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Three Retirement Options to Consider Aside From a 401(k)

5/31/2019

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​About 58 percent of Americans have access to a 401(k) or a similar employer-sponsored retirement plan.  A 401(k) is an effective, convenient way to save for retirement.  The money is automatically withheld from your paycheck using pre-tax dollars, and you can contribute up to a set limit each year — plus an additional “catch-up” amount if you’re age 50 or older.  You’ll pay income taxes on contributions and earnings when you withdraw funds. If you access your funds before age 59½ you’ll also pay a 10 percent penalty tax. Also keep in mind, the money in your 401(k) is exposed to market volatility.

About 75 percent of employers with 401(k) plans offer a matching program.  A typical employer match is 50 percent of the employee contribution, up to 6 percent of your salary.  So if you have a 401(k), your first retirement-saving priority should be to max out your employer match — it’s free money!

But the 401(k) isn’t the only game in town. If you want to save more than the amount your employer will match, don’t have access to a 401(k), or want to ensure a guaranteed lifetime income, here are three options to consider:

Traditional IRA
You can contribute up to $6,000 to an Individual Retirement Account in 2019 — $7,000 if you’re 50 or older.  If you don’t have a 401(k) or similar retirement account at work, you can deduct your full IRA contribution from your taxes.  Married couples can each have their own IRA and can each take advantage of the full combined contribution tax-deferred.  As with a 401(k), you’ll pay taxes on contributions and earnings when you withdraw funds.  Also like a 401(k), you’ll pay an additional 10 percent penalty if you withdraw funds before 59½.  A traditional IRA is subject to required distributions after age 70½ and you can’t make additional contributions to your account once you reach that age.

Roth IRA
Roth IRAs have the same contribution limits as traditional IRAs.  You can’t deduct Roth IRA contributions from your current taxes, but you can withdraw both contributions and investment earnings tax-free after age 59½ if the account is at least five years old.  Unlike a traditional IRA or 401(k), there’s no penalty for withdrawing contributions before 59½, although there is a 10 percent penalty on early withdrawal of account earnings.  Unlike a traditional IRA, you’re not required to withdraw funds by 70½ and you can even keep contributing to the account after that age.  You can contribute to both a traditional IRA and a Roth IRA, but your total contribution can’t exceed the annual limits set by the IRS.

Annuity
One key thing 401(k)s and IRAs (excluding annuities) have in common is that when your money is gone, it’s gone.  Annuities, on the other hand, provide insurance against the risk of outliving your money after you retire, and may also provide protection from loss due to market downturns. 

Life expectancy has been increasing, with the average 65-year-old expected to live to about age 84 for men, age 86 for women, and age 90 for at least one member of a married couple. And while most of us probably won’t live to be 100, about three percent of 65-year-old men and six percent of 65-year-old women can expect to see the century mark.  Whether you live to be 80, 90 or even 100 and beyond, it’s important to consider an annuity that guarantees an income for life.
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Is 4% Spending Rule Still Safe for Retirement Spending?

5/30/2019

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Is 4% spending rule still safe? 

Based on this article at Financial-Planning.com, Morningstar’s head of retirement research, David Blanchett, starts with the 4% rule, and offers the following suggestions. 

If half of one’s income is guaranteed (Social Security or pension), and half of expenditures are discretionary, Blanchett sticks with the 4% rule when with using a 50% stock and 50% bond portfolio.  However, this means one must cut those discretionary expenses when times are bad.  If 25% of income is guaranteed and 25% of expenditures are non-discretionary, the safe spend rate drops to 3.5%.  If only 5% of income is guaranteed, safe spend rates decline to a dismal 2% to 2.4%, depending on how much spending is discretionary.

Furthermore, Blanchett notes historic returns supported that rule, but stock valuations are currently high and, along with many others, he forecasts lower returns for stocks, especially over the next 10 years.  Those nearing retirement are most at risk.

Blanchett recommends annuities for guaranteed income, he states the best place for guaranteed income today is Social Security because delaying Social Security is buying the best deferred annuity on the planet.


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Cancer and Life Insurance - Part B

5/29/2019

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In our last blogpost, we discussed what is cancer.  Now we will discuss how cancer applications are underwritten.

Life Insurance Underwriting for CancerIf you are a life insurance applicant with a history of cancer, you should be prepared to answer the following questions:
  • Location of the cancer and the exact name/type of cancer?
  • What was the date of diagnosis? And what was the date of end of treatment?
  • How was the cancer treated? Surgery?... Radiation?... Chemotherapy?
  • Most importantly and critical to quoting — what was the stage and grade?
  • Has there been any recurrence?
  • Any other cancer history?
Underwriting offers for cancer are very dependent on the amount of time passed since treatment, the location and type of cancer, and most importantly, the stage and grade.  
Many low-grade cancers can be offered Standard rates within a few months of treatment, while higher staged or graded tumors may take several years of postponement, followed by a period of years with a flat extra rating, before being considered at Standard rates.  

Answers to the following questionnaire is typically required.



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Cancer and Life Insurance - Part A

5/28/2019

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Q. I have cancer, can I still apply for life insurance?

A.
We will answer this question in this and next blogposts.


About Cancer

Cancer is a group of diseases characterized by unregulated multiplication of cells.  This uncontrolled growth of cancer cells consumes space and body function resources at the expense of the patient, which may result in organ dysfunction or even death.  The behavior and characteristics of each form of cancer are different, as are the prognosis and chances of successful treatment.

Diagnosis of Cancer
A definitive diagnosis of cancer involves obtaining a piece of tissue from the suspected site, a procedure commonly known as a biopsy.  A biopsy may be performed using a needle and either aspirating the tissue, obtaining a core sample of tissue, or surgically removing a piece of tissue.  The tissue is then processed and evaluated by a pathologist and detailed in the pathology report.  This pathology report contains information on size, depth, amount of infiltration into surrounding tissue, if there was any spread into the lymph nodes, and most importantly, the staging and grading.

Most cancers are graded as well-differentiated (or low-grade), moderately differentiated (or intermediate-grade), and poorly differentiated (or high-grade).  Another grading system in use includes grades I to IV; grade I corresponds with low-grade and grade IV with high-grade.  Still others have their own individualized grading system, such as Gleason’s grade for prostate cancer.
​

Cancer spreads by increasing in size, infiltrating surrounding tissues, spreading cells through the lymphatic channels to the lymph nodes, and spreading through the blood to distant organs such as lung, liver, or brain.  The extent of the spread of the cancer at the time of diagnosis is termed by the stage, which also affects the outcome of a cancer.

In next blogpost, we will discuss life insurance underwriting and cancer.


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Exceptions to Early Retirement Plan Withdrawal Penalty

5/27/2019

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Q. Is there any exception to the penalty if I withdraw from my retirement plan early?​

A.
Many pre-retirees or early retirees have a worry - what if I have a financial emergency that compels an early withdrawal from my retirement account?  The income tax hit alone is painful but, unless an exception applies, the additional 10% penalty for those (usually) under age 59 1/2 applies salt in the wound.

The good news is that tax law provides exceptions to such penalties — for example, for employees over age 55 and age 50 who withdraw from company plans after separating from service.  But it’s important to know that not every exception applies to every type of retirement plan.  

The table below summarizes such legal exceptions -

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10 Strategies for IRA Withdrawals In Order to Minimize Tax - Part C

5/26/2019

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We have discussed the previous 7 strategies here, now the last 3 strategies.

8. Roll money over to a Roth
There is no RMD requirement for Roth IRA, so any money you have rolled over from a traditional IRA to a Roth avoids future RMDs.  However, you will have to pay taxes on the rollover, and if you do it after age 70.5, you will have to take that year's RMD before rolling over the money.

9. Consider a QLAC
Money you invest in a deferred-income annuity known as a qualified longevity annuity contract and is removed from your RMD calculation.  You can invest up to $130K from your IRA in a QLAC (or up to 25% of the balance in all of your traditional IRAs, whichever is less) at any age (most people do this in their fifties or sixties).  You pick the age when you would like to start receiving annual lifetime income, usually in your seventies or later (no later than age 85).

10. Don't pay more in taxes than you have to
If all of your IRA contributions were made with pretax or tax-deductible money, your RMDs will be fully taxable.  But if you made any non-deductible contributions, a portion of each withdrawal will be tax-free.  Keep track of your tax basis on Form 8606 so you don't pay more in taxes than you owe.
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5 Common Questions About Fixed Indexed Annuities

5/26/2019

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Fixed indexed annuities (FIAs) can play an important role in one's retirement plans by offering growth potential, protection from loss due to market downturns, and the option for guaranteed lifetime income. Yet many people are less familiar with annuities in general — and FIAs in particular — than with financial products such as mutual funds.  What's more, because FIAs have features of insurance and growth potential, they can seem more complicated than they really are.

In this blogpost, we answer five questions people commonly ask about FIAs, so you can make more informed decisions about adding annuities to your retirement plans.

1. How can a FIA help my retirement savings grow?
The opportunity to build retirement savings is a feature of FIAs that many people find appealing.  FIAs offer the potential for interest credits that are tied to the performance of a stock market index — without having to invest directly in the market.  If the index rises, you will receive a portion of that increase in the form of interest credits.  If it declines, you may receive zero percent interest credits — but you'll never receive less than zero.  What's more, the buildup within an FIA is not taxed until it's withdrawn, similar to retirement savings vehicles such as 401(k)s and non-Roth IRAs.

2. Why won't I benefit from all of the index gain?
This is a trade off: you may be willing to accept some limits on your upside potential in exchange for protection from loss due to market downturns.

3. What happens if the markets go down?
Savings in an FIA won't lose money in a market downturn because they are not invested directly in the markets.  What's more, FIAs lock in previous interest gains, so that growth is also protected.

4. How do I use an FIA to help pay retirement expenses?
As annuities, FIAs can provide a guaranteed stream of income.  Adding annuities to a retirement income plan can help build a larger retirement "paycheck" that won't fluctuate — unlike withdrawals from investments whose value rises and falls with the market.

5. Where does an FIA fit in my overall retirement plan?
FIAs can help meet a number of your needs, depending on your current mix of financial products, goals and primary concerns.  Here are some major benefits:

o Accelerating retirement savings: Unlike 401(k)s and IRAs, FIAs have no contribution limits for non-qualified premium.  This feature may be especially appealing if you are older and looking to boost retirement savings, or if you have maxed out annual 401(k) and IRA contributions.

o Protection against longevity risk: Depending on the annuity, you may include an income rider for an additional fee.  The rider can be used to provide a source of guaranteed income that can last a lifetime.
​
o Tax management: Unlike withdrawals from 401(k)s and IRAs, which are fully taxable (except Roth IRAs), you only pay taxes on the interest earned in your FIA for non-qualified premium.  Because the income from an FIA is typically made up of a combination of interest and the return of your original premium, only a portion of it is taxable.  This feature can help you use FIA income in conjunction with fully taxable withdrawals from other sources to lower your overall tax burden in retirement. 
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How and Why to Build a Bond Ladder?

5/25/2019

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Q. How and why to build a bond ladder?

A.
A bond ladder may offer you predictable income and rate risk management.  However, it has its own risks and considerations.

Below is a chart that shows you how to create a stream of income with a bond ladder.  If you want to know more about potential downsides and considerations, Fidelity has a great article that discusses the details of them.
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Use AIG's QoL GUL to Knock Out 3 Birds With 1 Stone

5/24/2019

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AIG's QoL Guaranteed Universal Life (GUL) could knock out 3 birds with 1 stone - it helps:
  • Life insurance
  • Chronic illness
  • ​Retirement income
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Plan to Live to 100!

5/23/2019

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Embracing longevity is top of mind for Americans, and the following “Plan for 100” brochure has 20+ share-worthy infostats and concepts ...
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A Chart That Shows How Risk and Return Are Linked Together

5/22/2019

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Q. Why people always say risks and returns are linked in investment?

A.
Lower risk investments tend to have relatively lower returns while higher risk investments have the potential for relatively higher returns, that's to compensate investors for the added risk. 

You can see the risk and return linkage from historical data below - an investment mix including a combination of relatively higher risk investments, like stocks, and relatively lower risk investments, like bonds, is one way investors aim for higher returns while helping to manage risk.
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RMD Distribution Case Study

5/21/2019

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In our previous blogposts, we discussed RMD distribution questions.  Now we will introduce a case study to illustrate how RMD works.

Stu Takes Two: Traditional IRA Owner

First distribution year: Stu turned 70 in March of 2018. That made 2018 his first distribution year. He is not married to a spouse who is more than 10 years younger.
  1. Stu enters the Uniform Lifetime table using his age as of December 31 of the distribution year – age 70. The factor is 27.4.
  2. Stu divides his account balance as of December 31, 2017 – $274,000 – by 27.4. His RMD for 2018 is $10,000, whether he takes the distribution in 2018 or delays until April 1 of the following year. The factor and account balance does not change.

Second distribution year: The amount of the RMD for Stu’s second distribution year – 2019 – will vary depending on whether he delayed his RMD for the first distribution year. His factor will be the same — he re-enters the table at age 71. But his account balance will be smaller if he takes his 2018 RMD in 2018 rather than if he waits and takes his 2018 RMD in 2019.

Insight: If Stu turned 70 in August instead of March, he would have turned 70½ in 2019. That would make 2019 his first distribution. He would have entered the table in 2019 at age 71. 
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RMD Distribution Questions - Special Rules for Surviving Spouses

5/20/2019

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In our last two blogposts, we discussed RMD distributions when one is alive and when one dies. Now we will show some special rules for surviving spouses.
  1. Any surviving spouse who is a designated beneficiary may elect to rollover the decedent’s IRA or plan account into their own IRA or plan account.
  2. A surviving spouse who is the sole designated beneficiary of the decedent’s IRA may elect to treat the decedent’s IRA as their own.
  3. In the case of the decedent dying before their RBD, the surviving spouse who is the sole beneficiary may delay taking RMDs from the inherited IRA or plan account until the deceased spouse would have turned age 70½.
  4. If the surviving spouse is the sole beneficiary and holds the decedent’s IRA or plan account as an inherited plan, the surviving spouse uses the attained age method and re-enters the Single Life Table each year.
  5. Spousal beneficiaries of Roth IRAs who rollover or treat the decedent’s Roth IRA as their own are not required to take RMDs during their lifetime.

Planning Point: No Rollovers for Non-Spouse Beneficiaries
A non-spouse beneficiary of a qualified plan or IRA is prohibited from rolling over an inherited account into their own name.  They may, however, do a trustee-to-trustee transfer of such funds to an inherited IRA account that is titled as such – in the name of the decedent for the benefit of the beneficiary.  RMDs must continue to be taken from the new inherited account.

In our next blogpost, we will introduce a case study about RMD.
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RMD Distribution Questions - Upon Death

5/19/2019

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In our last blogpost, we discussed RMD distributions when one is still alive.  Now we will talk about RMD upon death.

Who?
Beneficiaries of qualified plan participants and traditional IRA participants, as well as non-spouse beneficiaries of Roth IRAs.

Designated beneficiaries may be permitted to stretch payments over their life or life expectancies. Generally, a designated beneficiary is any individual designated as a beneficiary of the IRA. A charity or an estate cannot be considered a designated beneficiary; therefore, distributions may not be stretched. A trust may be a permitted designated beneficiary if the trust meets certain requirements.

Designated beneficiaries are determined as of September 30 of the year after the year of the individual’s death. Any non-individual beneficiaries may be paid out before this deadline to retain stretch opportunities for any remaining designated beneficiaries.

When?
If the individual dies before their RBD, the entire account must be distributed by December 31 of the year that contains the fifth anniversary of the individual’s death, unless they have a designated beneficiary. Distributions to a designated beneficiary may be stretched over the life expectancy of the designated beneficiary as long as the distributions begin no later than December 31 of the year after the year of the individual’s death.

If the individual dies on or after their RBD, RMD regulations allow the account balance to be distributed over the longer of the life expectancy of the designated beneficiary or the life expectancy of the individual.

How?
For non-spouse beneficiaries, the age of the designated beneficiary as of December 31 of the year after the death of the individual is entered into the Single Life Table to determine the appropriate factor to be used to calculate the RMD for that first year. Thereafter, one (1) is subtracted from that original factor each year to determine the RMD (the reduction method).

If multiple individuals are named as designated beneficiaries, the age of the oldest is used to calculate RMDs. If an IRA with multiple individual designated beneficiaries is split into separate accounts by December 31 of the year after the year of death, then the life expectancy of the oldest beneficiary on each account is used.


Example: Bill died in 2018 at age 69. His son Jon was his designated beneficiary on his IRA. He turned 45 in 2019. Thus, Jon’s RMD for 2019 was determined by dividing the account balance in the IRA as of December 31, 2018, by the single life factor of 38.8 for a 45-year-old. The RMD for 2020 would be determined by dividing the IRA’s account balance as of December 31, 2019, by 37.8 (38.8 - 1).

In our next blogpost, we will discuss some special rules for surviving spouses.
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RMD Distribution Questions - During Lifetime

5/18/2019

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We will use two blogposts to answer some basic questions about RMD.  First, RMD distributions when one is alive.

Who Must Take RMD?
Traditional IRA owners and qualified plan participants.

When to Take RMD?
Must begin by the individual’s required beginning date (RBD).
  • Traditional IRA Owner: April 1 of the year following the year the individual turns 70½
  • Plan Participant/More-than-5-percent Owner: April 1 of the year following the year the individual turns 70½
  • Plan Participant/Not More-than 5-percent Owner: April 1 of the year following the later of the year the individual turns 70½ or retires

Can RMD Be Delayed?
Qualified plan participants who own 5 percent or less of the business and plan on working past age 70½ can delay their RMDs — provided the plan allows deferrals beyond that age.  Note: The delay applies only to the qualified plan of the current employer.

How to Delay RMD?
RMDs from IRAs and qualified plans not annuitized are calculated using the life expectancy method.  Using this method, the amount that must be distributed each year is determined by

Account Balance as of December 31 of Prior Year / Life Expectancy Factor

The life expectancy factor is taken from the Uniform Lifetime Table (see page 6) unless the sole beneficiary of the account is the individual’s spouse and the spouse is more than 10 years younger than the individual. In that case, use the Joint and Last Survivor Table. It will produce larger factors and thus smaller RMDs.

Individuals can delay their RMD for their first distribution year until April 1 of the following year (their required beginning date). However, if individuals do wait until April 1 of the following year, they must take a second RMD by December 31 of that same year. For determining the amount of the RMD for the second and future distribution years, the appropriate table is re-entered each year using the age of the individual as of the end of that calendar year (the “attained age” method).


Remember: Aggregation Rules Differ
Qualified Plans:
RMDs must be calculated for each separate qualified plan and distributed from each separate plan.

Traditional IRAs:
RMDs must also be calculated separately for each IRA; however, an individual generally may total the amount of RMDs from each IRA but then take the total amount from one or more IRAs.

Exceptions:
• IRAs held as an owner cannot be aggregated with IRAs held as a beneficiary
• IRAs held as a beneficiary can be aggregated with other IRAs inherited from the same decedent only


In our next blogpost, we will discuss RMD distributions upon death.
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3 Keys to RMD and Action Plans - Part C

5/17/2019

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We discussed the second key to RMD here, now the third key to RMD.

D: Delay
Contributing to Roth IRAs and converting traditional IRAs into Roth IRAs can delay RMDs until after the death of the IRA owner.  Designated Roth accounts [401(k) and 403(b)] are subject to RMD rules during lifetime.  Rolling those amounts into Roth IRAs delays the need for RMDs until after the death of the Roth IRA owner.

Action plan: use Roth IRA to get tax-free growth
Roth IRAs are funded with after-tax contributions and qualified distributions (including earnings) from Roth IRAs are not subject to income taxation.  Thus, the IRS has already received its money and has no reason to require distributions during the Roth IRA owner’s or spouse’s lifetime.  



For those who may not need to withdraw funds from their Roth IRA for retirement living expenses, a Roth IRA may provide a significant opportunity to pass on a growing inheritance to named beneficiaries.
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3 Keys to RMD and Action Plans - Part B

5/16/2019

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We discussed the first key and action plan to RMD here.  Now the second key to RMD.

M: Minimize
RMDs can be minimized by converting pre-tax amounts in traditional IRAs to Roth IRAs to the extent it can be done at lower rates.  With income tax rates set to increase after 2025, a series of partial conversions (staying within current tax brackets) by pre-retirees can reduce the balance in their traditional IRAs and thus reduce their RMDs in future years.

Action plan: take advantage of lower income tax rates now
Roth IRAs may make even more sense now after tax reform.  With income taxes temporarily reduced, it may make sense to contribute directly to Roth IRAs.  It may even make sense for IRA owners to convert amounts in traditional IRAs to the extent they can do so in lower brackets.  IRA owners who expect that they and their beneficiaries will always be in a very high tax bracket may want to convert their entire IRA as quickly as they can. 

​It's important to consider the effect of any conversion and increased adjusted gross income on applicable capital gains tax rates, Social Security benefits taxation and Medicare premiums.

We will discuss the third key to RMD here.
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3 Keys to RMD and Action Plans - Part A

5/15/2019

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This blog series will discuss 3 keys to RMD and the corresponding action plans.

R: Regulate
RMD rules are complex.  The 50% penalty for not complying is significant.  However, you can regulate your RMDs (bring order, method, or uniformity to RMDs) with a “fix it and forget it” action plan by utilizing the automatic payouts of a single premium immediate annuity (SPIA).

Action plan: fix it and forget it with a SPIA
Different rules apply to funds in IRAs and defined contribution plans that are annuitized.  The IRS generally considers the purchase of a SPIA to satisfy RMD obligations if the annuity is not payable over a period extending beyond the life expectancy of the IRA owner (and, if applicable, designated beneficiary) and meets certain other requirements.  Annual calculations are not required. 

​However, the annuity payout will only satisfy the RMD rules for the funds in the IRA annuity.  The income payouts cannot be used to satisfy RMDs for non-annuitized IRA funds in any year other than the year of the transfer.

We will discuss the second key to RMD here.
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How to Claim My Parents as My Dependents?

5/14/2019

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Q. How to claim my parents as my dependents?

A.
There are a lot of rules about this, what's more, the Tax Cuts and Jobs Act expires on Dec 31, 2025 which may change many of the rules again.  

Why claim your parent as a dependent?

If you contribute a considerable amount toward supporting your parent, claiming them as a dependent qualifies you for certain tax credits.  This can help stretch your budget for helping your parent financially.  You may also be able to add a dependent parent to your employer’s health insurance, which may include contributing to a family Health Savings Account (HSA) to be applied toward their medical expenses.

However, there are strict guidelines about what counts as a dependent for tax purposes.

How can your parent qualify as a dependent?
Your parent or another adult can qualify as a dependent if:

1. They aren’t married, or if they’re married, they don’t file a joint tax return with their spouse.
2. They are a U.S. citizen, resident alien, or resident of Canada or Mexico.
3. They’re a qualifying relative, which means they have met the following tests:
  • They have either lived in your house for a year OR they’re a relative (which includes a child, sibling, parent, grandparent, aunt, uncle, and sibling-in-law). Relatives don’t have to live with you.
  • Their gross income is under $4,150 (this is for 2018). Social Security income doesn’t have to be included in the gross income calculation in many cases.
  • You provide more than 50% of their support for the year.
Your parent or another adult can be able-bodied and still be your dependent for tax purposes, but if you’re caring for a disabled relative you may be eligible for additional tax credits.

What are the tax benefits?
Single tax filers get the main benefit to claiming a parent as a dependent: the ability to file as a Head of Household.  This can lower your tax bill because a higher amount of your income is taxed at a lower bracket than if your filing status is single.  Take a look at how the tax brackets compare for the 2019 tax year:

Tax Rate    Single                            Head of Household
10%           $0 to $9,700                    $0 to $13,850
12%           $9,701 to $39,475           $13,851 to $52,850
22%           $39,476 to $84,200         $52,851 to $84,200
24%           $84,201 to $160,725       $84,201 to $160,700
32%           $160,726 to $204,100     $160,701 to $204,100
35%           $204,101 to $510,300     $204,101 to $510,300
37%           $510,301 or more            $510,301 or more

As you can see, more of your income is taxed at the lowest 10% and 12% tax brackets when you file as a Head of Household.


You’d also be eligible for a non-refundable $500 tax credit, which begins to phase out (meaning you get less of the credit) when you have a modified gross adjusted income of $200,000 as an individual tax filer, or $400,000 if you’re married and file jointly. A non-refundable tax credit is one where if the amount of the credit is larger than the amount of taxes you owe, you don’t receive the whole credit and therefore don’t have a negative tax bill. For example, if you owe $1,000 in taxes, you’ll only owe $500 after getting the tax credit. But if you only owe $400, you won’t get a $100 refund after applying the $500 credit. Instead, you’ll owe $0 and get to use $400 worth of the credit.

You can include your dependent’s medical expenses in your itemized deductions if you itemize (meaning you don’t take the standard deduction) and have eligible medical expenses in excess of 10% of your adjusted gross income.

​If your dependent parent is totally and permanently disabled, you can qualify for the dependent care credit, which can total 20% to 35% (depending on your adjusted gross income) of the cost of care, up to $3,000 for an individual and $6,000 for two or more individuals. You may also be able to set aside pre-tax income in a dependent care FSA if your employer offers it.


Tax Rate    Single                           Head of Household
10%           $0 to $9,700                   $0 to $13,850
12%          $9,701 to $39,475           $13,851 to $52,850
22%          $39,476 to $84,200         $52,851 to $84,200
24%          $84,201 to $160,725       $84,201 to $160,700
32%          $160,726 to $204,100     $160,701 to $204,100
35%          $204,101 to $510,300     $204,101 to $510,300
37%         $510,301 or more             $510,301 or more
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How Long Term Capital Gain Stack On Top of Ordinary Income

5/13/2019

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An Example: how long term capital gain stack on top of ordinary income

A married couple has $60,000 of ordinary income, on top of which they are taking a $60,000 capital gain as well. In 2019 they will be eligible for a $24,400 standard deduction. 
​

Under the ordering rules for ordinary income and capital gains, the $24,400 standard deduction will be applied first against the $60,000 of ordinary income, on top of which the $60,000 long-term capital gain will be stacked.  This results in $35,600 of ordinary income that falls within a combination of the 10% and 12% tax brackets, for a total ordinary income tax liability of $3,884, while the remaining $60,000 long-term capital falls across the 0% and 15% long-term capital gains tax brackets — with the first $43,150 falling in the 0% bracket up to the threshold, and the remaining $16,850 taxed at 15%, for a total capital gains tax liability of $2,528.
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Banner's Underwriting Sweet Spots

5/12/2019

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Imagine you have the following situation, do you think if you could still get Preferred Best class offer from a top rated life insurance company?  The answer is yes!
  • Cigarette smokers 3 years out
  • Clients with treated Hypercholesterolemia
  • Clients with treated Hypertension
  • Clients with a combination of treated HTN/cholesterol
  • Clients with treated or untreated total cholesterol under 300
  • Clients who participate in recreational scuba diving up to 100 feet
  • Clients with a family history of cancer
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3 Key Retirement Questions and Answers

5/11/2019

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While saving for retirement is hard, it's harder to know how to spend it down.  Below are 3 questions everyone who is near retirement needs to ask.  I also provided some general answers to get your started to search for your own answers.

1. How long will I live?
Many people assume 100 years old, some also assume 20 years if you have made to age 65.  But if you want to be precise, this blog has several websites could give you the answer.

2. How much do I need?
While different people have different life styles, if we use U.S. average household figures - that will be $49,500 based on U.S. Bureau of Labor Statistics data.  Income from Social Security and Pensions for those same households average $25,000, that leaves $24, 500 per year gap.

In reality, for households near retirement, average retirement account savings are about $376,000, based on Investment Company Institute, which represents the mutual fund industry.  But even you have $1 million savings, will it be enough?

3. How to spend down savings?
There is a general 4% withdrawal rule, at $1M savings, that gets you $40,000 a year, which should be enough to cover the income gap.  However, depending on where you put that $1M savings, if all in stocks, in a bear market, you could be down to half million.
  • You could put all your savings in bonds, but it's hard to get 4% return, unless you take high risk approach.
  • You could put all your savings in dividend paying stocks, but you will be giving up upside as those stocks tend to be more stable.
  • You could spend a portion or all your savings on annuities, while annuities could guarantee you lifetime income, you will be turning ownership of your savings to insurance companies.
  • You could put your savings in a balanced portfolio, but it will be hard to achieve consistent 4% payout each year, so you need to consider spending down some of your principal each year.
  • You can also work and keep saving, until you couldn't work anymore.

In short, there is no perfect answer, it all depends on your unique situation.
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AIG Life Insurance Underwriting Guidelines

5/10/2019

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AIG's life insurance products, especially its QoL Flex products are very popular.  If you are interested in applying for one of AIG's life insurance products, its underwriting guideline below could get you a good start so you know what underwriting class you likely will get - if you know your own health stats.
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2019 Tax Planning Guide

5/9/2019

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By now you have done your 2018 tax, it's time to plan your 2019 tax!  The UBS 2019 Tax Planning Guide below is packed with tons of useful information, read it and use it!
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5 Ways to Protect Your Retirement Income - Part E

5/8/2019

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In our last blogpost, we discussed the need to keep a balanced portfolio.  Now we will turn to the final way to protect your retirement income.

5. Don't Withdraw Too Much from Savings

Spending your savings too rapidly can also put your retirement income at risk.  For this reason, retirees should consider using conservative withdrawal rates, particularly for any money needed for essential expenses.

After doing the math—looking at history and simulating many potential outcomes—here is a guideline: To be confident that savings will last for 20–30 years retirement, consider withdrawing no more than 4%–5% from savings in the first year of retirement, then adjust that percentage for inflation in subsequent years.
​

Consider a sustainable withdrawal plan: you can work with a financial advisor to develop and maintain a retirement income plan or consider an annuity with guaranteed lifetime income as part of your diversified plan, so you won't run out of money, regardless of market moves.

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