Articles by Bob Williams
The crystal balls are coming out early this year as financial prognosticators make projections about Social Security payouts in 2021. Because of the COVID-19 pandemic and subsequent U.S. lockdown of both people and the economy, there is a growing belief that there will be little or no Social Security cost-of-living adjustment (COLA) next year based on economic facts and the expectation of almost non-existent inflation.
Consumer prices fell 0.8% in April 2020. That’s the largest drop since the Great Recession in 2008. Some food prices, specifically meat and eggs, rose substantially. However, prices for gas, clothing, and travel-related items were hit hard. Because of those economic factors, Kiplinger expects the U.S. inflation rate to end the year at approximately 0.3%, compared to 2.3%
The government giveth, and the government taketh away. And so it is with the Stretch IRA. For years, the stretch IRA has been a financial planning strategy used to extend the tax-deferred status of an IRA by passing it on to a non-spouse beneficiary, such as children or grandchildren, who then enjoyed the tax benefits “stretched” over their lifetimes.
With the enactment of the SECURE Act, the stretch IRA, if not dead, is severely wounded. There are no more lifetime stretches. The new law requires inherited IRAs to be fully distributed in 10 years or less. By eliminating the ability to take distributions over one’s lifetime, beneficiaries will now have to pay substantial income taxes on inherited IRAs. The only exceptions to the 10-year rule are “eligible beneficiaries”—defined as a
Estate planning. It’s such a noble phrase. It conjures up images of passing on to your loved ones a lifetime of hard work and success—leaving a legacy. But the road to distributing your estate is filled with potholes that may hijack your good intentions.
Pothole # 1. Probate Court.
If you have a will, your estate will go through probate. And if you hire an attorney to settle the estate there will be attorney fees, sometimes referred to as administrative expenses, in the range of 5-7% of the value of the probate estate. On a one million dollar estate that could be $70,000 your heirs will not receive.
Some states have court costs for probate. Court costs are just a tax on assets of the deceased. I have a client who settled her uncle’s estate in North Carolina. She had to pay more than
When the 2017 Tax Cuts and Jobs Act (TCJA) was passed it changed the rules about deductions for charitable giving. Under current law the only way to deduct charitable gifts is to itemize on your tax return. Because of that, giving to charities has fallen substantially.
In 2018 almost 32 million Americans made charitable donations. In 2019 that number dropped to just over 11 million. In dollars, that’s a decrease of $54 billion. Charities have been frustrated, trying to figure out how to maintain the same level of service with less money. Now, with an economy virtually shut down by the coronavirus, charities are needed more than ever.
But there’s some good news. Inside the Coronavirus Aid, Relief and Economic Security Act (CARE) recently passed to stimulate the economy, there’s a provision
The Coronavirus is changing the landscape, as we know it, in almost every part of life. Unquestionably, it’s also shaking up the financial universe and changing rules that have been etched in stone for decades, and retirement accounts are no exception.
With the Coronavirus Aid, Relief, and Economic Security Act (CARE) now law, Americans 72 years old and older get a reprieve this year from the required minimum distributions they are normally forced to take from IRAs. You can skip RMDs in 2020. The 50% penalty for not taking RMDs this year is also waived.
Here are the highlights of some of the other rule changes:
You can withdraw up to $100,000 for coronavirus expenses.
You will have to pay income taxes on the withdrawal, but the tax bill can be paid over three years.
The 10% penalty for
As a result of the COVID-19 pandemic, U.S. Treasury Secretary Steve Mnuchin extended the 2019 tax filing date to July 15. As a result, it also extends the deadline for making a 2019 contribution to your Individual Retirement Account (IRA) or Roth IRA. You now have until July 15 to make last year’s contributions. According to the Internal Revenue Code, contributions are considered to be made during a given taxable year as long as they are made by the filing deadline.
Even in normal times, many people wait until the last minute to make their previous year IRA contributions. Given current circumstances, it might be tough to get those deposits made with so many institutions closed or working with skeleton crews.
One thing to watch out for. If you make an IRA or Roth contribution for 2019
I was having a conversation about retirement health insurance with an acquaintance of mine who just retired. He’s a former corporate executive—an analytical person—who’s always done his homework to avoid as many surprises as possible in the business world. He’s done the same thing with healthcare and decided that a Medigap policy is best to handle that part of his health plan during retirement.
With all the ads on television for Medicare Advantage plans, Medigap policies often take a back seat, even though they can be a perfect fit for some, just like my recently retired friend. If you are considering Medigap, here are some things to know.
First, you can only purchase a Medigap plan if you have already enrolled in Medicare Part A and Part B. The Initial Enrollment Period for Medicare is a
I’m a Baby Boomer—in the middle of the Boomer pack. Talk to almost anyone of my generation and they’ll tell you stories of what retirement looked like for workers when we were growing up. Back then it was common for someone to work for only one company, starting at age 18 and retiring at 65. You took your pension and gold watch and went home to sit on the porch in a rocking chair. Ah, the good ‘ole days!
But those times are long gone and the magical retirement age of 65 isn’t so magical anymore. The workforce is getting more gray hair as Americans continue working into their late 60’s and on into their 70’s.
Social Security hasn’t considered 65 as full retirement age for a long time. The last workers who received full Social Security benefits at that age were born in 1937. For people born
Retirement is supposed to be the time of carefree living; the reward for a lifetime of hard work, saving, and sacrifice. But it seems that may be more utopian pipe dream than reality. The wealth gap in the United States is getting wider, which in turn increases the financial risk of many retired Americans, limiting their options and forcing them to make tough decisions.
There is more income inequality among older adults than at any time in history, making many Seniors financially vulnerable. Despite consistent economic growth, albeit slow—in the 2% range—and a stock market that continues to hit new highs, the wealth effect of investing escapes many, because a majority of American workers are not saving for retirement.
A couple of new reports indicate that the largestRead More »
What feeling do you have when you hear IRS? Is there a sick feeling in the pit of your stomach or do you just roll your eyes knowing that April 15th will be here all too quickly? Throw in the word audit and emotions and blood pressure can reach levels you never dreamed of.
CPA Jim Buttonow has 30 years of experience in tax technology and representing people before the IRS. He’s written this article outlining 10 major trends he sees in IRS audits.
Most taxpayers envision Internal Revenue Service audits as intrusive investigations resulting in criminal sentences. Today, nothing could be farther than the truth: The IRS’s auditing power has been greatly diminished in the past decade. IRS audit resources have been reduced by 28 percent in the last decade and the audit rate has dropped from 0.9
Call it a gift. Call it crazy. Call it whatever you want. But it’s good news. The IRS will let you put more money into your 401(k) account in 2020.
The maximum contribution to a 401(k) this year is $19,500, up from $19,000 in 2019. If you are age 50 or older, you can make an additional $6,500 catch-up contribution for a total of $26,000.
For IRAs, the contribution limit is unchanged at $6,000. And if you are 50 or older, the catch-up contribution remains $1000.
The overall limit for a defined contribution plan has increased to $57,000, from $56,000, while it will increase to $230,000 for defined benefit plans.
According to the White House, 38 million Americans in the private sector do not have access to retirement plans through their employers. Workplace plans are a critical way many
Americans are living much longer. Some are running out of money before their death and need additional assistance from the Federal Government, which puts more strain on a system that’s bringing in less money than it’s paying retirees. On January 1, 2020, the SECURE Act (Setting Every Community Up for Retirement Enhancement) took effect, allowing you to save more and hang on to your retirement money a little longer before you get taxed.
Perhaps the biggest change among the new regulations is postponing the beginning of Required Minimum Distributions (RMD) from your IRA. The SECURE Act increases the age to begin RMDs from 70½ to 72. The new rules only affect people who turn 70 ½ in 2020. If you turned 70 ½ in 2019 you must begin taking RMDs at 70½. Anyone who turns 70 ½ after January 1,
Yes, it’s still a few months before you have to strap on the gloves and step into the ring with the IRS again, but you still have some time to create the maximum amount of legal deductions and reduce the tax bite. Here are some to consider:
Adjust your W-4 withholding
If you think you’ll owe taxes when you file for 2019, have more money withheld from your check for the rest of the year. A little bit of paperwork with the HR department and a little less in your pocket now can make things a little easier come April 15 next year.
Adjust your retirement contributions
If you haven’t maxed out those retirement dollars, that’s another option to keep the government’s hand from going deeper into your pocket.
In 2019, you can contribute up to $19,000 to yourRead More »
Have you ever had that sick feeling in the pit of your stomach when you realize there was a tax deduction you could have taken and didn’t? There’s just something deflating about knowing Uncle Sam got more of your money than he had to. The folks at TurboTax have come up with a list of deductions you shouldn’t overlook:
You have the option of deducting sales taxes or state income taxes off your federal income tax. In states that don’t have an income tax, this can be a big money saver. Even if you paid state taxes, the sales tax break might be a better deal if you made a big purchase like an engagement ring or a car. You have to itemize to take the deduction rather than take the standard deduction.
Health Insurance Premiums
Medical expenses can blow any budget, and the IRS isRead More »
This is the time of year when leaves fall and the Social Security Administration announces the annual cost of living adjustment (COLA) for people receiving Social Security.
For 2020 the increase will be 1.6 percent, or about $24 per month, raising the average monthly individual payout to $1503. It will boost the maximum retirement benefit by $150 to $3011 per month. The average and maximum Social Security benefits figures don’t include delayed retirement credits, which reward Social Security recipients who wait to take Social Security beyond their full retirement age (FRA).
At the same time, the amount of income a worker will have to pay Social Security taxes on also goes up. For 2020, the wage base will increase from $132,900 to $137,700.
Social Security benefits increase automatically if
Being elderly in America has more than its share of issues—affording proper healthcare, being forced to work much longer because of the need for health insurance or not having saved enough for retirement. Now, throw one more financial demon into the mix. More and more elders are being forced into bankruptcy.
In 1991, elder bankruptcies made up 2% of total filings. According to a report from Indiana Legal Studies, it is now up to 12% and growing. The study found that 78% of elders who file for debt relief made less than total median income.
Changes in the workplace are one reason behind what’s going on. Trade unions are not as strong as they used to be and therefore, have less power in contract negotiations. Real wages are stagnant. And the tradition of worker pensions has all but
Since the Roth IRA was created by the Taxpayer Relief Act of 1997, it’ been an appealing addition to retirement planning. While contributions to a Roth are not tax-deductible, the trade-off is tax-free and penalty-free withdrawals after you cross the age of 59 ½. The withdrawal benefit is one reason many people consider converting their traditional IRAs to Roth IRAs. Also, there is no Required Minimum Distribution (RMD) on a Roth IRA as there is on a traditional IRA.
As with any plan, there are conversion strategies. For example, converting during your working years when tax rates may be lower than in retirement. Or spreading conversions over time to avoid being pushed into a higher tax bracket. Roth conversions can be a useful planning tool, but they can also be complex, and not knowing
It may be one of the biggest misconceptions people have about Medicare—thinking that when they’re eligible they can enroll and then they’re set for life—set it and forget it. Nothing could be further from the truth. Never changing your Medicare plan can be a costly mistake.
Every year, insurance companies make changes to the Medicare plans they offer. Those changes can affect your out-of-pocket costs, deductibles, drug costs, which doctors you can see and what pharmacies you can use.
The good news is, you do have options. Medicare choices made when you’re first eligible are not written in stone. Once a year you get to shop around and see if there’s a better Medicare arrangement than the one you have. If you find one, you can switch.
Changes are allowed during the Open Enrollment period
You’ve worked hard to get your estate plan in place. The appropriate documents have been created and signed. You’ve named the person who’ll carry out your final wishes. But have you completed the final piece of the estate planning puzzle? If this last piece is in place, it will make it substantially easier for your executor or trustee.
The last step in the estate planning process is collecting all your financial information and important documents into a single location. At the end of your life, you may have multiple pieces of property, IRAs in various locations, there may be 401k accounts at several previous employers, multiple insurance policies, and the list goes on. If your executor has to become Sherlock Holmes and search for all your assets, it can be a daunting task that creates
Hunting season is open again and you’re the target. According to the Internal Revenue Service, there is a new IRS impersonation email scam trying to con you out of your personal information with the end game of stealing your identity.
There are variations of what appears in the email subject line, but you may see phrases such as, “Automatic Income Tax Reminder” or “Electronic Tax return Reminder.”
The emails have links that look like official IRS.gov websites. They pretend to be about your refund, electronic return or tax account. The emails contain a “temporary password” or “one-time password” so you can submit a refund. But using those passwords takes you to a malicious site that infects your computer with malware, allowing the scammer to track every keystroke you make, eventually giving
No matter your belief structure, or whether you’re reluctant to admit your own mortality, it’s a fact that none of us will live forever. And since no one knows if their demise will happen quickly or be proceeded by a lengthy illness, it’s good to be as prepared as possible for your care and for the disposition of your estate.
To make sure you are taken care of at the end of your life the way you want to be taken care of, your wishes need to be formally stated and there are several documents that will help:
Healthcare Power of Attorney also known as the Healthcare Proxy. If you can’t make medical decisions for yourself you want a person who will follow your wishes. The Healthcare Power of Attorney allows you to designate that person. It avoids confusion about who you want to be inRead More »
How many times have we heard, “Give to Caesar what belongs to Caesar”? Ok, but if you carry that line of thinking a little farther, don’t give Caesar, or the IRS, MORE than they’re supposed to get.
If something is in the IRS code, and it applies to you, then use it. There are some underused write-offs and tax deduction strategies in the code that business people and entrepreneurs should consider.
Mark J. Kohler is an attorney and a CPA. The following is an excerpt from his book, The Tax and Legal Playbook:
When I review a client’s tax return, I always try to grab the low-hanging fruit first- — simple, easy deductions that can quickly have a big impact on my clients’ bottom lines. Here’s my power list of the most underused write-offs and tax deduction strategies business owners should
If you’re like a majority of Americans, dealing with your finances is stressing you out and wreaking havoc on your health. That’s the conclusion of a new report that asked people’s opinions about their money and their financial outlook.
Of the 1000 people surveyed, about 60 percent said managing their money affected their mental health and 56 percent said it had taken a toll on their physical health. The survey also found that women were more likely to be impacted physically and mentally because of their finances than men. More than 40 percent of recipients said they would give up all forms of social media if they didn’t have to manage their finances.
Aron Levine, the head of Bank of America’s consumer banking and investments division, says he’s concerned about the level of stress people