pension rules

With the passage of the SECURE Act in December 2019, current and future retirees can expect to see significant changes which are likely to impact their tax planning for retirement. Most notably, perhaps, is the increase in the Required Minimum Distribution (RMD) age from 70 ½ to 72.

For affluent retirees – and soon-to-be retirees – affected by the new RMD age, both the increase in the RMD age and the proposed new life expectancy tables on which individual RMDs are based are a bit of a double-edged sword. Since annual RMDs are simply a calculation of the total amounts in your traditional IRA, 401(k) and/or other employer-sponsored retirement account divided by your remaining life expectancy in years, the proposed revisions to the life expectancy tables appear to be a boon – at first. With more years statistically ahead of today’s 72-year-old retiree than in the past, this RMD calculation will initially be lower than before, leaving a larger portion of your portfolio to grow each year.

Which brings us to the other edge of the sword. All other things being equal, including average annual return, the RMD amount will likely increase over time because of the growth advantage provided by the revised life expectancy table. And failure to withdraw the RMD will incur a 50% penalty of the RMD amount. (For example, failure to withdraw an RMD of $20,000 will result in a penalty of $10,000.) For those expecting to leave a legacy behind for heirs or for charitable purposes, the prospect of losing significant net worth to taxation later in life seems onerous indeed.

So what can high-net-worth individuals do to preserve their legacy and mitigate the risk of account balances being drawn down at disproportionately high rates later in retirement?

Perhaps the most obvious solution is Roth conversions – the sooner, the better. For individuals whose net worth sits predominantly within a traditional 401(k) or other employer-sponsored plan and who have not yet established a traditional IRA, the Roth conversion process will consist of four equally important steps.

1. Open a traditional IRA. If you are satisfied with your current brokerage, set it up there.

2. Roll the full amount of one’s 401(k) balance into the traditional IRA. Specifically, you will want to request a “trustee-to-trustee” transfer of the full account balance so that the funds never pass through your hands and trigger taxation or penalties.

3. Open a Roth IRA. Again, your current brokerage is an excellent place to set this up.

4. Once these accounts are both in place, begin transferring balances annually from the traditional to the Roth IRA according to your ability to pay the taxes at your marginal tax rate. For example, if your current tax bracket is 30 percent based on employment income, the amount of the Roth conversion which represents an increase in income sufficient to raise your tax bracket to 35 percent will be taxed at 35 percent.

Numerous guides for doing Roth conversions are available online. However, since these are written for a broad audience and only you know your exact situation and financial goals, always speak with a reputable financial planner to determine the best way forward for you and your loved ones.

While the change in RMD age and other aspects of the SECURE Act appear problematic to those who haven’t fully assessed the implications for their personal financial situation, Roth conversions and other tactics can mitigate potential losses of one’s net worth to taxation. For more information, talk to a financial planner today. 

401K Planning

>An increasing number of employers offer 401(k) plans for their employees. It’s estimated that the average employee will have 10 jobs before they hit 40 years old. This means that there are millions of 401(k) accounts that are essentially orphans. Most companies will allow old employees to leave the money alone, and 22% leave their money with their old employers. However, you might want to roll over your 401(k) to your new employer’s plan or an IRA.

Check Fees

Fees and expenses are one of the most important issues you’ll want to consider before rolling your 401(k) over. If your new employer has a plan with options that charge lower fees, it’s probably a good idea to roll your money into the new plan. Small plans can charge average fees of more than 1.4% on their employees’ investments. If you’re paying more than 0.50%, it’s probably a good idea to begin the rollover process. You can move your money over to your new employer’s plan or an IRA. If your new employer has higher fees, you’ll want to leave your money alone or roll it over into an IRA.
Investing Options

Another consideration that you’ll want to take into account when deciding what to do with your IRA is the number and the quality of the investing options. Some smaller employers will have few options for their employees. Some of these will perform poorly when compared to the S&P 500 or another index. If you’re leaving an employer with a roster of proprietary funds, you’ll probably want to roll your money over into a new account. Many employers are starting to get the message that their employees want to keep more of their money away from fund managers and financial advisers. Therefore, more are offering more affordable options like index funds.

Deciding upon whether you want to invest your old retirement savings through a new employer’s 401(k) or a rollover IRA can sometimes depend upon the level of control you have over your savings. Most employers have a relatively low number of options in their retirement plans. With an IRA, you can have nearly unlimited investing options. If you want to invest in ordinary stock or bond funds, you can do so with an IRA. You can also use an IRA to make investments in other asset classes. You could buy a house to flip with an IRA. You can also hold physical gold or cryptocurrency in an IRA.
More Tax Options

Most people save in a 401(k) plan that allows for tax-deferred savings. Rolling a small 401(k) into a Roth IRA can allow that money to grow tax-free. A Roth IRA also allows for tax-free distributions. If you have a small tax bill in the short run, you could really wind up with a massive amount of tax-free income later in life if you roll your 401(k) into a Roth. Of course, if you have a large amount in your 401(k), you’ll probably want to roll a small portion over each year to avoid winding up with a large tax bill.

Many times, leaving your money in a 401(k) can be a good idea, but there are also situations in which you’ll want to roll your money over. Your decision will depend upon your particular situation. You’ll want to ask questions related to the fees and the choices that are tied to each plan. You’ll also want to take your current tax situation into account so that you can make an informed decision that will work best for you in the long run.

Financial abuse can be a complicated subject, but at its most basic level, it involves taking advantage of an older adult through manipulation or intimidation to steal their money or property.

What are the risk factors for financial abuse?

Elderly adults are some of the most vulnerable to financial abuse. Some of the biggest risk factors for older adults include:

• Isolation
Isolation can cause extreme loneliness in seniors, leaving them desperate for any sort of social connection. Many abusers target elder adults for this reason.

• Lack of knowledge of financial matters
Elder adults who don’t pay much attention to or don’t understand financial issues can be tricked into giving over secure information.

• Disability
Whether the older adult has a physical or mental disability, they are dependent on others to take care of themselves. This leaves them vulnerable to manipulation and intimidation by caregivers. Disability can also make an elder adult seem less likely to take action against the abuser.

Who is most likely to abuse?

Unfortunately, abusers are rarely unknown to the abused. In fact, those who are most likely to abuse are the ones who are closest to the elder individual or someone that he or she trusts. The most common financial abusers include:

• Family members
Family members can have different motivations for committing financial abuse. They may feel entitled to their relative’s money or property, especially if they are due to inherit from the elder or are in a caretaking position.

• Caretakers
A caretaker can be a family member or someone who is paid to provide care to an older adult in the elder’s own home. As such, a caretaker is the person who has the most access to the elder.

• Professionals in whom the elder trusts
Professionals are people in whom the elder adult depends on to take care of the things he or she is not capable of handling alone anymore. These services can range from attorneys to someone your relative hires to take care of the lawn. Abusers can take advantage of older adults by overcharging for services or manipulating them into signing documents that they don’t understand.

• Scammers and con artists
Some predators prey specifically on elder adults, counting on their social isolation and lack of knowledge about financial matters to be able to gain access to their victims and their financial assets.

What types of financial abuse exist?

Financial abuse can take different forms, depending on the relation of the abuser to the elder adult. Common tactics include (but are not limited to):

• Theft of money or property
• Using manipulation or intimidation to force him or her to sign legal/financial documents
• Forging his or her signature
• Fraud
• Telemarketing and email scams

How can you prevent financial abuse of elders?

The best thing that you can do to prevent elder financial abuse is to keep your older relative or friend from being isolated. Check-in regularly, make sure you know who has access to him or her and know the signs of financial abuse. Keep an eye out for suspicious signatures on checks, suddenly unpaid bills, and new and unexplained “friends.” By knowing the signs, you can help prevent the financial abuse of your loved one.

health care costs in retirement


Health care in retirement is a big expense, and it could cost you a large chunk of your retirement money. Smart planning for health care ahead of time will help you better prepare to handle these retirement expenses. Planning a budget for health care costs and enrolling in a health savings account are two ways you can be ready to handle health care costs in retirement.

Plan for health care costs

Planning to save for health care costs should be a big part of your retirement plan. Sadly, health care costs add up for retirees thanks to inflation and will only continue to increase. To get an idea of the health care costs you should plan for, a couple retiring in 2019 at the age of 65 can expect at least $387,000 in health care expenses.

So, as you begin planning for health care costs in retirement, be sure to include all your expenses. These might be premiums, supplemental insurance, long-term care and out-of-pocket costs such as co-pays and deductibles.

  • Insurance premiums. Health care costs include insurance premiums. While you’re employed, insurance premiums are withdrawn from your paycheck, and your employer covers a portion of them. However, in retirement, you will pay the whole insurance premiums.
  • Supplemental insurance. Other insurance coverage, such as for dental and vision, is supplemental. There is also a Medicare Supplemental Insurance plan that covers the portions that Medicare does not cover. Supplemental insurance coverage varies, but generally, you should budget at least $200 in monthly premium costs.
  • Long-term care insurance. Long-term care covers nursing homes, adult daycares, or assisted living expenses. It can be quite expensive, and you can expect to pay at least $2,000 a year for these services. There are several alternative options to help provide the income needed for long-term care expenses. Talk with one of our Financial Advisors to learn more.

Start a health savings account

If you want to set aside money in a separate account solely for medical expenses, a Health Savings Account (HSA) is worth considering. Enroll in a high-deductible health plan to start a health savings account.

A Health Savings Account helps you save money to cover your medical expenses. The money you withdraw from an HSA is tax-free when you use it to pay for qualified medical expenses. Also, you can use the funds to pay for what Medicare does not cover or for long-term insurance (which can be costly).

  • Withdrawals from an HSA are tax-free. When you withdraw funds you’ve added to a Health care Savings Account, that money is tax-free when you pay qualified medical expenses, such as office co-pays, deductibles, and dental or vision visits.
  • HSA covers costs not normally covered by Medicare. Although you might think Medicare will cover your medical expenses, you’ll find that it does not cover as much as you thought. This is because Medicare has several parts or coverages (Part A, Part B, and Part C). Further, certain coverages may not include prescription drugs, dental, or vision. So, you can use money from your HSA to pay for any expenses that your Medicare coverage does not provide.
  • Long-term care insurance premiums can be paid from funds out of an HSA. Long-term insurance includes home health care, nursing home care services, and living assistance or adult daycare. Medicare does not cover long-term care, and the cost can go up with a longer lifespan.

Other ways to manage health care costs

If you’ve maxed out your HSA contributions or are not eligible, you can use other options to manage your costs. For example, you can separate funds for medical expenses, delay receiving Social Security benefits, maintain your health to reduce your medical costs.

  • Devote one source of income to health care expenses. Maintaining a separate account strictly for medical expenses is a way to budget your health care costs. Some retirees decide to return to the workforce (for different reasons). If they do, that extra income can go solely toward health care expenses.
  • Wait to receive Social Security benefits. When you delay receiving Social Security benefits, the percentage you’ll receive increases. For example, the Social Security Administration explains that you’ll receive about 132% of benefits when you retire at 70.
  • Stay healthy and take medications as prescribed. Listen to your doctor and keep taking your medications. Staying healthy is one simple way to reduce your health care expenses.

Are you ready for the health care costs in retirement? Start planning for health care expenses today and include them in your budget and retirement plan. If you want to learn more about creating the income you deserve in retirement and learn how to cover medical expenses like those described, join us at one of our upcoming Retirement 101 classes.