account-balances-rebound

September is Life Insurance Awareness Month

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Risk Management Is About More Than Your Investments

A lot of financial services professionals talk about “risk” when it comes to your stock market investments. But risk can encompass more than your investment risk tolerance. The broader definition of financial risk is the possibility of loss from any unexpected life event.

For instance, what will happen to your family’s income if one spouse passes away, becomes disabled or unable to work, or needs long-term care? What happens to your kids’ education fund, or your retirement? Risk management in this case means shifting risk of financial loss from adverse events to an insurance company in order to protect your family’s assets and lifestyle.

New Innovations in Life Insurance

First and foremost, life insurance offers financial protection to your family by helping mitigate the risks that you face from life’s unexpected tragedies, as it has done for hundreds of years. But in the last decade, life products have expanded and improved to offer much more.

Many new types of insurance policies and policy rider innovations have come about in order to answer the needs of Baby Boomers–10,000 of whom are turning 65 every day and will continue to do so until 2030.1

Life insurance companies are now covering a whole host of pre-retiree and retiree risks with permanent universal insurance policies and fixed annuities which offer features like:

1) Lifetime income in retirement

2) Spousal survivorship benefits

3) Long-term care coverage if needed

4) Disability coverage if needed

5) Income tax advantages

6) Tax-advantaged wealth transfer or death benefit

Universal Life Insurance or Fixed Annuities as Part of the Retirement Portfolio

In addition to the many retirement risks they can help address, new types of life insurance policies and fixed annuities may have other attractive advantages. Some of the newest policies offer the chance for growth by earning interest linked to market performance. And this potential growth comes with guaranteed* principal backed by the financial strength of the insurance carrier.

These are just some of the reasons more and more financial advisors are including permanent life insurance and/or annuities as part of the retirement portfolio itself.

Let’s Talk About Your Family

Call Bulwark Capital Management in Silverdale, Washington at 253.509.0395 or email us at invest@bulwarkcapitalmgmt.com.

1 Pew Research Center “Baby Boomers Retire.” http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/ (accessed September 10, 2018).

 

 

This article is for informational purposes only and is not intended to provide any recommendations or tax or legal advice. We encourage you to discuss your tax and legal needs with a qualified tax and/or legal professional.

*Guarantees and protections for fixed or fixed indexed annuities and/or universal or indexed universal life policies are subject to the claims-paying ability of the issuing insurance company. These policies are contracts purchased from a life insurance company. They are designed for long-term retirement goals, and also intended for someone with sufficient cash and liquid assets for living expenses and unexpected financial emergencies, including, for example, medical expenses. Depending on the product, they may include surrender charges, rider charges, life insurance premium charges and/or other fees as detailed in the individual contract.

An indexed annuity or indexed life insurance product is not a registered security or stock market investment. As such, it does not directly participate in any stock, equity or bond investments, or index. Gains on indexed accounts are based on participation rates and other conditions offered by the issuing insurance company. Depending on the nature of funds used to purchase annuities, withdrawals may be subject to income tax and withdrawals before age 59½ may be subject to a 10% early withdrawal federal tax penalty.

 

When Should I Seek Financial Advice?

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Here are some life milestones and events that mark when you should make the call to a financial advisor.

  1. When there’s a new baby in the family.

Parents, grandparents, siblings—everyone is affected when the new baby comes along. Now is the time to plan for what this tiny family member will grow to need in the future—especially college funds. And now is also the time to make sure that you have the right insurance and protections in place to see the child through to adulthood should something unexpectedly happen to you.

  1. When you get married.

Two people joined together in holy matrimony are also going to need to bring their finances together, for better or worse. And if there are any children from a previous marriage involved, it’s doubly important to find and hire a financial advisor that you both like and respect.

A comprehensive financial plan—which includes your mutual goals, time horizon to retirement, and desires for wealth transfer to family members—is a very important way to get started on your life journey together.

  1. When you win the lottery, or inherit.

We all dream of receiving a big financial windfall someday, but when you actually land a large amount of money at one time, studies show that many people squander it away. In fact, nearly a third of lottery winners actually end up declaring bankruptcy, becoming worse off than before they won.

If you receive money, call a financial advisor first, because no matter what the amount, it is actually less than it seems. You need qualified financial advice to ensure you don’t lose 30-90% to the IRS by not understanding tax laws. Financial advisors work as a team with your tax professionals to help you navigate inheritance, winnings, and gift taxes, as well as qualified money (like an inherited IRA account) tax rules so that you can actually end up ahead of the game.

  1. When you start working.

Your first job is an exciting time in your life. Even if you’re trying to pay off student loan debt, don’t miss the chance to achieve your life goals by harnessing the power of compound interest. Putting away even a very small amount each month can snowball through the years. A financial advisor can help you lay a plan to get ahead and reach your goals over the long term.

  1. When you start a new business, or want to sell one.

Small businesses offer many different options for retirement plans for their owners depending on the company structure. Call a financial advisor to help you set up a financial and retirement plan for your business in order to have the best chance of achieving your goals. And don’t forget about an exit strategy. Whether you want to leave your business to a family member or sell it, planning for your own departure from the company is essential to your ultimate financial success.

  1. When you’re starting to get close to retirement.

You should start to save for retirement as early as possible, but as you get closer to your actual retirement day, having a written plan in place to guide you becomes critical. How will you transform that nest egg you’ve saved into monthly income after you’re no longer getting a paycheck—without running out of money? How much money will you need? How will you take money out? Which accounts should you withdraw from first? What kind of taxes will you have to pay? How does Social Security work? How will you live, what will you do? Should you pay off your house first?

There are so many issues and retirement risks to address that retirement planning is absolutely essential. Ideally, you should have a plan in place by age 50—55. If you don’t, call your advisor as soon as possible.

  1. When you’re creating estate planning documents or establishing a trust.

Estate attorneys can create the documents you need, but they may not know about all the ins and outs of investments and insurance that can reduce taxation while helping ensure your final wishes are carried out. Call your financial advisor to get that important piece of the estate and tax planning equation.

  1. If you lose your job midlife, or are getting divorced with a lot of assets.

An adverse life event can hit anyone. If you’ve lost a job or are getting divorced, your financial advisor can help determine your best options for putting an immediate action plan in place.

For instance, if you’ve lost your job, your financial advisor may be able help you position assets in order to be able retire early, or help you draw from certain accounts to get you through until you land your next job.

If you are getting divorced, be sure to get advice from a financial advisor as well as your divorce attorney. They can help you analyze the assets that will most benefit you based on your future goals in order to reach the best settlement split. They can help you see things you might not be able to see clearly, and that divorce attorneys may not know. Like what kind of burden versus advantage keeping the family home might be.

  1. In the final quarter of every year.

Once you do have a financial or retirement plan in place, you should absolutely review it every year. (Most likely you’ll just need to answer the call, since most advisors will reach out to conduct annual reviews with you.) The annual review will allow your advisor adjust the plan as well as make changes to account beneficiaries as your family changes through time.

 

There are three different advisory disciplines you should seek out—tax professionals, legal professionals (like estate attorneys), and financial advisors. We can help you with the financial advice part of the equation. We can help you get set up with a tax professional and estate attorney from our network of contacts, or work as a team with yours.