‘Tis the season for RMDs

Another year flew by and the holidays are already here. Snowflakes are falling, houses are decorated, and families are reunited! In the midst of all the joy, it’s easy to put your finances aside. However, if you will be over 70.5 years old by the end of the year, we want to remind you that it’s time to take a Required Minimum Distribution (RMD) from your IRA or retirement account. An RMD is designed to ensure that you withdraw at least a portion of the funds in your account over your lifetime – and that you pay taxes on those funds. Taking your RMD is important because the stakes are high! Failure to withdraw the required minimum will result in a hefty penalty: The amount that was not withdrawn is taxed at 50%. In other words, if the RMD on your traditional IRA is $8,000 in 2013, but you only withdraw $3,000 during 2013, you will be subject to an excise tax of $2,500 (50% of the amount by which the RMD exceeds your actual distribution). It’s quick and easy to arrange your RMD by calling your financial advisor. We recommend you do so by December 15th to ensure plenty of time for the distribution to occur before the end of the year. The sooner you get it done, the more time (and money!) you will have to spend with the ones you love.

Charitable IRA distributions renewed for 2013

We have great news for people making charitable gifts this year! Thanks to the American Taxpayer Relief Act of 2012 (ATRA), IRA owners can once again make a qualified charitable distribution (QCD) from an IRA to a qualified charity of their choice.

For those who are charitably inclined, a QCD can really maximize the effectiveness of charitable gifts.

Here’s how it works:

For this year, IRA owners who are 70 ½ or older and would otherwise have to satisfy a required minimum distribution from an IRA may donate any portion up to $100,000 of the required distribution directly to a qualified charity(ies). Additionally, the IRA owner can exclude the amount of the QCD from his or her gross income on their 2013 tax return. The amount of the QCD excluded from the gross income is not included when determining any deductions made to qualified charitable organizations.

As with many IRS provisions there are a number of fine print items to keep in mind.

  • You are only eligible to make a QCD if you are 70-½ or older.
  • Contributions can only be made to 501(c)(3) charities and 170(b)(1)(A) organizations.
  • Donor advised funds and 30% public foundations are not eligible to receive the QCDs.
  • The QCD must be made directly from your IRA to the desired charity, meaning that the check issued from your IRA must be payable to the charity. If the check is made payable to you, then it counts as taxable income and will be considered a normal IRA distribution.
  • The QCD can be made from any IRA. SEP and SIMPLE IRAs are only eligible if they are not receiving employer contributions in the same year as the QCD is made. You cannot make the QCD from any employer retirement plans, such as a 401(k), 457 or 403(b), etc.
  • The QCD cannot be a split-interest gift, meaning that 100% of the gift must go to a single charity and the gift cannot be shared with the donor or any other designee of the donor. The donor cannot receive any economic benefit as part of the gift.

At this time, the QCD provision is only extended through the end of 2013. We do not know if the provision will be renewed in years beyond. If you are interested in making a donation directly from your IRA to a charity, reach out to your advisor to get started and make 2013 a year of giving!

LTCi rate increases coming soon for single women

It’s no surprise that women tend to live longer than men. Therefore, it should be no surprise that women tend to need long-term care more often than men. In fact, Genworth Financial, a leading provider of long-term care insurance (LTCi), estimates that two-thirds of their benefits paid go to women. However, up until recently, insurers were not allowed to charge different rates based on gender. That may all change in April, when Genworth is allowed to restructure new policies to incorporate gender-distinct pricing, which may increase the rate for single women by as much as 40 percent. Genworth was the first carrier to win approval from state insurance commissions to raise rates on new policies for single women, but it is expected that other carriers will soon follow suit. Long-term care insurance will become much more expensive for this segment of the market.

What should you do? If you are a single woman considering LTCi, you should consider making a move soon. If you are unsure whether LTCi makes sense for you, talk to your financial advisor or a licensed insurance agent as soon as you can.

For more information on these upcoming changes to LTCi, see For Women, Reduced Access to Long-Term Care Insurance.

The ABCs of Medicare

Medical insurance can be a major expense for retirees.

The government segments Medicare plans into four categories: A-D, which I will explain at a high level below. There are also standardized supplemental plans available, known as Medigap policies.

Understanding the Medicare program in its entirety can save you money and ensure you are well taken care of.

A – Hospital Insurance

This portion of Medicare is free if you or your spouse have paid into Social Security through employment for at least 10 years.

What’s included in Part A?

- Inpatient hospital services, along with some skilled nursing and hospice care.

Important info about Part A

- Most people do not have to pay a premium. However, deductibles and co-pays will apply.

B – Medical Insurance

This supplemental plan is an optional program, with a monthly premium that can be deducted from your social security check.

What’s included in Part B?

- Doctor’s services, diagnostic tests and outpatient care.

Important info about Part B

- You may have coverage for Part B through your employer if you are still working.

- If you don’t sign up at age 65, your premium increases and will remain elevated for the rest of your life.

- A premium, deductibles and co-insurance will apply.

C – Medicare Advantage Plans

In its simplest sense Part C aggregates Part A with Part B. They are private plans that may provide more coverage than the first two parts would independently.

What’s included in Part C?

There are two coverage options:

1) Medical only

2) Medical with prescription drug coverage

Important info about Part C

- Most states allow for pre-approval if you sign up within six months after you turn 65.

- Monthly premium and fixed co-pays will apply. Certain plans also have a deductible.

Medigap, Medicare Supplement Plans – Alternative to Part C, Medicare Advantage

Medigap is a group of 10 standardized plans available through the private market that assist with out-of pocket expenses.

What’s included in Medigap?

- Medigap covers the gaps in Medicare Parts A and B.

- Drug coverage requires the addition of a stand-alone prescription drug plan, just like Medicare Part C medical only coverage.

Important info about Medigap

- Unlike Part C, it does not aggregate with Parts A and B. Rather, it serves to fill in the gaps of A and B.

- Monthly premium will apply. Copayments and co-insurance are plan dependent.

D – Prescription Drug Coverage

There are two ways to obtain Part D coverage: 1) through a Medicare approved stand-alone plan or 2) Through a Part C Medicare Advantage Plan with prescription drug coverage.

What’s included in Part D?

-Each plan maintains its own list of covered drugs.

-There is a “donut hole” in the program. The hole begins when your total retail cost of drugs (your cost plus Medicare Part D’s contribution) reaches $2,970. It ends when your actual out-of-pocket costs reach $4,750. Note: these are 2013 figures, which are subject to change.

Important info about Part D

-Monthly premiums and co-pays are plan dependent.

Doing your homework can save you money or enhance your coverage for the same price. A good place to start is with the Medicare Plan Finder, found on Medicare’s website.

 

 

Retirement: A tough transition

The stereotypical vision of retiring includes gold watches, sun filled landscapes in foreign lands, vacation homes, and lots of smiling faces. We hold on to this vision to get us through the long road of a lifetime of work. A comfortable retirement is our motivation, and ultimately a reward for a job well done. For a few the transition to retirement is wonderful as they waltz into their retirement years with ease. In my observations over the past 25 years, I believe these lucky individuals are the exception, not the rule.

For most the transition to retirement is a very difficult time of their life. The distress that many new retirees feel is not widely acknowledged or discussed. For a life transition that is supposed to be joyous, new retirees often feel uneasy, fearful, and overwhelmed. Many feel like a rudderless ship. Issues surrounding self-worth, mortality, and lack of control can make a person feel anxious or even depressed. Spousal dynamics often change with the new schedule and routine and can be another source of stress, adding to the confusing mix of emotions that are part of this difficult transition.

Some things that I have seen help make the retirement transition easier are to acknowledge and understand that this transition is going to be another one of life’s challenges, and to prepare yourself for a full range of emotions. It’s perfectly normal to feel uneasiness for no particular reason.

Celebrate! Employers rarely throw a party for retirees anymore as most of us ultimately quit our jobs, or are downsized. Even if you retired some time ago, throw your own party or event to let you and others appreciate your accomplishment.

Communication is very important as you navigate the many emotions you will feel. Talk to your spouse, family, and friends openly about how you are feeling and you might find comfort in the fact that many feel the same as you do. Professional counseling can be very helpful.

Most importantly, ease into retirement. Many retirees feel out of control and rush to “take control” and end up making poor decisions about finances, housing or personal relationships when they should be taking a year of “vacation” to let the rhythms and patterns of your retirement life form. Give yourself a relaxed existence as you deal with the wide range of emotions that come with this difficult transition.

Is volunteering worth your time and energy?

A majority of my clients are in retirement or they will be retired within the next 5 years or so.   These relationships give me some great insight in to what retirement can be, for better or for worse.  I have found over the years that my healthiest and even more importantly, happiest clients in retirement are those who are quite busy.  I am often told that they do not know how they had the time to work as they feel even busier now and they are loving it!

Most of these busy individuals are doing some sort of volunteer work.  You have probably heard people say that as a volunteer they get more out of it than they feel the person or organization they are helping is gaining from the relationship. And if you have given some of your time and energy to someone besides yourself, you know this to be true.

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