Building an Emergency Fund

BUILDING AN EMERGENCY FUND

 

Creating a financial cushion for stressful times.

Presented by «representativename»

 

How would you respond to sudden financial demands? We all define “emergencies” differently, but we are not immune to them. How can we plan to stay afloat financially when they occur?

 

Most households are not financially prepared for an emergency – not even close. A recent study from the National Foundation for Credit Counseling found that 64% of Americans had less than $1,000 in funds earmarked for a crisis.1

 

While the recession did its part to siphon emergency funds from families, attention must be paid to rebuilding those funds. It may be difficult; it may be inconvenient. That doesn’t make it any less of a priority.

 

Emergencies tend to be linked to long-term debt. Having a designated emergency fund can help you attack that debt. When most people think of financial emergencies, they think of medical problems and burdensome costs that their insurance won’t fully absorb – but there are other paths to long-term debt, such as a sudden layoff, a natural disaster, a family issue with financial underpinnings or even an abrupt need to move to another metro area, for whatever reason.

 

How large should the fund be? You decide. An old rule of thumb is six months of net income or six months of expenses. If you are snickering or laughing out loud at your chances of saving that much, you aren’t alone. If your prospects of building a five-figure emergency fund seem remote, try to create one equivalent to two or three months of net income. Any amount is better than none.

 

How do you do it without hurting your standard of living? Few of us have a lump sum we can just reassign for emergencies. So consider these subtle savings opportunities.

> You could pay cash whenever possible, opening the door to incremental savings that credit card companies would otherwise take from you. A few dozen bucks can become a few hundred bucks, then a few thousand bucks over time. Incidentally, in a nationwide survey conducted by Chase Blueprint and LearnVest, 31% of people polled cited credit card debt as a major barrier to achieving financial objectives. The credit card debt carried by this 31% averaged about $5,000. Clearly, living on credit cards will thwart your effort to build a rainy day fund.2

> You could vow not to spend frivolously, thereby retaining money you might be tempted to throw away on impulse.

 

> You could sell stuff – stuff somebody else, maybe down the street or across the country, might want. Incidental shipping and handling costs could seem irrelevant next to the cash you generate.

 

> You could arrange direct deposit or start a seasonal savings account. The psychology behind both moves is simple: you are less likely to spend money if it doesn’t pass through your wallet.

 

Here’s how not to do it. Try to avoid building a crisis fund through self-defeating methods. For example:

 

> Don’t start an emergency fund with a loan. Do it with your own accumulated savings, bonus money from your job performance, royalties – whatever the origin, use money you have made or and/or saved yourself, not money you have borrowed from lenders or relatives.

 

> Don’t do it using payday loans or cash advances. High-interest short-term loans and cash advances on credit cards are often pitched as rescues to struggling households. Thanks to their absurd interest rates, payday loans are not financial “life rafts” by any means. Cash advances on credit and debit cards come with disproportionately high fees. Sadly, people who go in for these loans and advances once commonly go in for them again.

 

> Don’t refrain from paying certain bills. Let’s say that you have eight debts you have to pay per month. If you only pay three of them each month and carefully alternate which debts get paid down, can you create an emergency fund with the money you avoid paying? Well, yes – but you may imperil your credit rating in the process.

 

If you don’t have a designated emergency fund, you can build it up in the same way that you probably invest: a little at a time, with relatively little impact on your lifestyle. It can be done. It should be done.

«representativename» may be reached at «representativephone» or «representativeemail».

«representativewebsite»

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

Citations.

1 – http://www.learnvest.com/knowledge-center/5-ways-to-start-an-emergency-fund/ [8/14/12]

2 – http://www.foxbusiness.com/personal-finance/2012/11/01/seven-reasons-why-need-to-create-emergency-fund-now/ [11/1/12]

 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T,Glaxosmithkline, Merck,  Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil,  Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.

 

 

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Is it Better to Retire now or Later?

Should You Retire Now, Or Later?

Financially, there are reasons why you may want to work a bit longer.  

 The case for working past 65. Increasingly, baby boomers are urged to work until full retirement age or beyond. (Social Security defines “full” retirement age as 66 for those born from 1943-1954; it incrementally rises to 67 for those born in 1960 or later). If your health and workplace allow this, it may be a good idea for a few notable reasons.1

Your Social Security payments will be larger. Researchers from UCLA and Duke University jointly conducted a study and found that about 80% of Americans sign up for Social Security before full retirement age. In fact, 50% of Americans claim their federal retirement benefits either at age 62 or within two months of losing or quitting a job they hold at age 62 or older. The rush to get Social Security comes with a distinct penalty, though.2

As an example, take a hypothetical pre-retiree named Sharon. Born in 1952, Sharon wants to retire next year at age 62. If she leaves work and claims Social Security benefits in 2014, she will end up getting 25% less in monthly benefits than if she had waited until her full retirement age of 66.3

  

You have a chance to save more. Most people need to save more for retirement. Why not give yourself more years to amass extra funds for the next stage of life? They may even prove to be your peak earning years. If you have considerable retirement savings, think about the boost your nest egg could get from just two or three more years of growth and compounding.

Additionally, the longer you work, the shorter your retirement becomes. If you work two or three years longer, that is two or three years less of retirement that you have to fund.

  

You can pay down debts. Do you have a dream of retiring debt-free? Why not give yourself a better chance to realize it? Too many people are approaching retirement with significant debt – not just mortgage debt, but also business and education loans, auto loans and high credit card balances. This is becoming a major headache for baby boomers.

In a recent Securian Financial Group survey, 67% of those polled anticipated retiring with an outstanding mortgage. Credit card debt may seem easy to manage, but consider that most cards charge interest rates of 15% or more. In retirement, will your investments give you that kind of return? Retiring with your house paid off also puts you in position for a reverse mortgage should you need another income stream.2,4

 

You can keep your health insurance. If your employer sponsors a health plan, leaving work at age 62 is a definite risk when you aren’t eligible for Medicare until age 65. Unless you want to shop for your own health insurance or live without coverage for up to three years, it makes sense to stay on the job.4

You have a chance to delay RMDs from your workplace retirement plan. Owners of traditional IRAs, SIMPLE IRAs and SEP-IRAs must take Required Minimum Distributions from those accounts after turning 70½. It doesn’t matter whether you are working or retired; you must do it. That isn’t the case with qualified retirement plans such as 401(k)s, 403(b)s and 457(b)s. With some exceptions, you can wait until the year in which you retire to take your first RMD from those accounts. So each year you work past 70 potentially represents another year in which you don’t have to take an RMD from a qualified retirement plan and see your income taxes jump as a result. No RMD also means a bigger account balance that may benefit from another year of compounding and investment returns.4,5

 

You may even be happier. Working provides a sense of purpose and accomplishment. If you don’t have a new passion or objective in mind when you end your career, you may start to feel a bit adrift.

A 2012 report from the American Psychological Association’s Center for Organizational Excellence found that workers older than 55 enjoy their jobs more than any other age group. Asked why they stayed at their particular job, 80% of the employees polled who were older than 55 said job enjoyment was the main reason, with 76% noting “work-life fit” as the leading justification. In contrast, only 58% of employees aged 18-34 cited job enjoyment as a motivation to stay with their current employer, and just 61% felt their jobs fit well with the other aspects of their lives.6

So if you like what you do, you may want to keep at it a little longer. The financial and emotional benefits could be considerable.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – ssa.gov/retire2/retirechart.htm [9/19/13]

2 – dailyfinance.com/2013/09/10/reasons-70-new-62-retirement-social-security-debt/ [9/10/13]

3 – ssa.gov/retirement/1943.html [9/19/13]

4 – marketwatch.com/story/5-reasons-you-shouldnt-retire-2013-09-17 [9/17/13]

5 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Required-Minimum-Distributions-%28RMDs%29 [9/4/13]

6 – apaexcellence.org/resources/goodcompany/newsletter/article/391 [9/5/12]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Glaxosmithkline, Northrop Grumman, Raytheon, ExxonMobil, Pfizer, Merck, Verizon,  ING Retirement, AT&T, Bank of America, Alcatel-Lucent,  Qwest, Chevron, Hughes, or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and maybe reached at http://www.theretirementgroup.com.

Tips for Retirement

A few simple steps to help you get started on the right foot.

Planning financially for retirement may feel overwhelming. For some, that feeling is what keeps them from really focusing on and implementing a plan. If you haven’t started planning for your retirement – do yourself a favor and make TODAY the day you begin.

1. The earlier the better. 

Time is definitely one of your greatest allies. A person who begins contributing a modest amount to a retirement plan in their early twenties could end up on par with someone who contributes much more aggressively but does not start until their mid-thirties. Even if you have to start small, start now. Whatever amount you can afford to set aside for later, do it – and let it grow. If you don’t have the luxury of starting young, don’t waste time worrying about it. Start now. You’ll never again be younger than you are today.

2. Be smart about what you’ll need

Yes, it’s true – the senior discount is alive and well, and the general cost of living may be less for those who have retired. But don’t forget, there are other costs to consider. Your healthcare costs, for example, may be greater in retirement simply because you’re not as healthy as you were in your youth. Additionally, you’ll want to take inflation into account. If you plan your retirement based on the cost of living and income of your 30’s, by the time you hit your retirement years, you may find you greatly underestimated your needs.

3. Be smart about how long you’ll need it

When Social Security was being developed, in the 1930’s, a male retiring in the United States was really only expected to live about 12 years past his date of retirement. 2 However, the average life expectancy of a United States citizen has risen fairly steadily throughout the last fifty years. 1 Depending on when you retire, you may need to plan for 20 or more years of income.

4. Take advantage of tax-deferred contributions.

It sounds like a no-brainer, but sometimes people determine how much they can afford to contribute to a retirement account based on their net income, rather than their gross income. You may decide you can only afford $50 less per paycheck, net. But remember that some contributions, like those to your 401(k) for example, may be made with pre-tax dollars. That means you can afford to contribute a bit more from your gross income and still only “miss” $50 from your net income. This is an important consideration.

5. Take advantage of matching contributions.

If your employer offers a 401(k) match – consider scrimping here and there in order to take maximum advantage of it. It’s a very positive domino effect. The more you contribute, the more you earn in matching contributions (up to the maximum allowable amount). Think of it this way – if your employer offers a 50% match, then for every $100 you don’t contribute, you’re missing out on $50 in “free money”. You’re also missing out on the growth potential of that money as well.

6. Do the math. 

This might be the most important retirement tip of all. Block off some time to sit down and do some calculations. Consider the different levels of contributions you could make and calculate how far those could take you by the time you reach retirement. Once you see what you COULD achieve, you may be more motivated to increase your contributions.

7. Trim the fat.

Keep careful track of your spending for one month (if you bank online, you may have access to tools that help you do this). After one full month, sit down and take a careful look at what you spent money on. Did it all make sense? Was some of it frivolous? Any regrets? Taking a close look at exactly where your money is going is often the best way to discover areas that need improvement, and ways you could adjust your spending habits. Add up all the money you feel you spent unnecessarily, then add that amount to the contribution math you did previously … how much further might that extra monthly contribution have taken you?

8. Get help.

These retirement tips are intended to help you get started down a path toward, potentially, a more successful retirement. But they’re just that – a starting point. While it’s definitely important to educate yourself and understand your finances, seeking the assistance of a financial professional may be one of the best moves you could make.

1 -google.com/publicdata?ds=wb wdi&met=sp_dyn_le00_in&idim=country:USA&dl=en&hl=en&q=life+expectancy [10/29/10]

2 – http://www.newretirement.com/Planning101/Retiring_Too_Soon.aspx [10/25/10]

The Retirement Group is not affiliated with nor endorsed by fidelity.com,  ING Retirement, MerckExxonMobil, Chevron, Pfizer, Verizon, Bank of America, Glaxosmithkline, AT&T, resources.hewitt.com, Raytheon, access.att.com, Qwest, netbenefits.fidelity.com, Hughes, Northrop Grumman, hewitt.com, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?

 Many people underestimate lifestyle costs, medical expenses and inflation.

What is enough? What is not enough? If you’re considering retiring in the near future, you’ve probably heard or read that you need about 70% of your end salary to live comfortably in retirement. This estimate is frequently repeated … but that doesn’t mean it is true for everyone. It may not be true for you.

You won’t learn how much retirement income you’ll need by reading this article. You’ll want to meet with a qualified retirement planner who can help you plan to estimate your lifestyle needs and short-term and long-term expenses.

That said, there are some factors which affect retirement income needs – and too often, they go unconsidered.

Health. Most of us will face a major health problem at some point in our lives – perhaps even multiple or chronic health problems. We don’t want to think about that reality. But if you’re a new retiree, think for a moment about the costs of prescription medicines, and recurring treatment for chronic ailments. These minor and major costs can really take a bite out of retirement income, even with a great health care plan. While generics have slowed the advance of prescription drug costs to about 1-2% a year recently,1 one estimate found that a 65-year-old who retired in 2007 would need $215,000 to pay for overall retirement health care costs – up about 7.5% from 2006.2

Heredity. If you come from a family where people frequently live into their 80s and 90s, you may live as long or longer. Imagine retiring at 55 and living to 95 or 100. You would need 40-45 years of steady retirement income.

Portfolio. Many people retire with investment portfolios they haven’t reviewed in years, with asset allocations that may no longer be appropriate. New retirees sometimes carry too much risk in their portfolios, with the result being that the retirement income from their investments fluctuates wildly with the vagaries of the market. Other retirees are super-conservative investors: their portfolios are so risk-averse that they can’t earn enough to keep up with even moderate inflation, and over time, they find they have less and less purchasing power.

Spending habits. Do you only spend 70% of your salary? Probably not. If you’re like many Americans, you probably spend 90% or 95% of it. Will your spending habits change drastically once you retire? Again, probably not. Most people only change spending habits in response to economic necessity or in pursuit of new financial goals. People don’t want to “live on less” once they have had “more”.

Social Security (or lack thereof). In 2005, SSI represented 39% of a typical 65-year-old retiree’s income. But by 2030, Social Security may only replace 29% of that income, after deductions for Medicare premiums and income taxes. Since 1983, retirees earning more than $25,000 in SSI have had to pay income tax on a portion of their benefits.3 This is all presuming Social Security is still around in 2030.

So will you have enough? When it comes to retirement income, a casual assumption may prove to be woefully inaccurate. Meet with a qualified retirement planner while you are still working to discuss these factors and estimate how much you will really need.

These are the views of Peter Montoya Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

 

Citations. 1 nytimes.com/2007/09/21/business/21generic.html?_r=1&oref=slogin

2 marketwatch.com/news/story/health-care-costs-retirement-rise/story.aspx?guid=%7bEF2B6CDA-E176-4747-B528-76AC814051C5%7d&print=true&dist=printTop

3 money.cnn.com/2007/05/14/pf/retirement/nasi__report/index.htm

 

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement,  Hughes, Pfizer, Northrop Grumman, Raytheon, AT&T, Qwest, Chevron, ExxonMobil, Glaxosmithkline, Merck, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.

 

 

529 college savings plan

Section 529 college savings plans are tax-advantaged college savings vehicles and one of the most popular ways to save for college today. Much like the way 401(k) plans revolutionized the world of retirement savings a few decades ago, 529 college savings plans have revolutionized the world of college savings. As of June 2012, assets in 529 college savings plans totaled $157.3 billion (Source: College Board’s 2012 Trends in Student Aid Report).

Tax advantages and more

529 college savings plans offer a unique combination of features that no other college savings vehicle can match:

  • Federal tax advantages: Contributions to your account grow tax deferred and earnings are tax free if the money is used to pay the beneficiary’s qualified education expenses. (The earnings portion of any withdrawal not used for college expenses is taxed at the recipient’s rate and subject to a 10% penalty.)
  • State tax advantages: Many states offer income tax incentives for state residents, such as a tax deduction for contributions or a tax exemption for qualified withdrawals.
  • High contribution limits: Most plans let you contribute over $300,000 over the life of the plan.
  • Unlimited participation: Anyone can open a 529 college savings plan account, regardless of income level.
  • Professional money management: College savings plans are offered by states, but they are managed by designated financial companies who are responsible for managing the plan’s underlying investment portfolios.
  • Flexibility: Under federal rules, you are entitled to change the beneficiary of your account to a qualified family member at any time as well as rollover the money in your 529 plan account to a different 529 plan once per year without income tax or penalty implications.
  • Wide use of funds: Money in a 529 college savings plan can be used at any college in the United States or abroad that’s accredited by the Department of Education and, depending on the individual plan, for graduate school.
  • Accelerated gifting: 529 plans offer an excellent estate planning advantage in the form of accelerated gifting. This can be a favorable way for grandparents to contribute to their grandchildren’s education. Specifically, individuals can make a lump-sum gift to a 529 plan of up to $70,000 ($140,000 for married couples) and avoid gift tax, provided the gift is treated as having been made in equal installments over a five-year period and no other gifts are made to that beneficiary during the five years.

Choosing a college savings plan

Although 529 college savings plans are a creature of federal law, their implementation is left to the states. Currently, there are over 50 different college savings plans available because many states offer more than one plan.

You can join any state’s 529 college savings plan, but this variety may create confusion when it comes time to select a plan. To make the process easier, it helps to consider a few key features:

  • Your state’s tax benefits: A majority of states offer some type of income tax break for 529 college savings plan participants, such as a deduction for contributions or tax-free earnings on qualified withdrawals. However, some states limit their tax deduction to contributions made to the in-state 529 plan only. So make sure to find out the exact scope of the tax breaks, if any, your state offers.
  • Investment options: 529 plans vary in the investment options they offer. Ideally, you’ll want to find a plan with a wide variety of investment options that range from conservative to more growth-oriented to match your risk tolerance. To take the guesswork out of picking investments appropriate for your child’s age, most plans offer aged-based portfolios that automatically adjust to more conservative holdings as your child approaches college age. (Remember, though, that any investment involves risk, and past performance is no guarantee of how an investment will perform in the future.)
  • Fees and expenses: Fees and expenses can vary widely among plans, and high fees can take a bigger bite out of your savings. Typical fees include annual maintenance fees, administration and management fees (usually called the “expense ratio”), and underlying fund expenses.
  • Reputation of financial institution: Make sure that the financial institution managing the plan is reputable and that you can reach customer service with any questions.

With so many plans available, it may be helpful to consult an experienced financial professional who can help you select a plan and pick your plan investments, giving you peace of mind. In fact, some 529 college savings plans are advisor-sold only, meaning that you’re required to go through a designated financial advisor to open an account. Always carefully read the 529 plan issuer’s official materials before investing.

Account mechanics

Once you’ve selected a plan, opening an account is easy. You’ll need to fill out an application, where you’ll name a beneficiary and select one or more of the plan’s investment portfolios to which your contributions will be allocated. Also, you’ll typically be required to make an initial minimum contribution, which must be made in cash or a cash equivalent.

Thereafter, most plans will allow you to contribute as often as you like. This gives you the flexibility to tailor the frequency of your contributions to your own needs and budget, as well as to systematically invest your contributions. You’ll also be able to change the beneficiary of your account to a qualified family member (e.g., siblings, stepsiblings, parents, nieces, nephews, aunts, uncles, first cousins) with no income tax or penalty implications. Most plans will also allow you to change your investment portfolios (either for your future or current contributions) if you’re unhappy with their investment performance.

529 prepaid tuition plans–a distant cousin

There are actually two types of 529 plans–college savings plans and prepaid tuition plans. As of June 2012, assets in 529 prepaid tuition plans totaled $21.5 billion (Source: College Board’s 2012 Trends in Student Aid Report). The tax advantages of college savings plans and prepaid tuition plans are the same, but the account features are very different. A prepaid tuition plan lets you prepay tuition at participating colleges at today’s prices for use by the beneficiary in the future. The following chart describes the main differences:

College Savings Plans Prepaid Tuition Plans
Offered by states Offered by states and private colleges
You can join any state’s plan State-run plans require you to be a state resident
Contributions are invested in your individual account in the investment portfolios you have selected Contributions are pooled with the contributions of others and invested exclusively by the plan
Returns are not guaranteed; your account may gain or lose value, depending on how the underlying investments perform Generally a certain rate of return is guaranteed
Funds can be used at any accredited college in the U.S. or abroad Funds can only be used at participating colleges, typically state universities

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, resources.hewitt.com, access.att.com, Merck, Pfizer, Chevron, HughesBank of America, Northrop Grumman, Raytheon, ExxonMobil, Verizon, Glaxosmithklinehewitt.com, ING Retirement, AT&T, Qwest, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached atwww.theretirementgroup.com

All About IRAs

All about IRAs

An individual retirement arrangement (IRA) is a personal retirement savings plan that offers specific tax benefits. In fact, IRAs are one of the most powerful retirement savings tools available to you. Even if you’re contributing to a 401(k) or other plan at work, you should also consider investing in an IRA.

What types of IRAs are available?

There are two major types of IRAs: traditional IRAs and Roth IRAs. Both allow you to make annual contributions of up to $5,500 in 2013 ($5,000 in 2012). Generally, you must have at least as much taxable compensation as the amount of your IRA contribution. But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional “catch-up” contributions. These folks can put up to $6,500 in their IRAs in 2013 ($6,000 in 2012).

Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both give you a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that’s best for you.

Traditional IRAs

Practically anyone can open and contribute to a traditional IRA. The only requirements are that you must have taxable compensation and be under age 70½. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount you earned.

Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pretax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status. You may qualify for a full deduction, a partial deduction, or no deduction at all.

What happens when you start taking money from your traditional IRA? Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10% early withdrawal penalty if you’re under age 59½, unless you meet one of the exceptions.

Traditional IRAs–Tax Year 2013
Individuals Covered by an Employer Plan
Filing status Deduction is limited if MAGI between: No deduction if MAGI over:
Single/Head of household $59,000 – $69,000 $69,000
Married joint* $95,000 – $115,000 $115,000
Married separate $0 – $10,000 $10,000
* If you’re not covered by an employer plan, but your spouse is, your deduction is limited if your MAGI is $178,000 to $188,000, and eliminated if your MAGI exceeds $188,000.

If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 70½. That’s when you have to take your first required minimum distribution from the IRA. After that, you must take a distribution by the end of every calendar year until your funds are exhausted or you die. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you’re required to in any year. However, if you withdraw less, you’ll be hit with a 50% penalty on the difference between the required minimum and the amount you actually withdrew.

Roth IRAs

Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation is at least $5,500 in 2013 ($5,000 in 2012), you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status. Your allowable contribution may be less than the maximum possible, or nothing at all.

Tax Year 2013
Filing status Contribution is limited if MAGI between: No contribution if MAGI over:
Single/Head of household $112,000 – $127,000 $127,000
Married joint $178,000 – $188,000 $188,000
Married separate $0 – $10,000 $10,000

Your contributions to a Roth IRA are not tax deductible. You can invest only after-tax dollars in a Roth IRA. The good news is that, if you meet certain conditions, your withdrawals from a Roth IRA will be completely free from federal income tax, including both contributions and investment earnings. To be eligible for these qualifying distributions, you must meet a five-year holding period requirement. In addition, one of the following must apply:

  • You have reached age 59½ by the time of the withdrawal
  • The withdrawal is made because of disability
  • The withdrawal is made to pay first-time homebuyer expenses ($10,000 lifetime limit from all IRAs)
  • The withdrawal is made by your beneficiary or estate after your death

Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalty is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.

Another advantage of the Roth IRA is that there are no required distributions after age 70½ or at any time during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution. Also, as long as you have taxable compensation and qualify, you can keep contributing to a Roth IRA after age 70½.

Choose the right IRA for you

Assuming you qualify to use both, which type of IRA is best for you? Sometimes the choice is easy. The Roth IRA will probably be a more effective tool if you don’t qualify for tax-deductible contributions to a traditional IRA. However, if you can deduct your traditional IRA contributions, the choice is more difficult. Most professionals believe that a Roth IRA will still give you more bang for your dollars in the long run, but it depends on your personal goals and circumstances. The Roth IRA may very well make more sense if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you’re still working (and probably in a higher tax bracket than you’ll be in after you retire). A financial professional or tax advisor can help you pick the right type of IRA for you.

Note:   You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot be more than $5,500 in 2013 ($6,500 if you’re age 50 or older).

The Retirement Group is not affiliated with nor endorsed by ExxonMobil, Glaxosmithkline, fidelity.com, netbenefits.fidelity.com, hewitt.com, access.att.com, Raytheon, Pfizer, Verizon, Bank of America, Alcatel-Lucent, resources.hewitt.com, Merck, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Do Our Biases Affect Our Financial Choices?

 

Even the most seasoned investors are prone to their influence.

Investors are routinely warned about allowing their emotions to influence their decisions.  They are less routinely cautioned about letting their preconceptions and biases color their financial choices.

In a battle between the facts & our preconceptions, our preconceptions may win. If we acknowledge this tendency, we may be able to avoid some unexamined choices when it comes to personal finance. So it may actually “pay” us to recognize our biases as we invest. Here are some common examples of bias creeping into our financial lives.

Valuing outcomes of investment decisions more than the quality of those decisions. An investor thinks, “I got a great return off of that decision” instead of thinking, “that was a good decision because ______.”

How many investment decisions do we make that have a predictable outcome? Hardly any. In retrospect, it is all too easy to prize the gain from a decision over the wisdom of the decision, and to therefore believe that the decisions with the best outcomes were in fact the best decisions (not necessarily true).

Valuing facts we “know” & “see” more than “abstract” facts. Information that seems abstract may seem less valid or valuable than information that relates to personal experience. This is true when we consider different types of investments, the state of the markets, and the health of the economy.

On Main Street, we find a classic example in Gallup’s U.S. Economic Confidence Index. In the August edition of this monthly poll of more than 3,500 U.S. adults, 55% of respondents said the American economy is “getting worse” instead of better. In fact, more Americans have told Gallup that the economy is getting worse rather than better since March.1

This flies in the face of the declining jobless rate, the strong hiring of 2015, the comeback of the housing market, and key surveys showing years of consistent monthly growth in the manufacturing and service sectors – but in all probability, these poll respondents are not looking at economic indicators when they make such a judgment. Their neighbor was laid off, or there was a story on the nightly news about a new homeless camp growing in size. These are facts they can “see” – and therefore, in their minds the economy is getting worse.1

Valuing the latest information most. In the investment world, the latest news is almost always more valuable than old news… but when the latest news is consistently good (or consistently bad), memories of previous market climate(s) may become too distant. If we are not careful, our minds may subconsciously dismiss the eventual emergence of the next bear (or bull) market.

Being overconfident. The more experienced we are at investing, the more confidence we have about our investment choices. When the market is going up and a clear majority of our investment choices work out well, this reinforces our confidence, sometimes to a point where we may start to feel we can do little wrong thanks to the state of the market, our investing acumen or both. This can be dangerous. 

The herd mentality. You know how this goes: if everyone is doing something, they must be doing it for sound and logical reasons. If most investors are getting out of equities, or getting back into equities, it follows that you should follow them. The herd mentality is what leads many investors to buy high (and sell low). It can also promote panic selling. Above all, it encourages market timing – and when investors try to time the market, they frequently realize subpar returns.

Did you know that American retail investors held equity shares for an average of 6.3 years during the 1950s? That duration kept shortening until the 2000s, when it was reduced to roughly six months – which is still the average today. We have exponentially greater media coverage of Wall Street today than we had in the 1950s, and that may be the big factor in that difference – but still, you have to wonder how much better the typical investor’s return would be if he or she had the patience of the investors of the past.2 

Extreme aversion to risk. Some investors want zero risk, or close. What price do they pay in pursuit of that goal? The opportunity cost may be sizable. In building an extremely risk-averse portfolio, they thwart their potential for significant gains when the equity markets advance.

Everyone loves to be certain about things. Sometimes, however, we need to ask ourselves what that certainty is based on, and what it reflects about ourselves. Examining our preconceptions may help us as we invest.

Citations.

1 – gallup.com/poll/184640/economic-confidence-index-stable.aspx [8/18/15]

2 – nytimes.com/2014/01/13/your-money/stocks-and-bonds/why-we-buy-in-a-marked-up-market.html [1/13/14]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Raytheon, Hughes, Verizon, Bank of America, ExxonMobil, Glaxosmithkline, Northrop Grumman, Merck, Pfizer, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Health Savings Accounts: Are They Just What the Doctor Ordered?

Are health insurance premiums taking too big of a bite out of your budget? Do you wish you had better control over how you spend your health-care dollars? If so, you may be interested in an alternative to traditional health insurance called a health savings account (HSA).

How does this health-care option work?

An HSA is a tax-advantaged account that’s paired with a high-deductible health plan (HDHP). Let’s look at how an HSA works with an HDHP to enable you to cover your current health-care costs and also save for your future needs.

Before opening an HSA, you must first enroll in an HDHP, either on your own or through your employer. An HDHP is “catastrophic” health coverage that pays benefits only after you’ve satisfied a high annual deductible. (Some preventative care, such as routine physicals, may be covered without being subject to the deductible). For 2016, the annual deductible for an HSA-qualified HDHP must be at least $1,300 for individual coverage and $2,600 for family coverage. However, your deductible may be higher, depending on the plan.

Once you’ve satisfied your deductible, the HDHP will provide comprehensive coverage for your medical expenses (though you may continue to owe co-payments or coinsurance costs until you reach your plan’s annual out-of-pocket limit). A qualifying HDHP must limit annual out-of-pocket expenses (including the deductible) to no more than $6,550 for individual coverage and $13,100 for family coverage for 2016. Once this limit is reached, the HDHP will cover 100% of your costs, as outlined in your policy. Because you’re shouldering a greater portion of your health-care costs, you’ll usually pay a much lower premium for an HDHP than for traditional health insurance, allowing you to contribute the premium dollars you’re saving to your HSA. Your employer may also contribute to your HSA, or pay part of your HDHP premium. Then, when you need medical care, you can withdraw HSA funds to cover your expenses, or opt to pay your costs out-of-pocket if you want to save your account funds.

An HSA can be a powerful savings tool. Because there’s no “use it or lose it” provision, funds roll over from year to year. And the account is yours, so you can keep it even if you change employers or lose your job. If your health expenses are relatively low, you may be able to build up a significant balance in your HSA over time. You can even let your money grow until retirement, when your health expenses are likely to be substantial. However, HSAs aren’t foolproof. If you have relatively high health expenses (especially within the first year or two of opening your account, before you’ve built up a balance), you could deplete your HSA or even face a shortfall.

How can an HSA help you save on taxes?

HSAs offer several valuable tax benefits:

  • You may be able to make pretax contributions via payroll deduction through your employer, reducing your current income tax.
  • If you make contributions on your own using after-tax dollars, they’re deductible from your federal income tax (and perhaps from your state income tax) whether you itemize or not. You can also deduct contributions made on your behalf by family members.
  • Contributions to your HSA, and any interest or earnings, grow tax deferred.
  • Contributions and any earnings you withdraw will be tax free if they’re used to pay qualified medical expenses.

Consult a tax professional if you have questions about the tax advantages offered by an HSA

Can anyone open an HSA?

Any individual with qualifying HDHP coverage can open an HSA. However, you won’t be eligible to open an HSA if you’re already covered by another health plan (although some specialized health plans are exempt from this provision). You’re also out of luck if you’re 65 and enrolled in Medicare or if you can be claimed as a dependent on someone else’s tax return.

How much can you contribute to an HSA?

For 2016, you can contribute up to $3,350 for individual coverage and $6,750 for family coverage. This annual limit applies to all contributions, whether they’re made by you, your employer, or your family members. You can make contributions up to April 15th of the following year (i.e., you can make 2015 contributions up to April 15, 2016). If you’re 55 or older, you may also be eligible to make “catch-up contributions” to your HSA, but you can’t contribute anything once you reach age 65 and enroll in Medicare.

Can you invest your HSA funds?

HSAs typically offer several savings and investment options. These may include interest-earning savings, checking, and money market accounts, or investments such as stocks, bonds, and mutual funds that offer the potential to earn higher returns but carry more risk (including the risk of loss of principal). Make sure that you carefully consider the investment objectives, risks, charges, and expenses associated with each option before investing. A financial professional can help you decide which savings or investment options are appropriate.

How can you use your HSA funds?

You can use your HSA funds for many types of health-care expenses, including prescription drugs, eyeglasses, deductibles, and co-payments. Although you can’t use funds to pay regular health insurance premiums, you can withdraw money to pay for specialized types of insurance such as long-term care or disability insurance. IRS Publication 502 contains a list of allowable expenses.

There’s no rule against using your HSA funds for expenses that aren’t health-care related, but watch out–you’ll pay a 20% penalty if you withdraw money and use it for nonqualified expenses, and you’ll owe income taxes as well. Once you reach age 65, however, this penalty no longer applies, though you’ll owe income taxes on any money you withdraw that isn’t used for qualified medical expenses.

Questions to consider

  • How much will you save on your health insurance premium by enrolling in an HDHP? If you’re currently paying a high premium for individual health insurance (perhaps because you’re self-employed), your savings will be greater than if you currently have group coverage and your employer is paying a substantial portion of the premium.
  • What will your annual out-of-pocket costs be under the HDHP you’re considering? Estimate these based on your current health expenses. The lower your costs, the easier it may be to accumulate HSA funds.
  • How much can you afford to contribute to your HSA every year? Contributing as much as you can on a regular basis is key to building up a cushion against future expenses.
  • Will your employer contribute to your HSA? Employer contributions can help offset the increased financial risk that you’re assuming by enrolling in an HDHP rather than traditional employer-sponsored health insurance.
  • Are you willing to take on more responsibility for your own health care? For example, to achieve the maximum cost savings, you may need to research costs and negotiate fees with health providers when paying out-of-pocket.
  • How does the coverage provided by the HDHP compare with your current health plan? Don’t sacrifice coverage to save money. Read all plan materials to make sure you understand benefits, exclusions, and all costs.
  • What tax savings might you expect? Tax savings will be greatest for individuals in higher income tax brackets. Ask your tax advisor or financial professional for help in determining how HSA contributions will impact your taxes.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, Alcatel-Lucent, AT&T, Bank of America, Qwest, Chevron, Hughes, ExxonMobil, Glaxosmithkline, Merck, Northrop Grumman, Pfizer, Raytheon, Verizon or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Patrick Ray is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Signs of Elder Abuse

Physical, mental & financial warning signals.

Is someone taking advantage of someone you love? June 15 is World Elder Abuse Prevention Day, a day to call attention to a crisis that may become even more common as baby boomers enter the “third acts” of their lives.1

Every year, more than half a million American elders are abused or neglected. That estimate comes from the Centers for Disease Control, and the frequency of elder abuse may be greater as so many elders are afraid or simply unable to speak out about what is happening to them. In some cases, the abuse is limited to financial exploitation. In other cases, it may encompass neglect and physical or emotional cruelty.1

What should you watch out for? Different varieties of elder abuse have different signals, some less obvious than others.

Neglect. This is commonly defined as withholding or failing to supply necessities of daily living to an elder, from food, water and appropriate clothing to necessary hygiene and medicines. Signals are easily detectable and include physical signs such as bedsores, malnutrition and dehydration and flawed living conditions (i.e., faulty electrical wiring, fleas or cockroaches, inadequate heat or air conditioning).

Self-neglect also surfaces, stemming from the declining physical or mental capacity of an elder. If he or she foregoes proper hygiene, disdains needed medications or medical aids, or persists in living in an insect-ridden, filthy or fire-hazardous dwelling, intervene to try and change their environment for the better, for their health and safety.

Finally, neglect may also take financial form. If someone who has assumed a fiduciary duty to pay for assisted living, nursing home care or at-home health care fails to do so, that is a form of neglect which may be defined as elder abuse. The same goes for an in-home eldercare service provider that fails to provide an adequate degree or frequency of care.2

Abandonment. This occurs when a caregiver or responsible party flat-out deserts an elder – dropping him or her off at a nursing home, a hospital, or even a bus or train station with no plans to return. Hopefully, the elder has the presence of mind to call for help, but if not, a tragic situation will quickly worsen. When an elderly person seems to stay in one place for hours and appears confused or deserted, it is time to get to the bottom of what just happened for his or her safety.

Physical abuse. Bruises and lacerations are evident signals, but other indicators are less evident: sprains and dislocations, cracked eyeglass lenses, impressions on the arms or legs from restraints, too much or too little medication, or a strange reticence, silence or fearfulness or other behavioral changes in the individual.

Emotional or psychological abuse. How do you know if an elder has been verbally degraded, tormented, or threatened in your absence, or left in isolation? If the elder is not willing or able to let you know about such wrongdoing, watch for signals such as withdrawal from conversation or communication, agitation or distress, and repetitive or obsessive-compulsive actions linked to dementia such as rocking, biting or sucking.2

Financial abuse. When an unscrupulous relative, friend or other party uses an elder’s funds, property, or assets illegally or dishonestly, this is financial exploitation of the elderly. This runs all the way from withdrawing an elder’s savings with his or her ATM card to forgery to improperly assuming conservatorship or power of attorney.2

How do you spot it? Delve into the elder’s financial life and see if you detect things like strange ATM withdrawals or account activity, additional names on a bank signature card, changes to beneficiary forms, or the sudden absence of collectibles or valuables.

Examine signatures on financial transactions – on closer examination, do they appear to be authentic, or studied forgeries? Have assets been inexplicably transferred to long-uninvolved heirs or relatives, or worse yet apparent strangers? Have eldercare bills gone unpaid recently? Is the level of eldercare being provided oddly slipshod given the financial resources being devoted to it?

Respect your elders; protect your elders. Some people aim to exploit senior citizens. Others simply don’t recognize or respect the responsibilities that come with eldercare. Whether the abuse is intentional or not, the emotional, physical or financial harm done can be reprehensible. Talk to or check in on your parents, grandparents, siblings or other elders you know and care for to see that they are free from such abuse.

Citations.

1 – cdc.gov/features/elderabuse/ [6/9/14]

2 – ncea.aoa.gov/FAQ/Type_Abuse/index.aspx [2/10/15]

The Retirement Group is not affiliated with nor endorsed by Bank of America, Raytheon, ExxonMobil, fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Hughes, Northrop Grumman, Qwest, Chevron, ING Retirement, AT&T, Verizon, Glaxosmithkline, Merck, Pfizer, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Patrick Ray, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Patrick Ray is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

The Right Beneficiary

Who should inherit your IRA or 401(k)? See that they do.

 

Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k), life insurance policy, or annuity? You may be able to answer such a question quickly and easily. Or you may be saying, “You know … I’m not totally sure.” Whatever your answer, it is smart to periodically review your beneficiary designations.

Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Eighties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit – perhaps more than a bit?

While your beneficiary choices may seem obvious and rock-solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life – and they may warrant changes in your beneficiary decisions.

In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. (It has happened.) If you don’t have a designated beneficiary on your 401(k), the assets may go to the “default” beneficiary when you pass away, which might throw a wrench into your estate planning.

How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k) or life insurance policy may be your spouse, your child, maybe another loved one or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away.

Beneficiary designations commonly take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she is in line to receive the death benefit when you die, regardless of what your will states. Beneficiary designations allow life insurance proceeds to transfer automatically to heirs; these assets do not have go through probate.1,2

You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed, and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets? (See below.)

How your choices affect your estate. Virtually any inheritance carries a tax consequence. (Of course, through careful estate planning, you can try to defer or even eliminate that consequence.)

If you are simply naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen.3

When the beneficiary isn’t your spouse, things get a little more complicated for your estate, and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) And the problem will persist: when your non-spouse beneficiary inherits those retirement plan assets, those assets become part of his or her taxable estate, and his or her heirs might face higher estate taxes. Your non-spouse heir might also have to take required income distributions from that retirement plan someday, and pay the required taxes on that income.4

If you designate a charity or other 501(c)(3) non-profit organization as a beneficiary, the assets involved can pass to the charity without being taxed, and your estate can qualify for a charitable deduction.5

Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. Let’s check up and make sure your beneficiary choices make sense for the future. Just give me a call or send me an e-mail – I’m happy to help you.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – smartmoney.com/taxes/estate/how-to-choose-a-beneficiary-1304670957977/ [6/10/11]

2 – http://www.dummies.com/how-to/content/bypassing-probate-with-beneficiary-designations.html [1/30/13]

3 – http://www.nolo.com/legal-encyclopedia/estate-planning-when-you-re-married-noncitizen.html [1/30/13]

4 – individual.troweprice.com/staticFiles/Retail/Shared/PDFs/beneGuide.pdf [9/10]

5 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Estate-Taxes [8/1/12]

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