Elder Care

No one enjoys the thought of needing assistance in their later years. The issue comes up when thinking of oneself or their parents. Naturally, everyone hopes they live a full, active life until 105, go to bed one night, fully asleep, and die in their sleep without any pain.

Practically and logically speaking, that may not be reasonable. The second-best option us to stay at home with some simple assistance to live out our final days. Here again, we do not make that choice.

When planning for our “away from home care” there are a few options that are being used more: Continuing Care Community (ccc), or Lifecare Community (LCC).
In a CCC, there are lower entrance fees, but, when one needs more care in the future, costs really escalate, and one may have to leave due to affordability. In an LCC, costs stay the same as one moves to higher levels of care. Now in most cases, one must be healthy enough to enter, and have a reasonable expectation of living independently for at least 5 years before needing higher care. The fees are higher than in a CCC, but no surprises when one needs extra help.

Mistakes in Estate Planning

No one knows when they are going to die. Most people feel they have ample time to make preparations, but too often, people die prematurely. Here are some typical Estate planning errors I have seen in my career.

1) No Will or Trust.
2) Not updating beneficiaries in the Will or Trust.
3) Not updating beneficiary designations on IRA/401K or other qualified plans (especially after a death or divorce).
4) Not having a list of usernames, passwords, and answers to “secret questions”. This list needs to be available to spouse or executor of your estate.
5) Not notifying the three credit agencies immediately so no one can claim identity of the deceased. Unscrupulous people check obituaries and then try to apply for credit cards in the name of the deceased.
6) Not requesting at least twenty original death certificates with raised seals to unlock insurance benefits, investment accounts, Social Security, Medicare, Medicaid benefits (some people say, but all your accounts are JTWROS? You still must provide proof of the death).
7) Not preparing for highest automobile insurance rates when one spouse dies (since the risk is higher for only one person).
8) If the deceased was the owner of a credit card and the spouse was a user, then the accounts will be cancelled. Consider having separate cards.
9) Special collectables like guns and sports cars need to have all the paperwork available to sell or transfer the title.
10) Not having any accurate summary of ALL your finances.

The list goes on and on.

Sit with your financial advisor to get started on it today, not tomorrow.

Mistakes in Estate Planning

No one knows when they are going to die. Most people feel they have ample time to make preparations, but, too often people die prematurely. Here are some typical estates planning errors I have seen in my career.
1) No will or trust.
2) Not updating beneficiaries in the will or trust.
3) Not updating beneficiary designations on IRA/401K or other qualified plans (especially after a death or divorce).
4) Not having a list of usernames, passwords, and answers to “secret questions”. This list needs to be available to spouse or executor of your estate.
5) Not notifying the 3 credit agencies immediately so no one can claim identity of the deceased. Unscrupulous people check obituaries and then try to apply for credit cards in the name of the deceased.
6) Not requesting at least 20 original death certificates with raised seals to unlock insurance benefits, investment accounts, Social Security, Medicare, Medicaid benefits (some people say, but, all my accounts are JTWROS. You still must provide proof of the death).
7) Not preparing for higher automobile insurance rates when one spouse dies (since the risk is higher for only one person).
8) If the deceased was the owner of a credit card and the spouse was a user, then the accounts will be cancelled. Consider having separate cards.
9) Special collectables like guns and sports cars need to have all the paperwork available to sell or transfer the title.
10) Not having an accurate summary of ALL your finances.
The list goes on and on.
Sit with your financial advisor to get started on it today, not tomorrow.

IRA Mistakes on RMD- #3

What happens when a person gets RMD aggregation wrong?
There are two potential penalties when people make RMD aggregation mistakes: the penalty for excess contributions and the penalty for missed RMDs.

THE 6% PENALTY
RMDs that are rolled over to another retirement plan create an excess contribution in the receiving account, which must be corrected as soon as possible.
When an excess contribution is corrected by October 15 of the year after the year for which the contribution was made, the amount of the excess plus or minus the gains or losses attributable to the amount of excess contribution must be removed from the account as well.
Excess contributions that are not corrected are subject to a penalty of 6% per year for every year they remain in the account. Form 5329 should be filed with the IRA owner’s tax return to report the excess contribution and to calculate the 6%.

THE 50% PENALTY
When a distribution is taken from the wrong type of account, you have a missed RMD. For example, suppose a person accidentally takes the 403(b) RMD from his IRA. This is against the rules. The person has a missed RMD in the 403(b). The penalty for a missed RMD is a steep one- it is 50% of the amount not taken.

Most people use qualified plans like 401k,403(b) and IRAs to save for retirement, but, the tax traps are so heavy that I do not recommend using them. I share with my clients much better accumulation strategies that provide tax FREE income for life and are not a tax trap like these other vehicles.

IRA Mistakes on RMD #2

IRA Rules
One of the benefits of an IRA is that RMDs for multiple IRA accounts can be aggregated. This includes SEP and Simple IRA accounts. The RMD should be calculated for each account separately, but after that , the RMD amounts can be added together and taken from any one or combination of accounts.

403(b) Accounts
A similar aggregation rule exists for 403(b) accounts. A person with more than one 403(b) account can calculate the RMD for each account and then add the RMDs together. The total amount can then be taken from one or a combination of 403(b) accounts.

Employer Plans
RMDs from employer plans, not including 403(b) plans , SEP, and Simple IRAs, CANNOT be aggregated. A person with multiple 401(k), Government 457(b) or other employer plans must calculate the RMD for each individual plan and take that RMD from that plan only.

Roth IRAs
There is no need to worry about whether Roth IRAs can be consolidated because Roth IRAs have NO RMDs during the account owners lifetime.

Other
Any plan making a series of substantially equal payments over a period of 10 years or more, or over life expectancy, cannot aggregate that payment with the RMD from any other retirement account. The distribution from the account making these substantially equal payments is considered the RMD from that account only.

Next blog will show what happens when you get the aggregation wrong!