finance – Page 3 – Safe Retirement Income

March 19, 2015 by Tim Barton Leave a Comment

Taxable VS. Tax Deferred Investments

How much would you have to earn each year from a taxable investment in order to equal earnings on a tax-deferred investment? This chart illustrates the potential benefits of a tax-deferred investment vs. a taxable investment.

Annual Tax-Deferred Yield	Federal Income Tax Bracket:
	10%	15%	25%	28%	33%	35%
	Annual Taxable Equivalent Yield
3%	3.33%	3.53%	4.00%	4.17%	4.48%	4.62%
3.5%	3.89%	4.12%	4.67%	4.86%	5.22%	5.38%
4%	4.44%	4.71%	5.33%	5.56%	5.97%	6.15%
4.5%	5.00%	5.29%	6.00%	6.25%	6.72%	6.92%
5%	5.56%	5.88%	6.67%	6.94%	7.46%	7.69%
5.5%	6.11%	6.47%	7.33%	7.64%	8.21%	8.46%
6%	6.67%	7.06%	8.00%	8.33%	8.96%	9.23%
6.5%	7.22%	7.65%	8.67%	9.03%	9.70%	10.00%
7%	7.78%	8.24%	9.33%	9.72%	10.45%	10.77%
7.5%	8.33%	8.82%	10.00%	10.42%	11.19%	11.54%
8%	8.89%	9.41%	10.67%	11.11%	11.94%	12.31%
8.5%	9.44%	10.00%	11.33%	11.81%	12.69%	13.08%
9%	10.00%	10.59%	12.00%	12.50%	13.43%	13.85%
9.5%	10.56%	11.18%	12.67%	13.19%	14.18%	14.62%
10%	11.11%	11.76%	13.33%	13.89%	14.93%	15.38%

This chart illustrates the potential benefits of a tax-deferred investment vs. a taxable investment. For example, if an investor in the 25% federal income tax bracket purchases a tax-deferred investment with a 5% annual yield, that investor’s taxable equivalent yield is 6.67%. This means the investor would need to earn at least 6.67% on a taxable investment in order to match the 5% tax-deferred annual yield.

This chart is for illustrative purposes only and is not indicative of any particular investment or performance. In addition, it does not reflect any federal income tax that may be due when an investor receives distributions from a tax-deferred investment.

February 19, 2015 by Tim Barton Leave a Comment

The 3 Sources of Retirement Income

What Are the Available Sources of Retirement Income?

When you retire and your earning power ceases, you will have to depend on three primary sources for your retirement income:

Social Security

According to the Social Security Administration, the average retired worker in 2015 receives an estimated $1,328 monthly benefit, about 40% of average preretirement income. As pre-retirement income increases, however, the percentage replaced by Social Security declines.

Employer Sponsored Plans and IRAs

You may be eligible to participate in a retirement plan established by your employer and receive pension income at your retirement. You may also be able to contribute to an individual retirement account (IRA) to supplement Social Security and pension benefits.

Home Ownership and Personal Retirement

For many people, there is a gap between the retirement income they can expect from Social Security and employer-sponsored plans/IRAs and their retirement income objectives. Home equity can be used to bolster retirement security.
Personal retirement savings, including bank and brokerage accounts and insurance and annuity contracts, can be used to bridge a retirement income gap.

If sufficient retirement income is not available, will you defer your retirement age, or will you choose to reduce your standard of living?

January 25, 2015 by Tim Barton Leave a Comment

What is Trust?

The word “trust” is applied to all types of relationships, both personal and business, to indicate that one person has confidence in another person.

For our purposes, a trust is a legal device for the management of property. Through a trust, one person (the “grantor” or “trustor”) transfers the legal title of property to another person (the “trustee“), who then manages the property in a specified manner for the benefit of a third person (the “trust beneficiary“). A separation of the legal and beneficial interests in the property is a common denominator of all trusts.

In other words, the legal rights of property ownership and control rest with the trustee, who then has the responsibility of managing the property as directed by the grantor in the trust document for the ultimate benefit of the trust beneficiary.

A trust can be a living trust, which takes effect during the lifetime of the grantor, or it can be a testamentary trust, which is created by the will and does not become operative until death.

Also, a trust can be a revocable trust, meaning that the grantor retains the right to terminate the trust during lifetime and recover the trust assets, or it can be an irrevocable trust; one that the grantor cannot change or discontinue the trust or recover assets transferred from the trust.

Trusts are used:

To provide management of assets for the benefit of minor children, assuring the grantor that children will benefit from trust assets. They will not have control of the trust assets until the child is at least age of maturity.
To manage assets for the benefit of a disabled child, without disqualifying the child from receiving government benefits.
To provide for the grantor’s children from a previous marriage.
As an alternative to a will (a “revocable living trust”).
To reduce estate taxes and, possibly, income taxes.
To provide for a surviving spouse during his/her lifetime, with the remaining trust assets passing to the grantor’s other named beneficiaries at the surviving spouse’s death.

Trusts are complex legal documents and are not appropriate in all situations. Before establishing a trust, you should seek qualified legal advice.

October 28, 2014 by Tim Barton Leave a Comment

Another Role for Life Insurance

Another Role for Life Insurance…
The Wealth Replacement Trust

The Problem:

There can be significant tax advantages in giving appreciated assets to a charity. Examples include real estate and securities. If you were to sell an appreciated asset, the gain would be subject to capital gains tax. By donating the appreciated asset to a charity, however, you can receive an income tax deduction equal to the fair market value of the asset and pay no capital gains tax on the increased value.

For example, Donor A purchased $25,000 of publicly-traded stock several years ago. That stock is now worth $100,000. If she sells the stock, Donor A must pay capital gains tax on the $75,000 gain. Alternatively, Donor A can donate the stock to a qualified charity and, in turn, rece

ive a $100,000 charitable income tax deduction. When the charity then sells the stock, no capital gains tax is due on the appreciation.

When a donor makes substantial gifts to charity, however, the donor’s family is deprived of those assets that they might otherwise have received.

A Potential Life Insurance Solution:

In order to replace the value of the assets transferred to a charity, the donor establishes a second trust – an irrevocable life insurance trust – and the trustee acquires life insurance on the donor’s life in an amount equal to the value of the charitable gift. Using the charitable deduction income tax savings and any annual cash flow from a charitable trust or charitable gift annuity, the donor makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums. At the donor’s death, the life insurance proceeds generally pass to the donor’s heirs free of income tax and estate tax, replacing the value of the assets that were given to the charity.

September 3, 2014 by Tim Barton 1 Comment

Benefits of Retirement Plan In-Service Withdrawal Make Sense for You?

You might know that you can move money from your employer’s qualified retirement plan to an IRA when you leave the employer. But do you know you may be able to take advantage of this opportunity while still employed by the company? There can be big benefits to this move.

What is an In-Service Withdrawal?

Basically, some companies allow active employees to move funds from an employer-sponsored qualified plan, such as a 401(k) or 403(b), while still contributing to the plan. When handled as a direct rollover, an actively working employee (usually age 59½ or older) then can buy an Individual Retirement Annuity (IRA) without current taxation. Of course, if a withdrawal is not rolled over to a qualified plan or IRA, it is considered taxable income (and may be subject to a 10% federal penalty if less than age 59½). But done right, there can be advantages to making this move.

What are the Benefits of an In-Service Withdrawal?

Using an in-service withdrawal to fund a deferred annuity in an IRA can offer these potential benefits:

You may be able to gain more control over the retirement funds.
You may be able to protect your retirement funds from market volatility.
You may be able to choose options you feel better suit your retirement needs.
You may be able to ensure yourself a guaranteed income stream in retirement.

What are the Next Steps?

Talk to a Pro: Talk to your financial professional and see if taking an in-service withdrawal to fund an individual retirement annuity may benefit you.
Talk to a Plan Administrator: Talk to your employer’s plan administrator about eligibility and requirements. They can tell you if the plan allows in-service withdrawals, and about any rules, such as withdrawal limits, fund types, transfer timing, etc.

Importance of Direct Rollover

As you consider an in-service withdrawal, it’s important to be certain your financial professional and plan administrator handle it properly — as a direct rollover.

With a direct rollover, your funds transfer from the plan trustee directly to another qualified retirement plan or IRA. By doing so they are not subject to tax withholding.

If your funds transfer to you, the plan participant, plan administrators must withhold 20% for federal income tax purposes, even if you intend to roll all the funds over within the 60-day time limit. This is a critical detail; one you don’t want to dismiss.

Added Considerations: Get the Complete Picture

Talk with a tax advisor about potential tax implications before moving money out of your retirement plan.
Use the proper paperwork. Most qualified plans have specific forms for direct rollovers.
Some qualified plans may cease matching contributions for a period after taking an in-service withdrawal.
The tax code allows the following to be rolled over from a qualified plan as an in-service withdrawal: Employer matching and profit-sharing contributions Employee after-tax contributions (non-Roth)
Employee pre-tax and Roth contributions after age 59½
The tax code does not allow rolling over the following before age 59½:
Employer safe harbor match or safe harbor non-elective contributions
Employee pre-tax or Roth contributions

August 14, 2014 by Tim Barton Leave a Comment

What is the Marital Deduction?

What Is the Marital Deduction?

The marital deduction (I.R.C. Sections 2056 and 2523) eliminates both the federal estate and gift tax on transfers of property between spouses, in effect treating them as one economic unit. The amount of property that can be transferred between them is unlimited, meaning that a spouse can transfer all of his or her property to the other spouse, during lifetime or at death, and completely escape any federal estate or gift tax on this first transfer. However, property transferred in excess of the unified credit equivalent will ultimately be subject to estate tax in the estate of the surviving spouse.

The 2010 Tax Relief Act, however, provided for “portability” of the maximum estate tax unified credit between spouses if death occurred in 2011 or 2012. The American Taxpayer Relief Act of 2012 subsequently made the portability provision permanent. This means that a surviving spouse can elect to take advantage of any unused portion of the estate tax unified credit of a deceased spouse (the equivalent of $5,000,000 as adjusted for inflation; $5,340,000 in 2014). As a result, with this election and careful estate planning, married couples can effectively shield up to at least $10 million (as adjusted for inflation) from the federal estate and gift tax without use of marital deduction planning techniques. Property transferred to the surviving spouse in excess of the combined unified credit equivalent will be subject to estate tax in the estate of the surviving spouse.

If the surviving spouse is predeceased by more than one spouse, the additional exclusion amount available for use by the surviving spouse is equal to the lesser of $5 million ($5,340,000 in 2014 as adjusted for inflation) or the unused exclusion of the last deceased spouse.

What Requirements Apply to the Marital Deduction?

To qualify for the marital deduction, the decedent must have been married and either a citizen or resident of theU.S. at the time of death. In addition, the property interest (1) must be included in the decedent’s gross estate, (2) must pass from the decedent to his or her surviving spouse and (3) cannot represent a terminable interest (property ownership that ends upon a specified event or after a predetermined period of time).

June 1, 2014 by Tim Barton Leave a Comment

Avoiding Probate

Probate is simply the Latin word for prove, which means that the estate probate process is the process by which your will is brought before a court to prove that it is a valid will. The courts charged with this responsibility are generally known as probate courts, which may actually supervise the administration or settlement of your estate.

Supervision of the estate settlement process by the probate court can result in additional expense, unwanted publicity and delays of a year or more before heirs receive their inheritance. The publicity, delays and cost of probate motivate many people to explore ways in which to avoid or minimize the impact of probating a will, including:

State Statute

If specific requirements are met, many states have made provision for certain estates to be administered without the supervision of the probate court, resulting in less cost and a speedier distribution to heirs.

Form of Property Ownership

The joint tenancy form of holding title to property allows ownership to pass automatically to the surviving joint tenant, who is normally the surviving spouse.

Transfer on Death

Many states have enacted Transfer on Death statutes that allow a person to name a successor owner at death on the property title certificate for certain types of property, including real estate, savings accounts and securities.

Life Insurance

Unless payable to the estate, life insurance proceeds are rarely subject to the probate process.

Lifetime Giving

Gifts given during life avoid the probate process, even if made shortly before death.

Trusts

A “Totten” trust, which is a bank savings account held in trust for a named individual, can be used to pass estate assets at death outside of the probate process.
A revocable living trust, created during the estate owner’s lifetime, can be an effective way to avoid the expense and delay of probate, while retaining the estate owner’s control of his or her assets prior to death.

Proper planning may serve to minimize the impact of the probate process on your estate and heirs.

Any potential method of avoiding probate, however, should be evaluated in terms of its income and/or estate tax consequences, as well as its potential impact on the estate owner’s overall estate planning goals and objectives.

March 6, 2014 by Tim Barton Leave a Comment

Difficult Pension Benefit Decision

At retirement, if you have a pension, you have to make a difficult decision that could negatively impact your future financial security and that of your spouse. Most people with company pension plans give this decision little thought and simply select the first payout option listed on their pension estimate; Joint and Equal Survivor Option.

For example, assume your maximum lifetime pension benefit is $2,000 monthly.

With the joint and equal survivor option, you’ll receive a significantly lower lifetime pension payment. Your surviving spouse, however, will continue to receive 100% of your pension benefit if you die first.

For as long as you live, you receive 75% of $2,000 the maximum life income option benefit. Your benefit is reduced to $1,500 per month, for life.
If you die first, your spouse will receive a lifetime monthly pension benefit equal to 100% of your benefit, or $1,500 per month.
If your spouse dies first you will continue to receive $1500 per month. There is generally no going back to the maximum $2,000 benefit.

Second choice is – Joint and One-Half Survivor Option:

If you elect the joint and one-half survivor option, you’ll receive a lower lifetime pension payment. On the other hand, if you die first, your surviving spouse will continue to receive a lifetime pension benefit equal to 50% of your pension benefit prior to your death. For example:

For as long as you live, you receive a monthly pension benefit of $1,700 or about 85% of the maximum life income option benefit.
If you die first, your spouse will receive a lifetime monthly pension benefit equal to 50% of your benefit, or $850 per month.
If your spouse dies first, however, your monthly pension benefit remains at $1,700.

Next choice is – Life Income Option:

If you receive your pension benefit under the life income option, you receive the maximum lifetime pension payment. If you die first however, your surviving spouse receives nothing after your death. For example

For as long as you live, you receive a monthly pension benefit of $2,000.
If you die first, however, your spouse will receive a monthly pension benefit of $0.
If your spouse dies first, your monthly pension benefit remains unchanged at $2,000.

At retirement, you will have to decide how your pension benefit will be paid out for the rest of your life:

If you elect to receive the maximum retirement check each month for as long as you live, with the condition that upon your death, your spouse gets nothing.
If you elect to receive a reduced retirement check each month, with the condition that upon your death, your spouse will continue to receive an income.
This pension decision is permanent.
The decision you make will determine the amount of pension income you receive for the rest of your life.
The decision is generally irreversible.
In making this decision, many people unknowingly purchase the largest death benefit (life insurance) they will ever buy and one over which they have no control.

How Can Retirement Income Protection Help Solve the Pension Benefit Dilemma?

Federal law allows a pension plan participant to waive the “joint and survivor” annuity payout requirement, with the written consent of his or her spouse. This means that, with your spouse’s consent, you can elect to receive the MAXIMUM life income annuity payout at your retirement.

However, what happens to your surviving spouse’s income and lifestyle if you should die first?

The solution, you maintain sufficient life insurance to replace the pension income lost at your death, assuring that your spouse will have an adequate source of income after your death. This is a death benefit you control and if your spouse predeceases you the life insurance can be surrendered paying you back part or all of your premiums; Depending on when death occurred.

In making this important decision, you should evaluate the risks associated with retirement income protection funded with life insurance:

Your income after retirement must be sufficient to ensure that the life insurance policy premiums can be paid and coverage stay in force for your lifetime. Otherwise, your spouse may be without sufficient income after your death.
If your pension plan provides cost-of-living adjustments, will upward adjustments in the amount of life insurance be needed to replace lost cost-of-living adjustments after your death?
Does your company pension plan continue health insurance benefits to a surviving spouse and, if so, will it do so if you elect the life income option?

February 20, 2014 by Tim Barton Leave a Comment

Retirement Plan Rollover Tips

Retirement plans come with a wide array of tax code abbreviations IRA, Roth IRA, SEP, 401(k), 403(b), HR10 just to name a few. There are times to consider doing a rollover of these funds.

When should you consider rolling over or transferring your retirement plan?

Change of employment– Most retirement plans become what is known as orphaned when you leave the employer who sponsored the plan. In order to maintain control of your money it is wise to rollover these plans into a personal retirement account.
Of course, when you are retiring – This is the time when you may want to start receiving income from your retirement plan. Your plan may or may not have income options if it does shop these payments among private insurance companies. This will insure you receive the highest income payments possible.
If you are receiving part of a spouse’s retirement plan due to a marital status change – It is a good idea to rollover the funds in order to maintain personal control.
When your current retirement plan is terminating – For a variety of reason employers will discontinue a plan and start another leaving the previous plan “frozen in place”. A good time to do a rollover.
In-service distribution from your current plan when available can be rolled over into a personal retirement with guarantees in order prevent future losses.
When you’re inheriting money as the beneficiary of a retirement plan account – Depending on your relationship with the deceased you may be able to do a spousal transfer without taxation into your own personal IRA. Sorry kids you will have to pay income taxes.
When you have worked for multiple employers, participated in multiple plans, and now desire to consolidate the assets from those different plans into a single plan.
If your retirement plan has no safe money investment options – it is advisable to diversify using a rollover whenever your plan allows.

A recent tax court ruled that only one IRA rollover is allowed per year. To avoid tax problems it is better to do an institution to institution transfer. This way the funds are never comingled with any of your other money.

Consult with a professional to help you make the most informed decision when a rollover is in your best interest.

You may ask questions in the comments or contact me privately Tim Barton, ChFC

February 9, 2014 by Tim Barton Leave a Comment

An Income Annuity Solution

How Can an Income Annuity Protect Against the
Risk of Living Too Long?

The purpose of an annuity is to protect against the financial risk of living too long…the risk of outliving retirement income…by providing an income guaranteed* for life.

In fact, an annuity is the ONLY financial vehicle that can systematically liquidate a sum of money in such a way that income can be guaranteed for as long as you live!

Here’s How an Income Annuity Works:

The annuity owner pays a single premium to an insurance company.

Beginning immediately or shortly after the single premium is paid, the insurance company pays the owner/ annuitant an income guaranteed to continue for as long as the annuitant is alive. There are other payout options also available.
With a cash refund provision the insurance company pays any remaining funds to the designated beneficiary after the annuitant’s death.

Seeking a secure life long retirement income? Click the video box to left of this post.