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You can insulate your retirement plan from government policy changes through tax diversification

By Hook Law Center

While government policies can adversely affect your retirement, there are steps you can take to minimize the impact that they can have on your life savings. People are usually concerned about tax rates, which can directly affect your strategy for saving, and the amount of funds in your 401(k)s, IRAs and other accounts that are accessible.

One of the ways in which you can protect your retirement is to disperse your retirement savings so that you will have funds in various accounts that are treated differently with respect to taxes. Try not to keep all of your retirement savings in traditional 401(k)s and IRAs, both of which are taxed at ordinary income tax rates upon making withdrawals.

An increase in ordinary income tax rates could cause you to have considerably less cash, after taxes, in retirement. However, because qualified withdrawals from a Roth 401(k) or Roth IRA account are not subject to tax, any savings in those accounts would not be significantly affected by a rise in the ordinary income tax rate.

You can also engage in further diversification by investing in stock index funds and tax-managed funds that yield a great deal of their return in terms of unrealized long-term capital gains. These kinds of gains are beneficial in that they are not subject to tax until you sell, and they are taxed at the same rate at which long-term capital gains are taxed. This rate is usually lower than those at which ordinary income and short-term gains are taxed. And when making withdrawals, you may also fare better by first removing funds from taxable accounts, then tax-deferred 401(k)s and IRAs, and then Roth accounts.

Moreover, be cautious when selecting the types of investments for your retirement plan. If you are worried about a potential future increase in the rate of inflation because of government monetary policy or excessive government spending, you can supplement your investments with natural resources funds, Treasury Inflation Protected Securities (TIPS) or Real Estate Investment Trusts (REITs).

Posted on Thursday, March 10th, 2016. Filed under Estate Planning.

Early retirees may need alternative withdrawal strategies

By Hook Law Center

When withdrawing funds from individual retirement accounts, Roth IRAs and other such accounts, retirees may encounter inconveniences, taxes and penalties. However, proper planning may reduce or even eliminate such costs. There are techniques that retirees should use to withdraw funds from their tax-sheltered retirement accounts prior to reaching the age of 59 ½.

You can withdraw your contributions to Roth IRAs anytime for any reason without being subject to tax or penalty, irrespective of your age. The IRS permits holders of traditional IRAs to label withdrawals as “contributions” until all contributions have been resolved. Upon withdrawal of the contribution part of the account, you can then remove the earnings portion. But if you have not yet reached age 59 ½, the earnings could be taxed as income and you may have to pay a 10 percent penalty.

It could be an expensive error for the retiree to roll over a work-related retirement plan to an IRA if you need the funds before reaching age 59 ½. If you are age 55 or older and you have stopped working, you can withdraw money from your 401(k) or 403(b) account without being subject to the 10 percent penalty that would usually apply to withdrawals from an IRA owned by an individual under age 59 ½.

You can also remove funds from a 457 plan from a government or nonprofit employer without being subject to a ten percent penalty. If you withdraw funds from a work-related retirement plan, they will be taxed as ordinary income. But since early retirees will have less income, their tax bill will be smaller.

If you must withdraw funds from your IRA to pay for living expenses before reaching age 59½, you should determine whether you have any qualifying expenses that can be set against the IRA withdrawals to avoid the ten percent penalty. Such costs could include considerable out-of-pocket medical bills, higher education expenses or health insurance premiums if you are unemployed.

Furthermore, IRA holders under age 59 ½ can make withdrawals from the account without incurring a penalty if the withdrawals are similar in amount and comply with a certain schedule. These are referred to as substantially equal periodic payments (SEPP). Under the SEPP program, once the payments have started, they must continue for five years or until you attain the age of 59 ½, whichever is second. However, if the requisite amounts and timing of the SEPP accounts are not met exactly, all withdrawals may be subject to the ten percent penalty retroactively.

Posted on Wednesday, February 24th, 2016. Filed under Estate Planning, Long-Term Care, Public Benefits.

How to deal with an early retirement that was not planned

By Hook Law Center

Although most people plan to work until they reach their full retirement age of 66, or 67 if you were born after 1942, some workers find themselves without work at an age when it is challenging to find another job, and at a time when they anticipated earning their maximum salary. Others are compelled to leave the workforce due to illness or family obligations as a caregiver.

According to experts, approximately 45 percent of people retire sooner than they planned. It is smart to have a contingency plan for early retirement.

It may not be feasible to secure a job that pays well, particularly for those in industries that largely depend on contractors. Even though it is illegal for employers to practice age discrimination, several older workers have difficulty finding work. If you are forced to retire early, your best option may be to find new work, even if it is not in your chosen field, and even if the compensation does not approach the amount you are accustomed to earning. Alternatively, you may find it more reasonable to reduce your expenses. Or you may decide to do both.

Another cost-effective measure is to avoid using your Social Security early, even if that means withdrawing funds from your retirement savings. If you claim social security at age 62, your monthly benefit will be 25 percent less than it would have been if you had delayed your retirement until you attained the full retirement age of 66 or 67. And if you wait to retire until you are age 70, you will receive another 32 percent.

Some options to consider if you must retire early are to accept a position that pays a lower salary, work part-time or become a consultant, reduce expenses, apply for unemployment benefits, seek health insurance on the Affordable Care Act exchange, have your college-age children decrease their expenses and consult a financial adviser.

You may also wish to conduct research of Social Security to make certain that you are collecting the maximum possible amount, continue to network professionally and pursue hobbies that make you happy.

Posted on Wednesday, February 10th, 2016. Filed under Estate Planning, Public Benefits.

Transportation is an often overlooked but crucial aspect of retirement planning

By Hook Law Center

When people engage in retirement planning, they often fail to think about transportation. They do not consider that a time may come when they will no longer be able to drive themselves, and will have to rely on others to go to doctors’ appointments and run errands.

Including transportation in your retirement plan is essential. After housing, transportation is the second-greatest household expense. The American Journal of Public Health states that Americans are outliving their capacity to drive in a safe manner. In general, the ability to drive safely as you get older is largely dependent on your health. While some people are capable of driving well into their 90s, others reduce their level of driving by age 65.

But many people do not think about the day that they will not be able to drive themselves, and will instead have to rely on public transportation or others to accomplish basic daily activities. When creating a retirement plan, you should think about whether you would like to remain in your community, downsize or relocate. A 2014 AARP study revealed that by age 65, 87 percent of people prefer to stay in their community as they become older.

Many older adults are benefiting from the Independent Transportation Network, a nonprofit organization that provides rides for the elderly. It has 27 affiliates throughout the country. There are also new transportation services that offer rides for a fee. These include Uber, Lyft and Sidecar. In addition, some senior housing communities provide shuttle buses that transport residents to doctors’ appointments.
When making decisions about where to live and your mode of transportation, perform an analysis of your neighborhood concerning the places to which you usually travel and determine how you might arrive at those destinations if you were not driving. You should also consider your social support network where you have formed relationships.

Posted on Thursday, January 7th, 2016. Filed under Estate Planning, Long-Term Care.

A retirement savings account can include health savings accounts

By Hook Law Center

As companies divert the costs of health insurance to their employees, health savings accounts (HSAs) and health reimbursement accounts (HRAs) have become increasingly popular. According to the Employment Benefit Research Institute (EBRI), adults in the U.S. retained $23.8 billion among 11.8 million HSAs and HRAs. This represents an increase of 2,725 percent from 2006.

HSAs can also be used as a stealth individual retirement account, but the majority of people are unsure of how to inquire about them. While flexible spending accounts (FSAs) allow users to put away a maximum of $2,500 in pretax dollars every year for medical bills, HSAs do the same but with a higher maximum amount. In 2014, HSAs permitted individuals to set aside a maximum of $3,300, and families a maximum of $6,550, as well as a $1,000 catch-up contribution for people ages 55 and older.

Any remaining funds in the HSA will be rolled over each year and grow tax-free. You can withdraw funds on a tax-free basis from the HSA to cover medical bills at any age. But if you withdraw funds after you reach age 65 for other reasons, the amount will be subject to tax at normal income tax rates.

However, HSAs are not always affordable. They are normally combined with high-deductible insurance plans, which provide lower premiums, but call for greater out-of-pocket payments prior to the time at which coverage becomes effective. In 2014, the minimum deductible for one person was $1,250, and for a family, $2,500. The maximum out-of-pocket expenses for one person was $6,350, and for a family, $12,700.

Even when HSAs are within your budget, you should carefully examine the investment choices offered by an HSA. The majority of the time the funds are invested in money market accounts. It is advisable to first use plans that have greater yearly contribution limits, such as 401(k)s and IRAs.

Posted on Wednesday, November 25th, 2015. Filed under Estate Planning, Long-Term Care.

What men can learn from women about saving for retirement

By Hook Law Center

Although men’s 401(k) balances tend to be larger than women’s, there is evidence to suggest that women may outperform men where retirement planning is concerned. Vanguard observed that at the majority of income levels, women are more inclined to take part in their employer’s 401(k) plan, more inclined to enroll in the plan on a voluntary basis and more inclined to contribute a greater percentage of their income than men.

For instance, women who earn $75,000 or more on a yearly basis contribute approximately a full percentage point more of income than men who earn the same amount. One percentage point can translate into a significantly greater nest egg and much greater income for retirement.

Women may be better at saving, but because of men’s larger incomes and longer period of time working, their 401(k) balances tend to be larger. While men’s 401(k) balances are about $121,000, women’s are about $78,000.

There are many news stories that indicate that women are more sophisticated investors. They say that an index of hedge funds managed by women performed better than a wider hedge fund index. It has also been said that women spend more time conducting research of investments, exercise more patience and ask questions to others regarding their viewpoints on certain stocks.

Nevertheless, both men and women can find ways to improve their saving, investing and planning. It is advisable to be diligent and disciplined, and to ensure that your saving and investing are part of a long-term plan to realize a certain objective.

Posted on Friday, November 13th, 2015. Filed under Estate Planning.

The new reverse mortgage rules: Are they right for your retirement plan?

By Hook Law Center

The reverse mortgage rules that became effective on Aug. 4, 2014 should address any concerns held by married couples who are contemplating taking out such loans. Reverse mortgages, which are also called Home Equity Conversion Mortgages (HECM), are home loans for those who are age 62 or older that allow them to convert the equity that they have in their home into cash. They provide a way for homeowners to receive additional income during their retirement years. The loan is required to be paid upon the death of the borrower, a change in residence of the borrower or sale of the home.

However, one complication that has arisen is that when husbands have taken out reverse mortgages, upon their death, their wives were unable to pay off the loans, and were faced with foreclosure. As a result, the U.S. Department of Housing and Urban Development (HUD) was the defendant in a class action lawsuit filed by AARP, which alleged that HUD failed to protect the women.

Under the new rules, if one spouse takes out a reverse mortgage, and later dies, the surviving spouse can keep residing in the home without any apprehension about foreclosure provided that she or he pays the tax and insurance, and maintains the home. The new rules also state that a couple can still obtain a reverse mortgage where only one of the spouses is 62 or older. And the younger spouse’s age will determine the amount of the couple’s payout even in the event that that spouse is not on the mortgage title. In this way, the amount of the loan will be smaller.

Reverse mortgages are complex financial products, and if you are considering one, you should consult an attorney or trusted financial adviser.

Posted on Friday, November 6th, 2015. Filed under Estate Planning.

The new reverse mortgage rules: Are they right for your retirement plan?

By Hook Law Center

The new reverse mortgage rules that became effective on Aug. 4, 2014 should allay any fears or concerns held by married couples who are contemplating taking out such loans. Reverse mortgages, which are also called Home Equity Conversion Mortgages (HECM), are home loans for those who are age 62 or older that allow them to convert the equity that they have in their home into cash. They provide a way for homeowners to receive additional income during their retirement years. The loan is required to be paid upon the death of the borrower, a change in residence of the borrower or sale of the home.

However, one complication that has arisen is that when husbands have taken out reverse mortgages, upon their death, their wives were unable to pay off the loans, and were faced with foreclosure. As a result, the U.S. Department of Housing and Urban Development (HUD) was the defendant in a class action lawsuit filed by AARP, which alleged that HUD failed to protect the women.

Under the new rules, if one spouse takes out a reverse mortgage and later dies, the surviving spouse can keep residing in the home without any apprehension about foreclosure provided that she or he pays the tax and insurance, and maintains the home. The new rules also state that a couple can still obtain a reverse mortgage where only one of the spouses is 62 or older. And the younger spouse’s age will determine the amount of the couple’s payout even in the event that that spouse is not on the mortgage title. In this way, the amount of the loan will be smaller.

Reverse mortgages are complex financial products, and if you are considering one, you should consult an attorney or trusted financial adviser.

Posted on Monday, October 19th, 2015. Filed under Estate Planning, Long-Term Care.

Protecting your digital assets

By Hook Law Center

Digital assets represent an aspect of your estate that needs protection as much as the more traditional assets in your estate. In fact, someone who is acting as a personal representative, a conservator or a trustee, has a legal duty to gather and protect all the assets of a decedent or protected individual.

Your personal representative may not have the power to obtain access to your online accounts that may contain valuable and sentimental photos of your family, pets, posts on social media, emails and bank account statements. This is because several online providers have differing policies or terms-of-service contracts concerning whether they will give fiduciaries access to online accounts. For instance, the terms-of-service agreement for Yahoo claims to give the company the power to remove an account upon the demise of the account holder, regardless of how the estate may be affected.

In response to the obstacles that have prevented fiduciaries from carrying out their responsibilities, the Uniform Law Commission embarked on a process that has taken over two years to complete, and has culminated in the Uniform Fiduciary Access to Digital Assets Act (UFADAA).

It is a statute that was enacted in order to operate along with a state’s current laws regarding probate, trusts, guardianship, and powers of attorney. The new legislation will enable fiduciaries to have authority over an individual’s digital assets in addition to the usual assets, and to act on behalf of a protected person or estate. It is an important statute for the digital age, and it is recommended that each state enact the new law as quickly as possible.

If you are interested in learning more about protection of your digital assets, consult with an experienced estate planning attorney at Hook Law Center.

Posted on Wednesday, September 23rd, 2015. Filed under Estate Planning, Long-Term Care.

Naturally occurring retirement communities are a popular choice

By Hook Law Center

Naturally occurring retirement communities (NORCs) are communities that were not initially created for seniors, but rather evolved over time to include a substantial percentage of residents who are age 60 or older. The demographics of NORCs are in contrast to those of traditional retirement communities, which tend to be more homogeneous in terms of the residents’ ages. Because NORCs are occupied by many individuals who remained and grew older in their homes rather than moving to a retirement community, they often have interactions with younger neighbors.

One of the benefits of NORCs is that upon meeting certain requirements, such communities become eligible for funding by authorities at the local, state, and federal levels for support services that members of the older population usually require. Among those services are programs aimed at health care management and prevention, case management and social work, education, recreation, social activities and opportunities to volunteer.

NORCs originated in New York City, and are currently located throughout the U.S. and the rest of the world. A prime example of one of the advantages offered by a NORC is the Seward Park NORC-SSP Supportive Services Program in NYC, which is a place where the seniors of Seward Park can assemble to organize transportation to their doctor’s office, get a flu shot, register for meals on wheels, and engage in leisure-time activities.

Many NORCs are housing cooperatives of limited equity. When purchasing such a cooperative, you spend a lesser amount than that which you would spend on an apartment that sold at market rate. However, you are not permitted to sell the apartment at market rate; rather, you are required to sell the apartment back to the cooperative at a price that is below market rate, thereby maintaining the affordability of the cooperative.

Posted on Wednesday, September 16th, 2015. Filed under Estate Planning, Long-Term Care, Senior Law News.
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