Articles tagged with: Cornerstone Financial Group Iowa

Tax Considerations for Retirees

Are you aware of them?
The federal government offers some major tax breaks for older Americans. Some of these perks deserve more publicity than they receive.

If you are 65 or older, your standard deduction is $1,300 larger. Make that $1,600 if you are unmarried. Thanks to the passage of the Tax Cuts & Jobs Act, the 2018 standard deduction for an individual taxpayer at least 65 years of age is a whopping $13,600, more than double what it was in 2017. (If you are someone else’s dependent, your standard deduction is much less.)1

You may be able to write off some medical costs. This year, the Internal Revenue Service will let you deduct qualifying medical expenses once they exceed 7.5% of your adjusted gross income. In 2019, the threshold will return to 10% of AGI, unless Congress acts to preserve the 7.5% baseline. The I.R.S. list of eligible expenses is long. Beyond out-of-pocket costs paid to doctors and other health care professionals, it also includes things like long-term care insurance premiums, travel costs linked to medical appointments, and payments for durable medical equipment, such as dentures and hearing aids.2

Are you thinking about selling your home? Many retirees consider this. If you have lived in your current residence for at least two of the five years preceding a sale, you can exclude as much as $250,000 in gains from federal taxation (a married couple can shield up to $500,000). These limits, established in 1997, have never been indexed to inflation. The Department of the Treasury has been studying whether it has the power to adjust them. If modified for inflation, they would approach $400,000 for singles and $800,000 for married couples.3,4

Low-income seniors may qualify for the Credit for the Elderly or Disabled. This incentive, intended for people 65 and older (and younger people who have retired due to permanent and total disability), can be as large as $7,500 based on your filing status. You must have very low AGI and nontaxable income to claim it, though. It is basically designed for those living wholly or mostly on Social Security benefits.5

Affluent IRA owners may want to make a charitable IRA gift. If you are well off and have a large traditional IRA, you may not need your yearly Required Minimum Distribution (RMD) for living expenses. If you are 70½ or older, you have an option: you can make a Qualified Charitable Distribution (QCD) with IRA assets. You can donate up to $100,000 of IRA assets to a qualified charity in a single year this way, and the amount donated counts toward your annual RMD. (A married couple gets to donate up to $200,000 per year.) Even more importantly, the amount of the QCD is excluded from your taxable income for the year of the donation.6

Some states also give seniors tax breaks. For example, the following 11 states do not tax federal, state, or local pension income: Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, New York, and Pennsylvania. Twenty-eight states (and the District of Columbia) refrain from taxing Social Security income.7

Unfortunately, your Social Security benefits could be partly or fully taxable. They could be taxed at both the federal and state level, depending on how much you earn and where you happen to live. Whether you feel this is reasonable or not, you may have the potential to claim some of the tax breaks mentioned above as you pursue the goal of tax efficiency.5,7

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com
Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.
1 – fool.com/taxes/2018/04/15/2018-standard-deduction-how-much-it-is-and-why-you.aspx [4/15/18]
2 – aarp.org/money/taxes/info-2018/medical-deductions-irs-fd.html [1/12/18]
3 – loans.usnews.com/what-are-the-tax-benefits-of-buying-a-house [10/17/18]
4 – cnbc.com/2018/08/02/some-home-sellers-would-see-huge-savings-under-treasury-tax-cut-plan.html [8/2/18]
5 – fool.com/taxes/2017/12/31/living-on-social-security-heres-a-tax-credit-just.aspx [12/31/17]
6 – tinyurl.com/y8slf8et [1/3/18]
7 – thebalance.com/state-income-taxes-in-retirement-3193297 ml [8/15/18]

Making a Charitable Gift from Your IRA

Follow the rules, and you might get a big federal tax break.

Is your annual IRA withdrawal a bother? If you are an affluent retiree, that might be the case. The income is always nice, but the taxes that come with it? Not so much.

If only you could satisfy your yearly IRA withdrawal requirement minus the attached taxes. Guess what: there might be a way.

If you gift traditional IRA assets to charity, you could see some big tax savings. The Internal Revenue Service calls this a Qualified Charitable Distribution (QCD), and you may want to explore its potential. Some criteria must be met: you need to be at least 70½ years old in the year of the donation, the donation must take the form of a direct transfer of assets from the IRA custodian to the charity, and the charity must be “qualified” in the eyes of the I.R.S. Any 501(c)(3) non-profit organization meets the I.R.S. qualification, as do houses of worship.1

The amount you gift can be applied toward your Required Minimum Distribution (RMD) for the year, and you may exclude it from your taxable income. If you are retired and well-to-do, a charitable IRA gift could be a highly tax-efficient move.1,2

Just how much could you save? That depends on two factors: how much you gift, and your federal income tax bracket. As an example, say you are in the 35% federal income tax bracket, and you donate $40,000 from your traditional IRA to a 501(c)(3) non-profit organization. That $40,000 will be gone from your taxable income, and the donation will cut your federal tax bill for the year by $14,000 (as 35% of $40,000 is $14,000). Yes, the savings could be significant.2

You can donate as much as $100,000 to a qualified charity this way in a single year. That limit is per IRA owner; if you are married, and you and your spouse both have traditional IRAs, you can each donate up to $100,000.1,2

What about the fine print? There is plenty of that, and it is all worth reading. You may be curious if you can make a QCD from a SIMPLE or SEP-IRA; the answer is no. You can make a QCD from a Roth IRA, but there is little point in it: Roth IRA withdrawals are commonly tax-free.1

Regarding the asset transfer, the critical detail is that you cannot touch the money. The distribution must be payable directly to the non-profit organization or charity, not to you. (Income tax does not need to be withheld from the distribution since the amount withdrawn will not count as taxable income.) In addition, your tax preparer must identify the distribution as a QCD on your federal tax return. This is crucial and must not be overlooked, because the custodian of your IRA will probably report your QCD as a normal IRA distribution.2

If you itemize your deductions, you should know that a charitable IRA gift does not count as a deductible charitable contribution. (That would amount to a double tax break.) Of course, fewer taxpayers have incentive to itemize now, since the standard deduction is so large, thanks to the Tax Cuts & Jobs Act.1,2   

If you want to make a charitable IRA gift, start the process before the year ends. If you try to make the gift in late December, your IRA custodian might not be able to move fast enough for you, and the asset transfer may occur later than you would like (i.e., after December 31). Talk with a tax or financial professional before the year ends, so that you can plan a charitable IRA donation with some time to spare.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – thebalance.com/qualified-charitable-distributions-3192883 [1/15/18]

2 – marketwatch.com/story/how-retirees-can-save-on-charitable-donations-under-the-new-tax-bill-2018-03-02 [3/2/18]

 

Social Security Gets Its Biggest Boost in Years

Seniors will see their retirement benefits increase by an average of 2.8% in 2019.

Social Security will soon give seniors their largest “raise” since 2012. In view of inflation, the Social Security Administration has authorized a 2.8% increase for retirement benefits in 2019.1

This is especially welcome, as annual Social Security cost-of-living adjustments, or COLAs, have been irregular in recent years. There were no COLAs at all in 2010, 2011, and 2016, and the 2017 COLA was 0.3%. This marks the second year in a row in which the COLA has been at least 2%.2

Not every retiree will see their benefits grow 2.8% next year. While affluent seniors will probably get the full COLA, more than 5 million comparatively poorer seniors may not, according to the Senior Citizens League, a lobbying group active in the nation’s capital.1

Why, exactly? It has to do with Medicare’s “hold harmless” provision, which held down the cost of Part B premiums for select Medicare recipients earlier in this decade. That rule prevents Medicare Part B premiums, which are automatically deducted from monthly Social Security benefits, from increasing more than a Social Security COLA in a given year. (Without this provision in place, some retirees might see their Social Security benefits effectively shrink from one year to the next.)1

After years of Part B premium inflation being held in check, the “hold harmless” provision is likely fading for the above-mentioned 5+ million Social Security recipients. They may not see much of the 2019 COLA at all.1

Even so, the average Social Security beneficiary will see a difference. The increase will take the average individual monthly Social Security payment from $1,422 to $1,461, meaning $468 more in retirement benefits for the year. An average couple receiving Social Security is projected to receive $2,448 per month, which will give them $804 more for 2019 than they would get without the COLA. How about a widower living alone? The average monthly benefit is set to rise $38 per month to $1,386, which implies an improvement of $456 in total benefits for 2019.1

Lastly, it should be noted that some disabled workers also receive Social Security benefits. Payments to their households will also grow larger next year. Right now, the average disabled worker enrolled in Social Security gets $1,200 per month in benefits. That will rise to $1,234 per month in 2019. The increase for the year will be $408.1

Mike Moffitt may be reached at ph#641-782-5577 or email: mikem@cfgiowa.com

www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – fool.com/retirement/2018/10/26/heres-what-the-average-social-security-beneficiary.aspx [10/26/18]

2 – tinyurl.com/y9spspqe [8/31/18]

 

How Medigap Choices Are Changing

Plan F is fading away, and Plan G may become the most selected option.                   

Soon, the most popular Medigap policy will no longer be sold. Seniors will lose the chance to buy Plan F in 2020 as well as the less popular Plan C.1,2

These policies cover Medicare’s Part B deductible, which is currently $183. A new federal law prevents the sale of any Medigap policies that cover this deductible once the 2020s begin.2

Be assured, if you already have Plan F (or Plan C) coverage, you can stick with it after 2020. You just cannot buy a new Plan F (or C) policy after that date.2

What does this mean if you are considering a Plan F policy? The short answer is that if you want to buy Plan F coverage, you have until the end of 2019 to do so. That said, you could be better off with Plan G in the next decade, barring a big jump in Medigap premiums.1,2

Why do people like Plan F? It is basically a “Cadillac plan”: it lets you see any doctor or hospital that accepts Medicare patients, and the upfront cost is the total cost. With Plan F, you are not surprised by subsequent requests to pay a deductible, a copayment, or coinsurance.1

How does Plan G differ from Plan F? While both plans provide similar coverage, the major differences are about dollars and cents. Plan G asks you for the $183 Part B deductible; Plan F does not. Premiums also differ notably. Coming into the fourth quarter of 2018, monthly payments on a Plan F policy averaged $185.96. Average monthly premiums on a Plan G policy? Just $155.70.1,2

Plan G appears to be gaining popularity. CSG Actuarial, a firm that provides data to insurance companies, reports that 37% of new Medigap enrollees are choosing Plan G (although 53% still choose Plan F).1

What will happen to Plan F and Plan G premiums in the 2020s is hard to say. Plan F premiums may jump because the supply of 65-year-olds buying Plan F will be abruptly cut, leaving an older and less healthy population to cover. Plan G premiums could rise also because a Medigap plan must accept new enrollees by the terms of Medicare regardless of how healthy or ill they may be. The current $183 Plan G deductible might significantly increase as well.1

Do you think you might switch out of one Medigap policy to another? That move may be harder to make once 2020 rolls around. If it has been more than six months since you enrolled in Medicare Part B and you want to switch Medigap plans or supplement traditional Medicare with one, some Medigap insurers in certain states may exercise their right to charge you more in view of pre-existing health conditions and even turn you down. It is possible that states may intervene and pass new regulations to prevent this in the coming years.1,2

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – reuters.com/article/us-column-marksjarvis-medigap/medicare-supplement-plans-are-changing-what-you-need-to-know-idUSKCN1LZ18F [9/19/18]

2 – kiplinger.com/article/retirement/T039-C001-S001-two-medigap-plans-to-be-phased-out.html [8/10/18]

Investing Means Tolerating Some Risk

That truth must always be recognized.

When financial markets have a bad day, week, or month, discomforting headlines and data can swiftly communicate a message to retirees and retirement savers alike: equity investments are risky things, and Wall Street is a risky place.

All true. If you want to accumulate significant retirement savings or try and grow your wealth through the opportunities in the markets, this is a reality you cannot avoid.

Regularly, your investments contend with assorted market risks. They never go away. At times, they may seem dangerous to your net worth or your retirement savings, so much so that you think about getting out of equities entirely.

If you are having such thoughts, think about this: in the big picture, the real danger to your retirement could be being too risk averse.

Is it possible to hold too much in cash? Yes. Some pre-retirees do. (Even some retirees, in fact.) They have six-figure savings accounts, built up since the Great Recession and the last bear market. It is a prudent move. A dollar will always be worth a dollar in America, and that money is out of the market and backed by deposit insurance.

This is all well and good, but the problem is what that money is earning. Even with interest rates rising, many high-balance savings accounts are currently yielding less than 0.5% a year. The latest inflation data shows consumer prices advancing 2.3% a year. That money in the bank is not outrunning inflation, not even close. It will lose purchasing power over time.1,2

Consider some of the recent yearly advances of the S&P 500. In 2016, it gained 9.54%; in 2017, it gained 19.42%. Those were the price returns; the 2016 and 2017 total returns (with dividends reinvested) were a respective 11.96% and 21.83%.3,4

Yes, the broad benchmark for U.S. equities has bad years as well. Historically, it has had about one negative year for every three positive years. Looking through relatively recent historical windows, the positives have mostly outweighed the negatives for investors. From 1973-2016, for example, the S&P gained an average of 11.69% per year. (The last 3-year losing streak the S&P had was in 2000-02.)5

Your portfolio may not return as well as the S&P does in a given year, but when equities rally, your household may see its invested assets grow noticeably. When you bring in equity investment account factors like compounding and tax deferral, the growth of those invested assets over decades may dwarf the growth that could result from mere checking or savings account interest.

At some point, putting too little into investments and too much in the bank may become a risk – a risk to your retirement savings potential. At today’s interest rates, the money you are saving may end up growing faster if it is invested in some vehicle offering potentially greater reward and comparatively greater degrees of risk to tolerate.

Having a big emergency fund is good. You can dip into that liquid pool of cash to address sudden financial issues that pose risks to your financial equilibrium in the present.

Having a big retirement fund is even better. When you have one of those, you may confidently address the biggest financial risk you will ever face: the risk of outliving your money in the future.

Mike Moffitt may be reached at ph#641-782-5577 or email: mikem@cfgiowa.com

www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – valuepenguin.com/average-savings-account-interest-rates [10/4/18]

2 – investing.com/economic-calendar/ [10/11/18]

3 – money.cnn.com/data/markets/sandp/ [10/11/18]

4 – ycharts.com/indicators/sandp_500_total_return_annual [10/11/18]

5 – thebalance.com/stock-market-returns-by-year-2388543 [6/23/18]

When is Social Security Income Taxable?

To find out, look closely at two factors. 

Your Social Security income could be taxed. That may seem unfair or unfathomable. Regardless of how you feel about it, it is a possibility.

Seniors have had to contend with this possibility since 1984. Social Security benefits became taxable above a certain yearly income level in that year. A second, higher yearly income threshold (at which a higher tax rate applies) was added in 1993. These income thresholds have never been adjusted upward for inflation.1

As a result, more Social Security recipients have been exposed to the tax over time. About 56% of senior households now have some percentage of their Social Security incomes taxed.1

Only part of your Social Security income may be taxable, not all of it. Two factors come into play here: your filing status and your combined income.

Social Security defines your combined income as the sum of your adjusted gross income (AGI), any non-taxable interest earned, and 50% of your Social Security benefit income. (Your combined income is actually a form of modified adjusted gross income, or MAGI.)2

Single filers with a combined income from $25,000-$34,000 and joint filers with combined incomes from $32,000-$44,000 may have up to 50% of their Social Security benefits taxed.2

Single filers whose combined income tops $34,000 and joint filers with combined incomes above $44,000 may see up to 85% of their Social Security benefits taxed.2 

If you are a head of household, or a qualifying widow/widower with a dependent child, the combined income thresholds for single filers apply to you.2

What if you are married and file separately? No income threshold applies. Your benefits will likely be taxed no matter how much you earn or how much Social Security you receive. (The only exception is if you are married filing separately and do not live with your spouse at any time during the year. In that case, part of your Social Security benefits may be taxed if your combined income exceeds $25,000.)2

You may be able to estimate these taxes in advance. You can use an online calculator (a Google search will lead you to a few such tools) or the worksheet in I.R.S. Publication 915.2

You can even have these taxes withheld from your Social Security income. You can choose either 7%, 10%, 15%, or 22% withholding per payment. Another alternative is to make estimated tax payments per quarter, like a business owner does.2,3

Did you know that 13 states tax Social Security payments? In alphabetical order, they are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. Sometimes, only higher-income seniors face such taxation. In Kansas, Missouri, and Rhode Island, for example, the respective AGI thresholds for the taxation of a single filer’s Social Security income are $75,000, $80,000, and $85,000.1

What can you do if it appears your benefits will be taxed? You could explore a few options to try and lessen or avoid the tax hit, but keep in mind that if your combined income is far greater than the $34,000 single filer and $44,000 joint filer thresholds, your chances of averting tax on Social Security income are slim. If your combined income is reasonably near the respective upper threshold, though, some moves might help.

If you have a number of income-generating investments, you could opt to try and revise your portfolio so that less income and tax-exempt interest are produced annually.

A charitable IRA gift may be a good idea. You can make one if you are 70½ or older in the year of the donation. Individually, you can endow a qualified charity with as much as $100,000 in a single year this way. The amount of the gift counts toward your Required Minimum Distribution (RMD) and will not be counted in your taxable income.4

You could withdraw more retirement income from Roth accounts. Distributions from Roth IRAs and Roth workplace retirement plan accounts are tax exempt as long as you are age 59½ or older and have held the account for at least five tax years.

Will the income limits linked to taxation of Social Security benefits ever be raised? Retirees can only hope so, but with more baby boomers becoming eligible for Social Security, the I.R.S. and the Treasury stand to receive greater tax revenue with the current limits in place.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com     

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – fool.com/retirement/2018/08/30/everything-you-need-to-know-about-social-security.aspx [8/30/18]

2 – forbes.com/sites/kellyphillipserb/2018/02/15/do-you-need-to-pay-tax-on-your-social-security-benefits-in-2018 [2/15/18]

3 – cnbc.com/2018/09/12/the-irs-is-warning-retirees-of-this-impending-surprise-tax.html [9/12/18]

4 – fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/qcds [9/17/18]

5 – irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts [10/25/17]

 

Is Now the Right Time to Go Roth?

Some say yes, pointing to the recent federal tax reforms.

Will federal income tax rates ever be lower than they are right now? Given the outlook for Social Security and Medicare, it is hard to imagine them falling much further. Higher federal income taxes could very well be on the horizon, as the tax cuts set by the 2017 reforms are scheduled to sunset when 2025 ends.

Not only that, the federal government is now using a different yardstick, the chained Consumer Price Index, to measure cost-of-living adjustments in the federal tax code. As an effect of this, you could gradually find yourself in a higher tax bracket over time even if tax rates remain where they are, and today’s tax breaks could eventually be worth less.1

So, this may be an ideal time to consider converting a traditional IRA to a Roth. A Roth IRA conversion is a taxable event, and so if you have a traditional IRA, you may be thinking twice about it. If the IRA is large, the taxable income linked to the conversion could be sizable, and you could end up in a higher tax bracket in the year the conversion occurs. For some that literally may be a small price to pay.2

The jump in your taxable income for the year of the conversion may be a headache – but like many headaches, it promises to be short-lived. Consider the advantages that could come from transforming a traditional IRA balance into a Roth IRA balance (and remember that any taxpayer can make a Roth conversion, even a taxpayer whose high income rules out the chance of creating a Roth IRA).3

Generally, you can take tax-free withdrawals from a Roth IRA once the Roth IRA has been in existence for five years and you are age 59½ or older. If you end up retiring well before 65 (and that could happen), tax-free and penalty-free Roth IRA income could be very nice.3

You can also contribute to a Roth IRA all your life, provided you earn income and your income level is not so high as to bar these inflows. In contrast, a traditional IRA does not permit contributions after age 70½ and requires annual withdrawals once you reach that age.2

Lastly, a Roth IRA is convenient in terms of estate planning. If IRS rules are followed, Roth IRA heirs may end up with a tax free inheritance.3

A Roth IRA conversion need not be “all or nothing.” Some traditional IRA owners elect to convert just part of their traditional IRA to a Roth, while others choose to convert the entire balance over multiple years, the better to manage the taxable income stemming from the conversions.2

Remember, however, that you can no longer undo a Roth conversion. The Tax Cuts & Jobs Act did away with so-called Roth “recharacterizations” – that is, turning a Roth IRA back to a traditional one. Now, this do-over is no longer allowed.2

Talk to a tax or financial professional as you weigh your decision. While this may seem like a good time to consider a Roth conversion, this move is not suitable for everyone. Occasionally, the resulting tax hit may seem to outweigh the potential long-run advantages. Study the various financial implications before making the move.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in

regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial. 

Citations.

1 – money.cnn.com/2017/12/20/pf/taxes/tax-cuts-temporary/index.html [12/20/17]

2 – marketwatch.com/story/how-the-new-tax-law-creates-a-perfect-storm-for-roth-ira-conversions-2018-03-26 [8/17/18]

3 – fidelity.com/building-savings/learn-about-iras/convert-to-roth [8/27/18]

 

Is Your Company’s 401(k) Plan as Good as It Could Be?

Two recent court rulings may make you want to double-check.

How often do retirement plan sponsors check up on 401(k)s? Not as often as they should, perhaps. Employers should be especially vigilant these days.

Every plan sponsor should know about two recent court rulings. One came from the Supreme Court in 2015; another, from the U.S. District Court for the Central District of California in 2017. Both concerned the same case: Tibble v. Edison International. 

In Tibble v. Edison International, some beneficiaries of the Edison 401(k) Savings Plan took Edison International to court, seeking damages for losses and equitable relief. The plaintiffs contended that Edison International’s financial advisors and investment committee had breached their fiduciary duty to the plan participants. Twice, they argued, the plan sponsor had added higher-priced funds to the plan’s investment selection when near-identical, lower-priced equivalents were available.1 

Siding with the plan participants, the SCOTUS ruled that under ERISA, a plaintiff may initiate a claim for violation of fiduciary duty by a plan sponsor within six years of the breach of an ongoing duty of prudence in investment selection.1

The unanimous SCOTUS decision on Tibble (expressed by Justice Stephen Breyer) stated that “cost-conscious management is fundamental to prudence in the investment function.” This degree of alertness should be applied “not only in making investments but in monitoring and reviewing investments. Implicit in a trustee’s [plan fiduciary’s] duties is a duty to be cost-conscious.”2,3

Two years later, the U.S. District Court ruled that Edison International had indeed committed a breach of fiduciary duty regarding the selection of all 17 mutual funds offered to participants in its retirement plan. It also stated that damages would be calculated “from 2011 to the present, based not on the statutory rate, but by the 401(k) plan’s overall returns” during those six years.3

The message from these rulings is clear: the investment committee created by a plan sponsor shoulders nearly as much responsibility for monitoring investments and fees as a third-party advisor. Most small businesses, however, are not prepared to benchmark processes and continuously look for and reject unacceptable investments.

Do you have high-quality investment choices in your plan? While larger plan sponsors may have more “pull” with plan providers, this does not relegate a small company sponsoring a 401(k) to a substandard investment selection. Sooner or later employees may begin to ask questions. “Why does this 401(k) have only one bond fund?” “Where are the target-date funds?” “I went to Morningstar, and some of these funds have so-so ratings.” Questions and comments like these may be reasonable and might surface when a plan’s roster of investments is too short.

Are your plan’s investment fees reasonable? Employees can deduce this without checking up on the Form 5500 you file – there are websites that offer some general information as to what is and what is not acceptable regarding the ideal administrative fees.

Are you using institutional share classes in your 401(k)? This was the key issue brought to light by the plan participants in Tibble v. Edison International. The U.S. District Court noted that while Edison International’s investment committee and third-party advisors placed 17 funds in its retirement plan, it “selected the retail shares instead of the institutional shares, or failed to switch to institutional share classes once one became available.”3

Institutional share classes commonly have lower fees than retail share classes. To some observers, the difference in fees may seem trivial – but the impact on retirement savings over time may be significant.3

When was the last time you reviewed your 401(k) fund selection & share class? Was it a few years ago? Has it been longer than that? Why not review this today? Call in a financial professional to help you review your plan’s investment offering and investment fees.  

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

Citations.

1 – faegrebd.com/en/insights/publications/2015/5/supreme-court-decides-tibble-v-edison-international [5/18/15]

2 – cpajournal.com/2017/09/13/erisas-reasonable-fee-requirement/ [9/13/17]

3 – tinyurl.com/yd8s2rq3 [8/17/17]

Think of Your Retirement in Three Phases

Phases, stages, acts, chapters, steps. Whatever you want to call them, consider that your retirement may unfold in a way many others have, in three successive financial segments. Your budget and income could see adjustments as you move from one phase into the next.

In the first phase of retirement, is not uncommon to arrange some “peak experiences” and live some longstanding dreams. These adventures sometimes cost more than new retirees expect, which can be a major financial concern given two possibilities: the prospect of retiring before you are eligible for your full Social Security benefits, and a probable reduction in your household income. If you retire early, you might want to tap tax-advantaged retirement savings accounts first. If you retire to a lower tax bracket, then shifting tax-deferred investments into a Roth IRA could be wise. A Roth IRA conversion is a taxable event, but the tax paid upon the conversion may be at a lower rate than you would pay later when taking Required Minimum Distributions (RMDs). After age 70, retirement may start to become more about relaxation; one key is to keep RMDs from pushing you into a higher tax bracket. After 85, paying for long term care may become the biggest financial worry – and so you may want to look at forms of LTC coverage now, as that coverage could help you avoid spending down your savings.1

Mike Moffitt may be reached at ph#641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations: 1 – forbes.com/sites/josephcoughlin/2018/07/06/how-to-age-independently-retiring-well-requires-more-than-money-diet-and-exercise [7/6/18]

Financial Considerations When Buying a Car

Things to think about before heading to a dealership.

Time to buy a car? Short of buying a house, this is one on the most important purchases you will make. It’s also one that you might be making several times through your life, comprising of thousands – sometimes tens of thousands – of dollars.

If you think about it, you can probably imagine other things that you might want to prioritize, ranging from saving for retirement, buying a home, or even some lifestyle purchases, like travel. Not to mention that having more money on hand will likely be handy if you have sudden need of an emergency fund. Thankfully, there are many options for saving money by avoiding spending too much on your next car. Here are some things to think about.

Buying a new car? It may not be the best value; a brand-new car loses roughly 20% of value over the first year and about 10% of that happens the moment you drive it off the lot. Buying used might require more research and test driving, but under the right circumstances, it can be a considerably better value.1

A trade-in might not always favor you. A dealership has to make a profit on the vehicle you are trading in, so you will often receive far less than the Blue Book value. A better value may be to try to sell your vehicle, yourself, directly to another person. If you do attempt a trade-in, avoid any major expenditures on the old car beforehand, like major repairs or even a detailing. Focus on getting the best price for the new car and leave the trade-in for the end of your negotiation.2

Leasing vs. buying. Leasing a car may only be advantageous if you are a business owner and able to leverage the payments as a tax deduction. While you can get a brand-new car every few years, there are many hoops to jump through; you need excellent credit, and there are many potential fees and penalties to consider when leasing, which you don’t face when buying. In many ways, it’s akin to renting a car for a longer period of time, with all of the disadvantages and responsibilities.3

Shop around for interest rates, but consider credit unions. Credit unions tend to have more favorable rates as they are member owned. At the average American bank, the interest rates are 4.5%, according to Bankrate.com. Meanwhile, you can often get rates in the neighborhood of 2.97% through the typical credit union. There are a number of other benefits to credit unions, including being based locally as well as user-friendly practices, such as options to apply to a credit union at the dealership. There are many financing options, though, so make credit unions only part of your research.4 

An automobile is a big-ticket purchase. It’s worth taking your time and making sure that you’ve covered your bases in terms of making the most responsible purchase.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial. 

Citations.

1 – marketwatch.com/story/8-things-youre-better-off-buying-used-2018-08-02 [8/2/18]