Fidelity has an interesting article that links the potential stock market performance in post COVID-19 to the post WWII stock market performance.
What happened to post WWII's stock market? This chart below shows the details. This should give you a club about how to allocate your assets in the near term.
A Roth IRA can be an excellent way to stash away money for your retirement years. Like its cousin, the traditional IRA, this type of retirement account allows your investments to grow tax-free. However, it also lets you take tax-free withdrawals of your contributions (but not earnings) at any time.
What Are Changed?
Changes to the 7702 Definition of Life insurance were enacted with the passage of the Hero’s Act on 12/27/2020. This change lowered the interest rates and increased the premium limits defined by the regulation. This includes the Guideline Level, Guideline Single and 7Pay TAMRA premium limits.
This was effective for policies issued on or after 1/1/2021.
What Will be the Impact on Life Insurance?
Generally, increases in premium limits mean that more premium can be paid into a cash value life insurance policy for a given death benefit. Or in other words, a lower death benefit can be selected for a given amount of premium leading to higher accumulation and income values.
Increases in GSP, GLP and TAMRA premiums will be greater where mortality is lower.
If you meet the following 2 conditions:
Then you will be impacted by the new Secure Act rules.
Consider the income tax free alternative to the new stretch IRA rules. For details, please see a case study below.
Find an estate planning protection solution for you and your spouse that also meets your needs during your lifetime. You’re also concerned about using an irrevocable solution that can’t be changed.
A Survivorship Standby Trust (SST) funded with survivorship life insurance
For details, please see the case study from Prudential below.
There are 7 taxes affect your assets when you die. See detailed descriptions at the Prudential flyer below.
STRATEGIES TO HELP LESSEN THE IMPACT OF TAXES
To reduce or mitigate almost all these taxes, you can use certain strategies, such as:
LIFE INSURANCE CAN HELP ENSURE SUCCESS
Life insurance can be a very effective tool in the estate planning process and can help you:
1. Zero Percent Capital Gains Tax Brackets
The 0% capital gains bracket can create unique planning opportunities. The standard deduction for those who are married and filing jointly is $25,100. Those who are married and over age 65 or blind receive an additional $1,350. A married couple filing jointly, both over 65, could have $108,600 of capital gains and pay no federal income tax at all, as long as the gain is the only thing on the return. Understanding the interaction between different types of income like capital gains, ordinary income and Social Security is essential to maximizing this opportunity.
2. Social Security Taxation
As your taxable income increases, the potential tax you have to pay on Social Security benefits can also increase quickly. The combination of Social Security income with other taxable income could result in being subject to an effective marginal tax rate as high as 49.95% on a portion of your income. Delaying Social Security benefits increases the monthly benefit you are entitled to receive and gives you more time to withdraw from pretax retirement accounts without creating an overlap between the two income sources.
3. Medicare Premiums
Medicare Part B and Part D premiums are based on modified adjusted gross income. For people who are older than 65 or within two years of enrolling in Medicare, beware that Roth conversions can trigger premium surcharges. Understanding these thresholds will help you identify how much you should convert to the Roth.
This financial planning article reveals that families with income greater than $100,000 tend to be underinsured.
It went on discussing some strategies to close the life insurance gaps and the true consequences if the gap remains.
How financial planners help their clients financially plan for post-retirement? Below is a checklist used by financial planners.
Yes, you can!
Savers fund Roth IRAs with after-tax contributions, and the earnings on those contributions grow tax-free. To withdraw those earnings without paying taxes and a 10% penalty, the account must be open for at least five years, and the holder must be at least 59½. But there's a workaround.
The key word is earnings. The timeframe, taxes, and penalties apply only to earnings.
You can withdraw your contributions at any time, without penalty, regardless of your age or when you established the account, because taxes were already paid on that money.
For example, if someone owns a $100,000 Roth that consists of $75,000 in contributions and $25,000 in earnings, the investor can pull out that $75,000 with no penalties.
Because withdrawn Roth contributions can be used for anything, it is one of the most flexible retirement accounts
There are also three qualified reasons why someone who has owned their Roth IRA for five years, but is under the age of 59½, can take distributions on both contributions and earnings without triggering penalties or paying taxes:
See Medigap description here.
Here is an average cost example using the unbundled approach. This example shows Medicare coverage for a married couple with Modified Adjusted Gross Income (MAGI) of less than $174,000 per year.
See Medicare Part D here.
PART C: MEDICARE ADVANTAGE
Combines parts of Medicare A, B, and D
See Medigap description here.
In deciding where to put your cash, you need to consider your goals, time frame, attitude, and needs. Once you are clear on them, you have four places to hold cash and we will analyze them one by one below.
Money market mutual funds
Certificates of deposit
Individual short-duration bonds
The classic view of retirement is that it is the third and “final” phase of life - after we go through the first phase of youth and learning (from birth to adulthood), and the second phase of our ‘productive’ working years (from adulthood until we can no longer work anymore), allowing us to reach a final stage of rest, relaxation, and leisure.
However, in practice, retirement itself is really a multi-phased experience – given both the substantive nature of the transition itself from what precedes it and the sheer duration of retirement that encompasses many years and decades (throughout which our lives continue to change).
Accordingly, Andy Millard highlights a series of 6 key phases of retirement, including:
In last blogpost, we discussed why including life insurance in family bank trust. Now we will introduce a case study.
Goals and Objectives:
In last blogpost, we discussed what is a family bank trust and why one needs it.
Why Include Life Insurance in Planning with a Family Bank Trust?
There are 2 major benefits:
1. Instant Liquidity
With a life insurance policy, one can rest assured that instant cash will be available to their loved ones upon their passing.
Life insurance proceeds owned by a Family Bank Trust will ultimately pass income tax-free to beneficiaries. In addition, the money that one gifts to the trust to pay premiums may be sheltered from gift tax and will reduce one's estate for estate tax purposes. Furthermore, life insurance policy cash values grow on a tax-deferred basis and the death benefit of a Family Bank Trust-owned policy will be sheltered from estate tax.
What are the Profiles of One Who Needs a Family Bank Trust?
In next blogpost, we will introduce a case study - how a family bank trust works for someone.
What is a Family Bank Trust?
A Family Bank Trust is a form of irrevocable life insurance trust; also known as a Generation Skipping Transfer Trust or Legacy Trust. The trust allows its creator to minimize transfer taxes and maximize the legacy left behind to children, grandchildren and future generations.
The Generation Skipping Transfer Tax (GSTT) applies to both outright gifts and transfers in trust to either related persons who are more than one generation below the donor or to an unrelated individual who is more than 37½ years younger than the donor. Now that the estate, gift and GSTT exemption amounts are unified at $5.43 million for 2015, with proper planning significant amounts of wealth can be transferred without transfer taxes being imposed.
Why a Family Bank Trust?
A Family Bank Trust can help accomplish multiple goals:
In next blogpost, we will discuss how life insurance play a role in a family bank trust.
People who can most benefit from legacy building are those usually within retirement age that have dormant assets. These are typically assets they plan on leaving for heirs, a church, charity, or possibly to help pay educational costs for grandchildren.
These assets are often held in low interest-earning accounts or vehicles, which may not be an efficient method of wealth transfer for the purpose of legacy building. These “legacy assets” may be leveraged into a greater benefit and a more efficient method of wealth transfer using life insurance. Let’s take a look at a typical profile:
Usually, there are two types of people - those fully committed to the strategy and those who are committed now but may want to change their strategy down the road.
PFwise's goal is to help ordinary people make wise personal finance decisions.