Inherited IRA: Don’t Let it Become a Tax Disaster

These days people are concentrating more and more of their assets in their IRAs. In fact, sooner or later most people will ultimately wind up having almost all their investment assets tied up in IRAs.

Since we all know about the two certain things in life (death and taxes), it’s becoming increasingly important to beware of the rules regarding inherited IRAs.

Ignorance of these rules can lead to tax disasters, as was evidenced in a recently published tax court
case that reveals important lessons for all of us in this complex area. Don’t let this happen to you!

Let’s go through some of the events in this case and see what lessons we can learn. The basic facts of the case are pretty simple: Thomas Ozimkoski changed his will a few months before his death to leave the bulk of his property to his wife, Suzanne.

Unfortunately, Susan was his second wife and she did not get along with his son, Thomas Jr., who chose to contest the will in probate court. Even worse, even though Thomas updated his will, he never bothered to update his IRA beneficiary form – in fact it appears that he never filled one out in the first place. As we’re about to see, this led to all sorts of problems.

Lesson #1: Always Fill Out Your IRA Beneficiary Form (and keep it updated)
If Thomas had named Suzanne on his IRA beneficiary form, that money would have passed directly to her and would have totally bypassed his probate estate. Since he never filled out his form, the money instead had to go through probate, where it was subject to Thomas Jr.’s will contest action. Money that has to go through probate is subject to all sorts of problems such as creditor claims, statutory delays, etc. In contrast, IRA assets that have a clearly designated beneficiary on the form will totally avoid probate in the first place. So Thomas’ IRA money would never have been subject to the will contest if he had just filled out that form. Big mistake on his part!

Lesson #2: Inherited IRA beneficiaries have special tax advantages, but ONLY if they are named on the form
As it turns out, Suzanne wound up settling the probate action with her stepson by agreeing to pay him $110,000 from the IRA money. Unfortunately for her, this wound up costing her much more than just $110,000. Rather than leaving the money in the inherited IRA, Suzanne incorrectly rolled that money into her own IRA. Unfortunately, since she was under 59-1/2, this now meant that any distribution taken out of the IRA was not only subject to income tax, but also an additional 10% premature distribution penalty.

If Thomas had named Suzanne as beneficiary on his IRA form, she would have been eligible for much more favorable tax treatment on that money. She could have left it in the inherited IRA, rather than rolling it to an IRA in her own name. If she had done that, she could have spread the distributions over her entire life expectancy, greatly minimizing the tax impact of the distributions. Even better, she would have been eligible to take withdrawals for the rest of her life with no penalty, regardless of her age. That’s because there is an exception to the 10% penalty for money taken out of inherited IRAs…as long as there was a beneficiary named on the form. But since Thomas never filled out his form, Suzanne was out of luck.

So what should you do to make sure your own family never has to face a tax disaster like this? Follow some simple rules.

5 Simple Rules to Avoid a Tax Disaster

1) Name a beneficiary for ALL your IRAs.
2) Name an alternate, in case the first one dies before you.
3) Never name an estate as the beneficiary.
4) Make sure your IRA custodian has a copy of the beneficiary form.
5) Keep the beneficiary form updated as your circumstances change.

As you can see, inherited IRAs are no simple matter. Make sure you know the rules, and in case you feel like you could use some assistance, seek qualified counsel to help chart your course. Don’t let your family go through a tax disaster regarding your inherited IRA!

Year End Donations

Looking to donate some of your unwanted items? Be sure to donate to a qualified organization to be able to claim on your taxes. Watch Szarka Financial’s Senior Financial Advisor Alex Menassa, MT, CPA discuss this more with Fox 8 News.

New IRS Rule Could Provide Relief on IRA Rollovers

Sooner or later, almost all investors will eventually be faced with the decision of whether to roll their 401k (or other employer sponsored retirement plan) into an IRA. The IRS recently issued a new rule that could actually make life a little bit easier for taxpayers in this regard.

First, some background. As we have written about many times in the past, fixed pension plans are going the way of the dinosaur. For most people going forward, their major sources of retirement income savings will be their 401k. Depending on where you work, chances are good that you are eligible to contribute to a 401k plan through your employer. And if you move from job to job, you may begin to build up a collection of 401k plans from each employer.

Sooner or later, you’ll be faced with the decision of what you should do with these 401ks and begin considering rolling them into an IRA. Maybe you would like to pull all the 401k money together from the different plans into one IRA account to make it easier to administer and keep track of everything. Maybe you want a wider assortment of investment options than what the 401ks offer, and/or you want just one comprehensive set of investment options that applies to all the money rather than having each of the 401k’s subject to their own individual limitations. Or maybe you’re finally ready to retire and you want total flexibility to take distributions from the entire amount whenever you want, to meet your retirement income needs.  In any of these cases, you could potentially consider consolidating all the 401ks into an IRA by doing a rollover. Of course, this is a decision that must be made on a case by case basis depending on the needs of the taxpayer.

There are generally two ways to accomplish an IRA rollover. Many taxpayers who are not familiar with these rules, who maybe have never done this before, might only be familiar with the first method, known as the “60-day rule”. Under this method, the taxpayer just asks the 401k provider for a total distribution, and the taxpayer then has 60 days to deposit the money into their new IRA.  The problem is that if they miss the 60-day time window the whole thing is considered a taxable distribution rather than a rollover, including being subject to a 10% penalty if the person is under age 59 ½. Certainly an ugly situation in which no one would want to find themselves, but it’s happened to many taxpayers in the past.

Up until now there was almost no way for taxpayers to avoid the harsh consequences of missing the 60-day time window. But under a new rule issued this past August, for once it’s “the IRS to the rescue”!  Under the new rule, if a taxpayer misses the 60-day time period they can actually fix this problem themselves, and at practically no cost. All they have to do is fill out a form asking for a waiver of the time period, provided that the reason for the late rollover is among a specific list of permissible reasons allowed by the IRS. There are 11 acceptable reasons under this new rule, including financial institution error, misplacing the rollover check, mistakenly depositing the rollover into the wrong account, and other misfortunes such as severe damage to a personal residence, death or serious illness of a family member, and incarceration.

It’s not often that the IRS actually issues rulings that are so helpful and, dare we say it, “compassionate”! So this is certainly good news. On the other hand, taxpayers should be aware that this ruling does not change the fact that the rollover has to otherwise be valid in all respects, such as being the taxpayer’s only rollover within a 12-month period.  Also the new IRA custodian will still have to alert the IRS that this is a late rollover, which could invite an audit to make sure that the relief conditions were properly met.

Taxpayers should also be aware that there is a better method to make a rollover that avoids all these problems in the first place, known as a “trustee-to-trustee transfer” or a “direct rollover”. This is actually considered the “gold standard” for how to make a rollover. Under this method, you first have to decide who your new IRA custodian is going to be. Then you direct the 401k plan (preferably by phone if the plan so allows, otherwise via rollover paperwork) to make out a check directly to your new IRA custodian. The key is that the check is not made out to you personally; it’s made payable to “XYZ Custodian, IRA FBO (“for the benefit of”) John/Mary Smith”. That’s what makes it a direct rollover. The check is mailed to your address, and you forward it to your new IRA custodian.  In this case there is no 60-day time limit at all to worry about. You can initiate a direct rollover at any time for 401ks that you’ve had for many years, and take as long as you like to deposit the check into your new IRA (not that you’d necessarily want to wait very long!)

Any time the IRS issues a ruling like this that is actually helpful, it can be considered a victory for taxpayers.  However, there are still plenty of other rules and traps to watch out for. If you are considering a rollover, feel free to contact us for more detailed guidance.

When a Loved One Dies Are You Responsible For Their Debt?

When a spouse or loved one dies, surviving family members are often faced not only with the emotional aftermath of dealing with their loss, but also with an avalanche of legal and administrative issues to deal with for which they are totally unprepared. And in these situations, the last thing that grieving family members may have expected is a barrage of phone calls from debt collectors seeking payment for the deceased’s outstanding debts. Often the surviving family members have no idea how to handle these issues. Should these debts be paid? Who is liable? Are other family members personally responsible? And are family members entitled to inherit any assets if there are outstanding debts?

The general rule in these situations, per the State of Ohio, is that the decedent’s “estate” is primarily responsible for their debts. But in many cases, creditors automatically assume that if the decedent had any assets when they died, these assets must be used to pay their outstanding debts before family members can inherit anything. But that’s not really the case! How is that possible? The reason is that it’s only the PROBATE estate that is primarily responsible for the debts. Assets that pass outside of probate do not fall into this category, and are often beyond the reach of creditors (there are some exceptions, discussed later). In cases where the decedent took the time to do probate planning, most or all of their assets could pass outside of probate and thus be exempt from their outstanding debts.

Here are some of the most common examples of assets that can be structured to fall outside of probate:

1) Assets that pass via designated beneficiary form, such as IRA accounts, 401(k)s, pensions, annuities, and life insurance. As long as the form names someone who outlived the decedent, these assets will not need to go through probate.

2) Assets that are titled Joint with Right of Survivorship. This typically applies to the residence owned by a married couple. The “right of survivorship” feature (shown on the title of the property) means that the house will pass to the survivor outside of probate.

3) Assets that are titled Payable on Death (POD) or Transfer on Death (TOD). This applies to any checking accounts, savings accounts, other bank deposit accounts, or automobile titles where the decedent had filled out a form making them POD or TOD.

4) Assets placed in a trust. These assets are considered as being owned by the trust, not the decedent, and pass outside of probate.

If the decedent did proper probate planning, there is often virtually nothing left to go through probate, and thus nothing for creditors to take, even if the decedent had sizeable assets such as IRAs, bank accounts, etc. This often comes as a surprise to family members, who may be approached by debt collectors trying to get them to pay quickly, before they learn these rules.

For example, the decedent may have signed a long-term lease agreement for an automobile shortly before passing away. In these cases, the leasing company may try to collect the payments for the entire contract from the surviving spouse and/or other family members, who may not realize that only the probate estate is liable (of course, in this case, the car itself would have to be returned because under a lease agreement the decedent never owned it in the first place). Another typical example is credit card debt, which is generally unsecured and thus “dies with the debtor,” meaning that it can be claimed only against assets in the probate estate, if any.

There are, however, some exceptions to these rules in which the spouse and/or family members can indeed be liable for some or all of the decedent’s outstanding debts. Here are some common examples:

1) In cases where a family member co-signed for a debt, they would remain personally liable for the entire debt.

2) In cases where the debt is secured by an asset, such as a mortgage on the house or an auto loan secured by the car, that particular asset would be subject to the debt.

3) In the case of medical expenses, Ohio law generally follows the “Doctrine of Necessaries,” which makes the spouse liable for the decedent’s unpaid medical bills.

4) If the decedent had any long term care expenses paid by Medicaid, the State will generally enforce collection from other assets even if they passed outside of probate, in particular the family residence.

As you can see, there are a myriad of rules that can apply when it comes to the question of who is liable for the debts of a decedent. The bottom line is that surviving family members should never make any assumptions, such as thinking they are personally liable for these debts, and/or that they can’t inherit any assets without paying these debts first. Instead, they should speak with a qualified professional and get good counsel before taking any actions in this area. As always, it pays to think before you act! Feel free to contact our office if you have any questions about these issues.

Take Control by Using IRAs to Cut Your Taxes

It’s getting to be that time of the year, when we all have to deal with one of the two great certainties of life.

One of them is taxes…and, well, you know what the other one is! And when it comes to taxes, the wealthy and powerful may have all sorts of tax avoidance options available to them. But for the vast majority of ordinary wage earners, the single most powerful, most versatile weapon they have available to cut their taxes could be the IRA deduction. Even if 2015 is already in the rear view mirror, and you’re feverishly working on your tax return at the last minute, wondering what you can do to cut down on that tax bill…the IRA could be the ace up your sleeve. However, there are a myriad of rules that apply in this situation, so no one should EVER just assume that they are eligible for this tax savings vehicle- it’s more complicated than you might think. Will it work for you?

Find out by using this step-by-step decision tree:

1. First of all, keep in mind that you must have “earned income” to make an IRA contribution. This would include wages, salaries, tips, taxable alimony, and net earnings from a trade or business. It would generally NOT include interest, dividends, pensions, annuities, or capital gains. So IRA deductions are generally associated with people who are still in their working years, as opposed to being retired.

2. Secondly, you must determine whether you are eligible to actually take a deduction for your IRA contribution. This is perhaps the single most misunderstood aspect of IRAs…Many people fail to understand that making an IRA contribution is NOT the same as getting a deduction for it. If you’re not eligible for a deduction, making non-deductible contributions to an IRA is generally a bad idea. In that case it’s generally better to consider contributing to a ROTH IRA instead, which is made with after tax dollars.

3. Whether you’re eligible to take a deduction for your IRA contribution depends on whether you’re an active participant in a retirement plan at work. If you have no retirement plan at work, you get a full deduction for your IRA contribution. But if you are an “active participant” in a retirement plan at work, you have to fall under certain income limits to qualify for an IRA deduction. For this purpose, anyone who is covered by a defined benefit plan, or who made salary deferrals into a 401k plan, would be considered an active participant. Since this would apply to most people, we will assume that the answer to this question is YES.

4. Assuming you are an active participant in a retirement plan at work, then your eligibility for an IRA deduction depends on your modified adjusted gross income (AGI). For married taxpayers filing jointly, if they have modified AGI of $98,000 or less, they qualify for a full deduction for IRA contributions. Modified AGI between $98,000-118,000 means a partial deduction, and modified AGI of over $118,000 means NO deduction. This rule disqualifies a lot of people from being eligible to deduct their IRA contributions. Again, if your modified AGI is over these limits, it’s generally better to contribute to a ROTH IRA instead, on an after tax basis (we’ll talk about this in more detail shortly.) In the case of single taxpayers, they get a full deduction for AGI $61,000 or less, partial deduction for AGI between $61,000-71,000, and no deduction for AGI over $71,000. Again, many single taxpayers are surprised when they discover that this rule disqualifies them from deducting their IRA contribution.

5. Assuming you still qualify for a full IRA deduction after considering the guidelines stated above, then you can deduct up to $5,500 for an IRA contribution for 2015. If you turned 50 or older by the end of 2015, you can deduct an additional $1,000, for a total of $6,500. This one move could instantly save you thousands of dollars in taxes!

6. Better yet, you have until April 15, 2016 to make an IRA contribution for the tax year 2015. As a matter of practicality, if you make any IRA contribution between January 1 and April 15 of 2016, be sure to carefully designate on your check the tax year to which the contribution applies. That’s because any contribution made in that time window could apply to either 2015 or 2016.

7. Unfortunately, many taxpayers—especially married couples—have a modified AGI that is too high to qualify for IRA deductions. In this case, they should consider making ROTH IRA contributions instead, on an after tax basis. There are also income limits for eligibility for ROTH contributions…but these are much higher than the limits for IRA deductions. For 2015,married couples filing jointly are eligible to make ROTH contributions as long as their modified AGI is under $183,000.

8. Even though ROTH contributions are made on an after tax basis, which means they won’t save you tax dollars today, there are still some powerful tax benefits to using a ROTH. Earnings on a ROTH are tax deferred, which means the account will grow much faster than the equivalent earnings from a regular non-qualified investment account. Better yet, once you are retired you can generally take money out of a ROTH account on a tax free basis! This can serve as an important planning tool to control your taxes in retirement.

9. It’s important to keep in mind that an individual is limited to a total of $5,500 in IRA contributions for tax year 2015 ($6,500 if age 50 or over), whether that amount goes into a traditional, or a ROTH IRA. In other words, that amount can be split between a traditional and a ROTH IRA…but you can’t put the full amount in both.

The world is filled with taxes that you can’t do anything to avoid. But for most ordinary wage earners, IRAs represent a unique opportunity. IRAs are one tool that can actually be used by a wide swath of taxpayers to actually take control of their tax situation and make a real difference. So while you’re working on that tax return this year (and maybe cursing Uncle Sam under your breath!), keep in mind that knowing these rules, and applying them to your full advantage to potentially save thousands every single year, can have a huge cumulative impact on your ability to build wealth over the course of your working life. If you have any questions about how these rules could apply to your specific situation, by all means give us a call and let’s talk about it!


Fed’s Interest Rates Hike Decision Signals Stormy Waters Ahead

Don’t look now, but the smooth waters we’ve seen over the past few years, in terms of market performance, are poised to get rougher in the months ahead.

This distinct possibility may have played a pivotal role in the Fed’s decision not to raise interest rates in September.

Over the past few years, the market has been relatively calm and steady, and a lot of investors have forgotten what real volatility can look like. For example, the market has historically experienced a  “correction” (defined as a drop of 10% or more from any given peak) once every 18 months or so. Yet until recently, the markets had gone four full years without experiencing any corrections. That stability is very easy to become accustomed to, but can prove to be very deceptive.

All of this changed in August, when the market suddenly experienced a severe downturn in just a few days, losing more than 12% of its value from the high reached in May. And volatility returned in a big way, with the market experiencing more than twice the 1% daily gyrations this year, and more than five times the 2% daily gyrations, as of last year. All of these huge daily swings coming in a period of just two weeks.

So what’s going on? It’s actually a combination of factors. First of all, you could say that the market was just “due” for a correction… and that idea certainly has some validity. But there’s more to it than just that. Another major factor cited by many economists is the fact that market volatility may have been artificially suppressed by the Fed’s quantitative easing program (QE) over the past few years. The idea is that when investors know that the Fed is trying to stimulate the economy by keeping interest rates low, they are more willing to assume greater risk than would otherwise be the case, but that all changed late last year, when the Fed phased out their QE policy. The argument is that this “kicked out the artificial support” and left the market to finally stand on its own two feet…which fostered the return of market volatility closer in line with historical norms.

But why would this specifically happen in the month of August? One clear answer could be the situation in China. The Chinese stock market took a plunge over the summer, and in August it became clear that the “Chinese economic miracle” may have run off the rails…at least temporarily. The Chinese government’s official forecast for economic growth this year is around 6.5%, which represents a huge slowdown from the 10-11% of previous years. And many private observers say that the truth could be far worse. Judging from data like freight shipments, energy usage, and auto sales, it is very possible that the true rate of growth could be closer to 2%, or even less than that…perhaps even negative, for the first time in decades.

This has major implications for the world economy. China’s imports of raw materials are critical to the economic health of many emerging market countries. And the growing Chinese economy, now the world’s second largest, has become an important source of profits for many of the world’s major corporations. For example, China is now the world’s largest auto market…30% larger than the U.S. Many people are shocked when they learn that General Motors sells more cars in China than in the U.S. A slowdown in Chinese auto sales is big news for a lot of companies.

All of this has raised the risks in the global economy, which is still fairly weak outside of the U.S. This could be a big reason why the Fed decided not to raise interest rates in September, in spite of the fairly robust state of the U.S. economy. Many commentators have noted that the Fed seemed to be taking a more comprehensive, global outlook in making their rate decisions, and thus decided that the overall world situation was too fragile to risk higher rates at this time. Clearly, the Fed was concerned about some of these issues and wasn’t quite yet ready to take any chances on doing anything that could further destabilize the situation.

These same risks could weigh on the markets in the coming months. In addition, September and October have historically been the worst months, BY FAR, for the markets. Historically speaking, more corrections (and outright bear markets) have started in September and October than any other months of the year.

So when you look at the overall situation, with no more QE to prop things up, weakness in the rest of the world, a potentially significant slowdown in China, and negative seasonality, investors should brace themselves for a lot more market volatility than they’ve seen in quite a long time. Which makes it a good time to review your overall financial plan to consider making any necessary adjustments, in anticipation of more stormy waters ahead!


Financial Planning for Individuals in Blended Families

According to census figures, over 1300 blended families are created every day… and almost 50% of Americans have at least one step relative, based on findings from the Pew Research Center.  So for many Americans, step families have become the norm.  And apart from the usual issues of managing everyone’s schedules regarding custody of the children, and dealing with the personality dynamics involved when different families come together, there are also a host of financial issues that have to be addressed in these types of situations.  Here are some of the most common issues that come up:

  • Whether to get legally married: One of the major decisions to consider is whether to legally “tie the knot”, which carries a host of ramifications.  For one thing, under ERISA law your spouse must be the beneficiary of your 401k plan at work, unless they sign off on a waiver.  In contrast, this is not the case with your IRA accounts or other investment accounts, where you are free to name whoever you like as beneficiary.  This could also factor into the decision of whether to roll over a 401k into an IRA, because doing so gives the owner more rights to name beneficiaries than leaving the assets in the 401k after you leave a job.

Another huge ramification of getting legally married is that you’ll be subject to asset division rules if the new marriage doesn’t last forever.  Statistics show that 2/3 of second marriages also end in divorce.  If you get married a second time, from that date forward all assets that you accumulate will be considered marital property, which means that your spouse will be entitled to half in the event of another divorce.  Not only that, but most jurisdictions still enforce spousal support, which generally means that the higher earning spouse will have to share some of their income with the lower earning spouse, even AFTER the divorce…typically for one additional year for every three years of marriage.  In contrast, this will not be an issue if there is no legal marriage, because Ohio stopped recognizing common law marriages after 1991.

  • What to do with the house:  this is often a very contentious issue with blended families.  If you put the house title as joint with right of survivorship to keep it out of probate, you’re giving the joint owner immediate and full rights to the house – it’s the same as gifting them half the house right away.  This would not be a good solution if the goal is for each spouse’s children to inherit their half of the house… in that case, it might be better to set up a trust to determine what happens to the house if one of the spouses passes away, how long the other spouse can continue to live there, etc.  These issues can get very complicated very quickly.
  • What to do with investment/financial accounts:  Here again, things can get very complicated in a hurry.  If you put these accounts in joint title, you’re essentially giving a gift of half the account to the other owner, immediately.  If this isn’t the goal, another option to consider using a Transfer on Death Designation…this will keep the account out of probate and get it to the other spouse in case the owner dies, but does not give the other spouse any immediate ownership in the account before the death of the owner.
  • Updating beneficiaries on life insurance policies and IRAs: If you’ve had life insurance policies and IRAs for many years, it’s very easy to forget to update the beneficiaries as circumstances change, as in the case of newly blended families.  The last thing you want is to continue to name an ex spouse as beneficiary and thereby create a disaster if you pass away unexpectedly without having updated these forms to reflect your new wishes.

As you can see, blended families can face a host of financial planning issues that can become very complex, very quickly !!  If you’re in this situation, make sure you sit down with your financial or legal advisor and carefully go through these questions to make sure that your financial affairs are put in good order to reflect your new circumstances.



Three Surprising Things About Social Security That Everyone Should Know

For most people, Social Security is going to be an important part of their retirement income.

But in spite of how well known this program is, and the fact that its coverage is nearly universal, and that you probably have a lot of friends, neighbors and relatives already drawing benefits…there are plenty of things about Social Security that might really surprise you. Here are just 3 typical examples:

Spousal Benefits:

Did you know that even if you have never worked a day in your life, and have never contributed to Social Security, you can draw spousal benefits based solely on the fact that you are married to someone who is eligible for benefits? That’s right. A lot of people have no idea that spousal benefits even exist…so to them, it’s like free money. Of course, you are always entitled to your own benefit based on your own work history, if that’s higher. But even if you have NO work history, you’ll be eligible for your spousal benefit, which will be equal to one half of the working spouse’s benefit. Plus, the spousal benefit does NOT reduce any of your benefit if you contributed to social security through your own job…it’s strictly an additional benefit. In order to qualify, the working spouse has to be eligible for their own benefit, and the spouse must be at least 62 years old. Keep in mind that the longer you both wait to receive benefits, the higher the monthly benefit will be.

Benefits for Divorced People:

Here’s more good news for those that have gone through a divorce: Did you know that you can claim Social Security benefits based on your ex-spouse’s work history? That’s right. Even if your ex-spouse has remarried, you can draw spousal benefits, as long as you qualify. To qualify, you must have been married for at least 10 years prior to getting divorced and you must not have remarried. If you have remarried, you can only qualify for benefits based on your current spouse’s work history. Another very welcome surprise is that these benefits are completely independent of whatever decisions your ex-spouse makes regarding their own benefit and does not impact or reduce their benefit in any way. They do not even have to have filed to receive their own benefits for you to receive yours. The only requirement is that the working ex-spouse is ELIGIBLE to receive their own benefits. This can be a really nice unexpected bonus at retirement for people who have gone through a divorce.

The Advantage of Waiting:

Many people know that taking their Social Security early will result in a reduced benefit. For this purpose, “early” means before your normal retirement age (NRA), which for most people is currently around age 66. But did you know that if you wait until past your NRA, your benefits will continue to increase? That’s right…for every year you wait, your benefit will increase by an average of 8%, all the way until you reach age 70. That means that if you wait until age 70, your benefit will be about 32% higher, for the rest of your life! So how do you decide if you should wait? One way to decide is if your family has a history of longevity, and you are in good health, then it often makes sense to wait. Another way to decide is if you have other income sources and don’t need the money right away, particularly if you are still working at least part time, which has become a common trend these days. So remember: it can pay to wait!

The upshot of all of this is that Social Security is an important part of retirement planning for most people, and there are a lot of rules to be aware of that might have a significant impact on your overall situation.

So make sure you are educated on all your options and feel free to call me if you have any questions.

Probate is a Hassle, However It Can Be Totally Preventable

The old saying is tried and true: nothing is certain except for death and taxes.

When it comes to the first part of that saying, the fact is that there is nothing at all certain about the probate hassles that often come along with the passing of a loved one—in fact, they can be preventable.

First of all, let’s clarify what we are talking about. When someone passes away, there has to be a legal way for all the assets titled in their name to be transferred to someone else. That process is called probate. If there is no alternative mechanism set up to transfer the title of an asset from the decedent to their heirs, such as a trust, then probate is the only way to do it. But there are huge drawbacks to this process. It’s burdensome, it’s expensive, it’s time consuming, and it’s totally open to the scrutiny of the public. If family members are already dealing with the emotional issues of losing a loved one, the last thing they need is the additional headache of having to go through probate.

But the good news is that it doesn’t have to happen. Yes, that’s right—it can be totally preventable. With just a little careful planning, you can arrange your affairs such that your loved ones never, ever have to go through the probate process. And in most cases, they will be far better off if you plan things that way.

So how do you do it? The key is to take advantage of all the options available for various types of assets to be automatically re-titled from the decedent to their heirs, eliminating any need for probate court involvement. Yes, this can be done, and what’s even better is that in most cases these techniques are cheap (or even free), and easy. What’s not to like about that?

Here are some of the ways in which to avoid probate:

1. Real Estate: if you own a home and you’re married, you can hold the title as Joint Owners with Right of Survivorship. The key is that last part: the survivorship feature. This means that if one of the joint owners dies, their interest passes to the other joint owner automatically, with no probate necessary. If you’re single, you can hold title with a transfer on death feature for a relative, significant other or friend, which will accomplish the same thing. All it takes is to check the title of your real estate, and change it if necessary to add the survivorship and/or transfer on death feature – and presto! No probate for the real estate.

2. IRAs, Life Insurance and Annuities: Each of these has what’s called a Beneficiary Designation Form. As long as the account owner names someone on that form who outlives them, the survivor gets the asset with no probate, no matter who they are. This can be particularly significant when it comes to IRAs, which for many people can be one of their largest financial accounts.

3. Bank Accounts such as checking, savings, C.D.s, etc: These can be held as Joint Owners, in which case the surviving joint owner takes full title upon the death of the other owner, with no probate necessary. An alternative is to sign a Transfer on Death (TOD) form, which will accomplish the same thing. If you properly implement these techniques, most, if not all of your assets, can transfer to your heirs without having to worry about probate.

But, this discussion would be remiss without mentioning one other type of asset that is most often overlooked…the vehicles—whether car, RV, boat, van, etc. I’ve seen many cases where a client passed away with one or more vehicles in their name, and a probate estate had to be opened just to transfer title of their used vehicle to their heirs. What a waste and a shame. What could they have done instead? For over 10 years now, Ohio has allowed any vehicle owner to hold title to their vehicles with a transfer on death feature. All you need to do is visit the Title Bureau, pay a nominal fee, and have them re-issue the title with the transfer on death feature. This is not automatic, so you need to request it. I can’t stress enough the untold hassle and headache that you can save your loved ones by taking the time right now to do this for your vehicle titles!

If you do proper planning as described above, you can see to it that probate never has to disrupt your family’s life…and believe it, they will be truly grateful to you one day for the foresight and care that you showed in doing this for them. It’s really a wonderful gift that you can give them in the future, just when they need it the most. So make sure to give us a call, come in for an appointment, and let’s get to work on getting this done for your family.

Financial Planning Tips for People in Their 50s

I was recently interviewed on Fox 8 News about a critical topic in the world of retirement planning: financial mistakes that people make in their 50s.

Of all of the financial tips I shared, I’ve outlined three of most important below.

If you’re already in or approaching this age range, you’re not alone…there’s a huge number of baby boomers right there with you. Being in your 50s means that you’re entering the “home stretch” of retirement planning: the magic date of retirement is no longer as far off and distant as it once seemed. Fortunately, there’s still time to make some meaningful changes to dramatically improve your retirement picture.

In our practice, we often see that clients in their 50s tend to face some unique challenges. Yet, at the same time, they also have some unique opportunities. The biggest challenge is that this is the typical age of the sandwich generation: the decade where you have to care for aging parents, as well as face higher education costs for your children. Dealing with both of these issues, often at the same time, can lead to devastating consequences for your own financial future.

Many people in their 50s find themselves with the overwhelming task of caring for their aging parents, which can be difficult and time consuming on multiple levels: emotional, physical, and financial. It’s not uncommon for people to neglect their own retirement planning as the years slip by, but these are critical years that they can never have back!

Another of the most common mistakes we see is that parents sometimes tend to allow issues relating to their children’s higher education costs to take priority over their own retirement futures. They might, for example, stop contributing to their own retirement plans for years in order to fund education costs, or worse yet, take distributions that deplete their 401(k) accounts and IRAs, just as they are approaching their last decade before retirement in their mid-60s. These actions can have a negative and permanent effect on their retirement futures.

At the same time, there are some unique opportunities that people in their 50s should be aware of: the most significant of which is the “catch-up” contribution. Congress is well aware of how many people neglect their retirement planning until later in life, and that Social Security was never intended to be the sole, or even primary, source of retirement income. So, they wrote certain provisions into the tax law to allow people aged 50 or over, to make additional catch-up contributions to their 401(k) accounts and IRAs. These contributions allow for valuable tax deductions that are not available to younger people. In the case of 401(k) accounts, people age 50 or over can contribute more than $5,000 extra per year into their accounts. And with IRAs, the catch-up contribution is up to $1,000 per year (2014 and 2015). What’s more, the amount for 401(k) accounts is slated to go up in 2015. So, this is one instance where the tax law is giving individuals an incentive to do the right thing for their own future, as well as to save some tax dollars today.

The lesson is clear: if you are in your 50s, chances are that you’re going to be faced with some pretty significant distractions that can derail your retirement plans just when you’re hitting that “home stretch” in the last decade before retirement. It’s up to you to keep your eye on the road, your hand on the wheel, and take advantage of anything that Uncle Sam may offer you in order to get to your final destination.

If you would like to learn more about the other financial planning tips for those in their 50s, feel free to contact me. I would be happy to share them.