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Monday, March 21, 2016

Identity Protection Tips for Tax Season

What's the most important number for you this tax season? The amount of your refund? The amount you owe? The number of hours spent poring over all the other numbers?
All of those are pretty important. But, none of them are as important as your Social Security number, at least not in the larger scheme of things.

No one enjoys tax time, right? Not even the Internal Revenue Service or paid tax preparers. Actually, identity thieves do love tax season. Personal identifying and financial information is flying around and the stress of the season can cause some people to drop their guard – and open the door to opportunity for identity thieves.
As you’re gearing up for tax season, it’s important to keep identity protection in mind throughout the process. Take these steps to ensure your information stays safe this tax season:
Choose your tax preparer with care
From the Yellow Pages to your local discount store, tax preparers are everywhere at this time of year. It’s important to know who you’re doing business with; not only can a poorly prepared return cause problems with the IRS, a dishonest preparer can take advantage of your personal information. Warning signs a tax preparer may not be above board include:
  • Asking you to sign a blank return. Always review a completed return before you sign it.
  • A record of complaints with the Better Business Bureau or other consumer organization.
  • Charges a percentage of your tax return as his or her fee, or refuses to quote you an exact fee up-front before preparing your return.
  • Disappears after tax day. Look for a preparer with an established reputation and an actual office where you’ll still be able to find him on April 16.
Protect Your Valuable Documents
Many of the documents involved in tax preparation – from W-2s to interest statements – contain sensitive information. It’s important to take steps to protect these forms.
Throughout the month of January, don’t let mail linger in the mailbox, as tax forms will be arriving. Invest in a locking mailbox – a good identity theft protection measure at any time of year. Gather all your documents and secure them; never leave envelopes or documents in an unsecure place, like your car, desk at work or dining room table at home. And when it’s time to mail your return, don’t leave it sitting in your mailbox for the postman to pick up. Take it directly to the local post office branch and mail it from there.
Be Alert to Scams
Tax scams abound at this time of year. You may receive an email or phone call from someone claiming to represent the IRS or other federal agency. Keep in mind that when it comes to your taxes, only one federal agency is ever involved and that’s the IRS.
On its website, the IRS plainly states that it contacts taxpayers via U.S. Post – and never by email, text messages or phone calls. If you receive this type of communication from someone claiming to be with the IRS it is almost certainly a scam. Report the incident to the IRS by forwarding the suspicious communication to

Monday, January 11, 2016

How Do You Generating Lifetime Income? Here is a New Opportunity!

 Here is a New Strategy!
A survey of people aged 44 to 75 found that 61% fear running out of money in retirement.1 There may be various personal reasons behind this concern, but the decline of traditional pensions, combined with longer life spans and rising medical expenses, has created an uncertain future for many Americans, including those who have put away a solid nest egg for retirement.
A recent IRS decision opened a new opportunity for retirement plan owners to turn a portion of their retirement savings into a guaranteed future income stream using a qualified longevity annuity contract (QLAC). Although longevity annuities (sometimes called longevity insurance) are not new, the IRS decision makes it more effective to purchase and hold an annuity in a qualified retirement plan such as a traditional IRA or a 401(k). Here’s how it works.
Deferred Payouts
A longevity annuity is a deferred fixed annuity that delays lifelong income payments until a future date — often when the contract owner reaches age 80 or 85. Because the annuity income is deferred, the payouts are typically higher in relation to the premiums than they would be if the annuity income had been paid immediately. Purchasing the annuity at a younger age with a longer deferral period would generally give you a better premium-to-income ratio.
In the past, it would have been counter-productive to purchase a longevity annuity in a qualified retirement plan, because the amount used to purchase the annuity would have been included in the account balance to determine required minimum distributions (RMDs). The new IRS ruling allows retirement plan participants to use the lesser of $125,000 (inflation adjusted) or 25% of their account balances to buy a QLAC, with the annuity’s value excluded from the account balance used to determine RMDs.
Having a QLAC might allow you to take larger retirement plan distributions earlier in retirement, knowing that you will have a guaranteed future income from the annuity. Income payments must begin no later than the first day of the month following the participant’s 85th birthday.
Options and Limitations
The rules also allow for the continuation of income payments throughout the lifetime of a beneficiary (such as a surviving spouse) and/or the return of premiums (minus payouts) as a death benefit. However, these options will either raise the purchase price or reduce income payments later in life. Without the optional death benefit, insurers will generally keep the premiums paid if the annuity owner dies, even if payouts have not yet begun.
Cash-out provisions are not allowed in QLACs, so any money invested in the annuity is no longer a liquid asset, and you may sacrifice the opportunity for higher investment returns that might be available in the financial markets. (By contrast, nonqualified annuities may offer a cash-out option that permits withdrawals during the deferral phase, but surrender charges typically would apply.) Like other distributions from tax-deferred retirement plans, income payments from QLACs are fully taxable. (With nonqualified annuities purchased outside a retirement plan, only the earnings portion is taxed.)
Like most annuities, a QLAC typically would be purchased with a lump sum. However, if your employer chooses to offer a QLAC option in your retirement plan, you may be able to invest through regular salary deferrals.
Annuities are insurance-based contracts that have exclusions, contract limitations, fees, expenses, termination provisions, and terms for keeping them in force. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.
1), February 21, 2014

Monday, November 9, 2015

IRA Required Minimum Distribution Table

Most people know that once you reach age 70.5 the IRS requires you to begin taking distributions from your IRA (Individual Retirement Arrangements.) What most people don’t realize is if you do not take the required minimum distribution (RMD) in a timely fashion every year you could face a 50% penalty. Let’s say you had one million dollars in your IRA, then your required minimum distribution the year you turn 70.5 would be approximately $36,496. If you failed to take the distribution, then the penalty would be $18,248. This is one of the steeper penalties I’ve ever encountered in the tax code. Be sure to make yourself a reminder on your calendar to take your distribution every year.

To calculate how much you need to take from your IRA you might want to visit the IRS website or consult a tax adviser. It would also be a good idea to review publication 590 to see which table you need to use for determining your withdrawal. Most of the people we have worked with over the years seem to use Table 3, which is the uniform life time table listed below. People who use this table are either unmarried owners, married owners whose spouse is not more than 10 years younger, or married owners whose spouses are not the sole beneficiary of their IRA.

To calculate your IRA Minimum Required Withdrawal you would take the value of your IRA from December 31st of the prior year and divide it by the distribution period. For example: your IRA had a $100,000 balance on December 31st last year, and you are currently 71 years old. You would determine your IRA RMD by dividing $100,000 by 26.5, and you would need to take a distribution of $3,773.59.

A question we are often asked is, “What percentage do I need to withdrawal from my IRA to meet the required minimum distribution.”  In the example above, we show you the correct way for determining your required minimum withdrawal, but just to satisfy our curiosity we backed into the numbers to show approximately what percentage you would have to withdrawal to equal the correct withdrawal rate. We are including the chart showing the percentages below merely as an interesting side note, and you should not use these numbers for calculating your required minimum withdrawal from your individual retirement account.

FINRA, the financial industry regulatory authority created a handy little required minimum distribution calculator, which you can check out by clicking here.

As always be sure to get expert advice before taking a distribution to satisfy your RMD. I’d hate to see you end up with a 50% penalty. This article was written on April 1, 2013 and it is possible that the information in this post may change. So again please consult the IRS publication 590 and a qualified tax adviser before taking action.

Wednesday, September 16, 2015

7 Times You Need to Talk to a Financial Advisor

You may want to manage your money on your own, but there are times when it's a mistake to go it alone. Ian Kutner, an advisor with San Diego Wealth Management, was among the country's very first certified financial planners. It's been more than 40 years since he was certified, and he says he still finds that people overlook the value of a planner and misunderstand what they do.
"Sometimes people think a planner might be employed by a particular insurance company and direct [clients] into investments sold by that company," he says.
On the contrary, a good financial planner isn't going to sell you a specific product in order to make a commission. Instead, a quality advisor will listen to your goals, look at your current finances and recommend how best to move forward with your money.
While you don't always need to work with a planner on an ongoing basis, there are times when it makes sense to stop in for a consultation and a financial check-up.
1. When you get your first job.
It doesn't matter whether it pays $20,000 a year or $200,000 a year, your first job is a good reason to check in with a financial planner. Not only can they advise on how best to begin saving for retirement, they may also provide insight on how to maximize your employer's benefits package.
"You may not engage with a financial planner for years after that," says Keith Klein, a certified financial planner and owner of Turning Pointe Wealth Management in Phoenix. "But go in for an initial consultation to learn about how all [your financial options] work."
2. When you get married or divorced.
Another good time to get input from a financial planner is whenever you enter or leave a marriage. Bringing in an unbiased third party can help minimize financial losses in a divorce and may make it easier for engaged couples to have conversations about combining assets and income in marriage.
"One of the biggest reasons people should work with a financial planner is so that they don't make emotional mistakes," says Richard Wald, managing director of Merrill Lynch Global Wealth Management. For example, a spouse might feel attached to a family home and insist on keeping it as part of a divorce settlement. In exchange, he or she may lose out on retirement savings that could prove to be much more valuable in the long run.
3. When you receive a large sum of cash.
Receiving a large sum of money, such as from an inheritance, bonus, buyout or big raise, should be a boon to your financial health. Unfortunately, many people to squander the opportunity it presents.
A 2012 study from Ohio State University's Center for Human Resource Research found most people save only half the inheritance money they receive. In the study, 826 people received an inheritance, with the median amount being $11,340. Of those, one-third saw their overall wealth remain the same or even decline after receiving an inheritance, apparently as a result of poor financial decisions.
Regardless of the amount of your windfall, meeting with a financial advisor can ensure you put the money to good use. "People think they need $1 million to work with a planner," says Cecilia Beach Brown, a certified financial planner at Lincoln Financial Securities in Annapolis, Maryland. "Nothing could be further from the truth."
4. When you need to take care of aging parents.
Kutner says people should think outside the box when considering how a financial planner can be useful. "Aging parents want to stay in their homes, and how do you pay for that?" he says. "It's amazing how much a financial planner can [help]."
According to Genworth Financial, the average annual cost of a home health aide is $45,760. If you think your parents or another elderly loved one will need care, either in-home or in a nursing home, talking to a financial planner sooner rather than later can help you prepare for this sizeable expense.

5. When you are thinking about retirement.
Retirement planning is one area where financial planners shine. However, to make the most of their advice, you need to consult with a planner well before your expected quit date.
"Would you plan a vacation a day before you leave?" Kutner asks. Likewise, retirement planning shouldn't be left to the last minute.
Klein says you should begin planning in your 50s, at the latest. "Some of the best strategies for retirement income need to be set up 10 to15 years in advance," he says.
However, that doesn't mean you can't begin consulting with a financial planner even earlier. "Everyone around age 40 should check in with a planner just to see where you stand and what you are not thinking about," Brown says. By taking stock of your situation 20 to 30 years in advance of retirement, you still have plenty of time to make adjustments and save more if needed.
6. When you are preparing to pass on your wealth.
At some point, you and your money will be parted forever. When you start to think about estate planning, it can be smart to bring in a professional for the discussion. A financial advisor may be able to suggest ways to minimize estate taxes, plan for final expenses and review beneficiary details on accounts.
7. When you are worth a quarter million.
In most of the above cases, you may only want to pay for a single visit with a financial advisor, or ongoing consultation may not be necessary. However, once your income and assets reach a certain point, you may want to develop a regular working relationship with a planner who can keep you in check. According to some financial experts, a quarter million in assets is a good time to step away from your investments and let an objective third party step in.
"Once people accumulate $150,000 to $250,000 in assets, they begin to react a little too emotionally to their money," Klein says.
Wald says bear markets and volatile market conditions make it difficult for people to be prudent with their money. Rather than allow a market to stabilize, they may react in fear, sell off declining investments and then lock in their loss by missing the inevitable bounce back in fund values.
Beyond helping you make rational money decisions, a professional advisor can help decipher increasingly complex tax laws and investment strategies that apply to high-income earners. "Once you have over $500,000 in assets, an entirely new investment world opens to you," Brown says.
Even if you're a savvy money manager on your own, you may find value in bringing in a professional from time to time.
After all, Klein says, "even professional athletes have coaches."