Inherited IRAs - Nonspouse

Recently, we received a request for information concerning inherited IRAs. There are many advantages to having an IRA (see Traditional IRAs and Roth IRAs: Which Is The Best Fit For You?). But what happens in the event that you inherit an IRA? When the owner of an IRA dies, one or more designated beneficiaries of the account must choose how to manage the inheritance. As an IRA beneficiary, there are many options available to you as well as deadlines and requirements that you must meet. For the purposes of this blog post, let's take a look at the options involved for a nonspouse beneficiary of an IRA. For information and assistance concerning tax implications, please consult a tax advisor.

Information that you'll need to know to guide you through this process includes:

-Which type of IRA is being inherited (Traditional or Roth; if Roth - date account was opened)
-The age of account holder at death
-Whether or not the account holder had begun taking Required Minimum Distributions (RMDs)

Traditional IRA
If the account holder was under 70 1/2, you can choose to:

-Take a lump sum distribution - After the assets are transferred in your name, all assets in the IRA are distributed to you in the form of one payment. You will pay income taxes on this distribution, however you will not incur the 10% early withdrawal penalty. You may move to a higher tax bracket depending on the amount of the distribution as well as your current income level.

-Inherit the IRA - All assets in the IRA continue to grow tax deferred. As the beneficiary of an inherited IRA, you can withdraw from it for a fixed period of time. You will be taxed on each distribution from the IRA, however you will not incur the 10% early withdrawal penalty regardless of your age. Undistributed assets continue to grow tax deferred and you may designate your own beneficiary to the IRA.

If the account holder was over 70 1/2, you can choose to:

-Take a lump sum distribution - All assets in the IRA are distributed to you in the form of one payment. You will pay income taxes on this distribution, however you will not incur the 10% early withdrawal penalty. You may move to a higher tax bracket depending on the amount of the distribution as well as your current income level.

-Inherit the IRA - All assets in the IRA continue to grow tax deferred. As the beneficiary of an inherited IRA, you must begin taking RMD's over your life expectancy beginning no later that 12/31 of the year following the account holder's death. If the account holder did not take an RMD in the year of death, you must take an RMD by 12/31 of the year the original account holder died. For any year in which you fail to satisfy the RMD, you must pay an IRS penalty equal to 50% of the RMD amount that was not withdrawn.* You will be taxed on each distribution from the IRA, however you will not incur the 10% early withdrawal penalty regardless of your age. Undistributed assets continue to grow tax deferred and you may designate your own beneficiary to the IRA.

Roth IRA
Roth IRA distributions consist of after-tax contributions and earnings. Contribution amounts are always distributed tax free, but a five year holding period applies to earnings. If the account has been open for five years at the time of the account holder's death, the earnings are taxable but penalty free. If the account has been open for less than five years, the assets stay in the account and continue to be taxed until the fifth year. Early withdrawals are subject to taxation including possible early withdrawal penalties and holding requirements.

You can choose to:

-Take a lump sum distribution - After the assets are transferred in your name, all assets in the IRA are distributed to you in the form of one payment. The earnings of the account are taxable but penalty free if less than five years old. You may move to a higher tax bracket depending on the amount of the distribution as well as your current income level.

-Inherit the IRA - Transfer the the assets into an inherited IRA in your name; distributions must begin no later than 12/31 of the year following the year of death. You will not incur the 10% early withdrawal penalty. Undistributed assets continue to grow tax deferred and you may designate your own beneficiary to the IRA.

*If you are a member of a group of beneficiares, you may base RMD calculations on the life expectancy of the oldest member of the group. However, you may be able to calculate RMD based on your own life expectancy if each beneficiary establishes his or her own separate inhertied IRA by 12/31 of the year following the year of the account holder's death. If separate accounts have not been established by 12/31 of the year following the year of the account holder's death, RMD calculations will be based on the life expectancy of the oldest beneficiary. Consult a tax advisor or attorney to determine the best course of action for your situation.

With either type of IRA, if you inherit an IRA you cannot treat the IRA as your own which means you can't rollover any part of it or roll any amount into it. You will not owe any taxes on assets in the IRA until you receive distributions from it.

To move the old IRA to you as the new owner, contact the company where the IRA is and tell them that you are the beneficiary and that you want to move the money. They'll send you the required forms for you to complete. Then, simply choose another company to move the money to. Once you've chosen a new company, let them know that you wish to establish a BENEFICIARY IRA to move the money to. We recommend either a fixed annuity or a fixed index annuity to move the money to because it allows you to protect the principal of the account from the risk of market losses while simultaneously giving you the opportunity for upside potential. Look at the annuity as your "safe money" - money that you won't be touching until you're retired.

By setting up the Beneficiary IRA, you'll have control over the account while keeping it in the name of the previous account holder. You'll also want to set up a Non-Qualified account in your name, that way you'll have some where to put the distributions that are coming out of the old IRA.

For more info on tax implications contact a tax advisor.

The IRS also has a publication that discusses how to treat IRAs. [link]

If you or someone you know needs assistance in setting up a new account from the proceeds of an inherited IRA, please don't hesitate to contact us for a free consultation.
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This site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.

If you have any questions or know anyone who might need any of the types of services described within, please do not hesitate to contact us for a free consultation.

Email us at pfs1911@gmail.com.

Why Do I Need Life Insurance?

Different people buy life insurance for different reasons. The reasons for purchasing life insurance may change but it definitely plays a role in most financial plans. If you’ve been thinking about getting life insurance, there are a few things you should keep in mind.

Here are a few reasons why people buy life insurance.

To Pay Final Expenses
The costs associated with final expenses can be quite significant, especially when you begin to factor in medical bills and funeral expenses. Even if you have few assets and no family of your own to provide for, life insurance can provide the funds to take care of your final expenses and remove that burden from your extended family.

To Pay Off Debt
Life insurance can be an inexpensive way to cover any financial obligations you leave behind and create financial security for your loved ones. Even if you live by yourself, you can purchase life insurance to pay off debts such as a mortgage.

To Replace Lost Income
Life insurance is an affordable means to replace lost income for your family if something were to happen to you. You and your significant other may have planned for a future that includes both of your incomes, life insurance is a cost effective way to ensure that the survivor can maintain the same standard of living.

To Help Pay For Your Children's Education
The cost of education seems like it only goes in one direction – up. Preparing financially for your children’s college education requires a long-term strategy. Getting life insurance can help create a fund that can help you pay your children’s education costs if something were to happen to you.

The sooner you get life insurance, the better due to the lower costs and ease of approval that are typically associated with younger clients.

No matter the reason, life insurance can be an inexpensive way to take care of potentially expensive costs. No one wants to leave their family unprepared for the future and proper planning today can protect the promise of your family’s tomorrow.

If you have any questions about life insurance or would like a free quote, please don’t hesitate to contact us for a free consultation.


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This site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.

If you have any questions or know anyone who might need any of the types of services described within, please do not hesitate to contact us for a free consultation.

Email us at pfs1911@gmail.com.

Economic Volatility And You

Recent economic volatility has men and women nationwide reevaluating their financial positioning. A recent article states:

"There is a major social and cultural message in the current economic collapse for the future retirees of America: Forget retirement"[1]

These are certainly interesting times indeed, but you don't have to wave goodbye to your dreams of a comfortable retirement. What you need to be mindful of is that it's all about timing and determining your time horizon. Before making any adjustments to your holdings, consider the time you have to hold each savings vehicle.

Are you:
-Making regular contributions, such as into a 401(k) or 403(b), IRA, or College Savings plan?

When you have several years before taking distributions, it makes sense to be more aggressive. However with current economic volatility, now is the time to review your plan(s) performance, make adjustments, and keep making regular contributions.

-Holding (with little or no additional contributions) for a future event?

As that event draws near, you may need to reposition your holdings. A more conservative account, or even a fixed guaranteed account, may better serve your needs.

-Drawing income from your holdings?

This is definitely NOT the time to absorb a major market "adjustment", especially for accounts that are mid-size or have small balances. Using fixed, income, or indexed accounts that are more conservative may be an option if you need to begin taking retirement income distributions. These accounts may also provide more peace of mind than growth or aggressive accounts, especially if you rely on the account to provide regular income.

If you have any questions or are interested in evaluating your accounts, please don't hesitate to contact us for a free consultation.

[1] - "Why you’ll work through your retirement" [http://today.msnbc.msn.com/id/28814777/page/2/]

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This site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.

If you have any questions or know anyone who might need any of the types of services described within, please do not hesitate to contact us for a free consultation.

Email us at pfs1911@gmail.com.

Traditional IRAs and Roth IRAs: Which Is The Best Fit For You?

There are many factors to consider when deciding whether to open a Roth IRA or a Traditional IRA. Both forms of IRA (Individual Retirement Account) are excellent ways to save for retirement and both offer different advantages. Let's take a look at the profile of each type of IRA.

A Traditional IRA has the following features:
-tax deductible contributions (depending on income level)
-withdrawals can be made at age 59 1/2 and are mandatory by age 70 1/2
-taxes are paid on earnings when withdrawn from the IRA
-funds can be used to purchase a variety of investments (stocks, bonds, CDs)
-no income restrictions
-all funds withdrawn before 59 1/2 are subject to a 10% penalty (subject to exeption)

Roth IRA
-contributions are not tax deductible
-no mandatory distribution age
-all earnings and principal are 100% tax free
-funds can be used to purchase a variety of investments (stocks, bonds, CDs)
-principal contributions can be withdrawn at any time without penalty

The primary advantages of investing in a Traditional IRA is that the tax savings at retirement may be able to decrease your taxable income to a lower tax bracket. You may also be able to use a Traditional IRA to lower your tax bracket during your working years (depending on your income), and then begin withdrawals during retirement in a lower tax bracket. Another huge advantage for younger clients is that you are allowed to make withdrawals from your IRA in order to help pay for a first-time home purchase (you must own the IRA for a minimum of 5 years to qualify for this exemption).

The main disadvantage of a Traditional IRA is that withdrawals known as Required Minimum Distributions (or RMDs) are mandated by law at age 70 1/2. So, whether you need the money or not, you are required to begin these withdrawals.

In a Roth IRA, withdrawals made while you are in retirement are tax free - this is true for withdrawals made on both principal and earnings. Withdrawals from these accounts are also at your discretion; RMDs are not required. However, Roth IRAs are subject to qualification based on income - if you file taxes as a single person, you may not make more than $95,000 and a married couple cannot have a combined income of more than $150,000. Annual contributions are also limited to $5,000.

Depending on your particular situation, a Traditional IRA or a Roth IRA may be right for you. If you're looking for a tax deferred vehicle, a Traditional IRA may be right for you; if you're interested in making tax free withdrawals in retirement then a Roth IRA is a better fit. These types of plans can be established within safe money vehicles which can guarantee upside potential, provide you with safety from the risk of market downturn and a provide you with a guaranteed lifetime stream of income. If you're eligible for both types of IRAs, you can set up both accounts for tax diversification purposes - allowing you to benefit from tax benefits now and in retirement.

Remember - investing in your retirement is investing in your future! Be confident in your future!

If you have any questions or know anyone who would like to establish a Traditional IRA or a Roth IRA, please don't hesitate to contact us for a free consultation.

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This site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.

If you have any questions or know anyone who might need any of the types of services described within, please do not hesitate to contact us for a free consultation.

Email us at pfs1911@gmail.com.

How To Rollover Your 401(k)/403(b) When You Leave Or Lose Your Job

If you are planning to leave your job or have recently left or lost your job where you had a 401(k) or 403(b), you have several options available to those funds. Avoid unnecessary losses and penalties by opting for a 401(k) or 403(b) rollover.

Rolling over your 401(k) or 403(b) allows you to transfer your existing retirement account into another retirement account without being subject to unnecessary taxes or withdrawal penalties. 401(k) and 403(b) accounts are funded with pre-tax dollars and grow tax-deferred. If you take an early distribution, the IRS will penalize you by taxing you 20% on the early withdrawal as well as apply an additional 10% penalty if you withdraw the money prior to age 59 1/2. Many people fall into this tax trap simply because they don't know how to do a rollover.

Rolling over your existing 401(k) or 403(b) account into a safe money vehicle will allow you to avoid paying the taxes and penalties you would be subject to if you took the money out in cash.

Rolling over your existing 401(k) or 403(b) into a safe money vehicle gives you:

*Safety: Unlike insecure mutual funds, stocks and bonds - safe money vehicles can guarantee upside potential by providing you with safety from the risk of market downturn and a guaranteed lifetime stream of income. Your principal is guaranteed unlike the insecure market where there are no guarantees.

*Investment options: There are numerous investment choices to choose from including indices such as the S&P 500, NASDAQ, Dow Jones Industrial Average, etc. There are also fixed interest rate accounts available that are considerably higher than in bank CDs. You may also change these options from time to time based on changes in your investment goals or the investment climate.

In addition, there are some programs that will credit you additional interest on top of your initial contribution to your plan.

The rollover process may seem complicated, but really isn't as long as you know the steps involved.

*Check Eligibility With Your Old 401(k) or 403(b) Provider: Make sure there won't be any unexpected fees and make sure that you're showing up as a terminated employee. They can't release the funds unless you're terminated, so be sure you are no longer active in their system. Be sure that you are cleared to move your money and that there are no unexpected penalties, fees, or restrictions.

*Obtain Rollover Forms From Old Plan Provider: As you check your eligibility, ask for the required paperwork. You will need to submit paper forms in order to initiate the rollover. They will either mail you the forms or you can request to have them emailed or faxed to you. There also some providers that only require a rollover request from your new plan.

*Complete the Forms Properly: To be sure this process is as smooth as possible, make sure you fill out the forms correctly. If your rollover form from your old provider asks what type of distribution this is, be sure to choose a Direct Rollover.

In many cases, you will receive a check for the full amount of the rollover in the mail. Make sure you deposit the funds into the new account as soon as possible. By law, you have 60 days from the date of distribution to complete the rollover into a new plan in order to avoid creating a taxable event.

A 401(k) or 403(b) rollover will definitely place you on the right path to achieving your retirement goals.

Remember - investing in your retirement is investing in your future! Be confident in your future!

If you have any questions or know anyone who might need this type of service, please don't hesitate to contact us for a free consultation.
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This site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.

If you have any questions or know anyone who might need any of the types of services described within, please do not hesitate to contact us for a free consultation.

Email us at pfs1911@gmail.com.

Welcome!

Hello and welcome! This blog is here to help educate you about the basic concepts of financial management and to give you fast, easy access to financial information. We hope you take advantage of this resource and visit often as the site will be frequently updated and you don't want to miss any developments in the area of personal finance.

Our objective is to aid you in managing your retirement finances while safeguarding your nest egg, contending with inflation and minimizing taxes in order to give you peace of mind. Our specialty is maximizing returns on your retirement money as safely as possible.

The services that we provide include:
-401(k) and 403(b) Rollovers
-Retirement Planning
-Insurance Planning
-IRA and ROTH IRA

In this blog you’ll find a wealth of information in the form of articles, research reports, bulletins and links to various financial information.

We hope your visit will help you understand the opportunities and potential rewards that are available when you take a proactive approach to your personal financial situation. We have created this blog to help you gain a better understanding of the financial concepts behind insurance, investing, retirement, estate planning, and wealth preservation. Most importantly, we hope you see the value of working with skilled professionals to pursue your financial goals.

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This site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.

If you have any questions or know anyone who might need any of the types of services described within, please do not hesitate to contact us for a free consultation.

Email us at pfs1911@gmail.com.