Vacations can cost more than expected, especially if you have a large family or an exotic destination in mind. Several of my clients love to treat their entire extended families to a variety of family trips.

Some of my best memories are vacationing with my family. I’m sure yours are too. That’s why I advocate for every family to set aside time and money to vacation together. But the key is planning.

Big price tag purchases can change your tax bracket, hurt your investment strategy, or even postpone your retirement date.

If you want to plan for an elaborate family trip without wrecking your retirement plan, here are a few tips to get you started.

1. Start planning & saving early.

I recommend estimating the total cost of the trip, and then add a 10% cushion. This should cover possible inflation or unexpected costs.

Next, start a savings schedule. Open a separate account and contribute to it every month. Little by little you’ll reach your goal and be able to track your progress.

Planning early can also provide opportunities for early booking specials and discounts when reserved a year or more in advance.

2. Set expectations and communicated them.

Another, equally important aspect of logistical planning is setting expectations with those who are going.

If you are going to pay for the trip, it’s even more important to communicate your expectations. Who is going? How will you deal with boy/girlfriends? What activities or meals should the group participate in? Will there be a family photo with coordinating outfits?

It’s also important to be clear about costs. There are both “upfront” costs such as flights and hotels, but also “on the ground” costs like meals and excursions.

These might seem like small details, but I promise you, that if you’ve saved for months for a trip, you will have expectations (spoken or unspoken) about what the trip will be like. To avoid any hurt feels or frustrations, sit down with everyone who’s going and figure out what this vacation should look like.

3. Set yourself up for success.

Vacation is all about making memories and spending time with those we love and cherish most.

But don’t let it hurt your retirement. Start planning and saving early, set proper expectations, and check with your trusted Financial Advisor to make sure your retirement is still on track.

With these few simple tips, your next family vacation can be both fun and financially feasible!

Start Planning!

The post How to Plan a Family Vacation without Hurting Your Retirement appeared first on AWM.

1. Act Now.

Did you know you can contribute for 2020 until the tax filing deadline? That means you have until April 15^th to make your last contribution.

If you’re planning to contribute, get it done sooner rather than later. Avoid any last-minute problems and let your IRA grow faster.

2. Talk to Your Advisor About a Roth IRA Conversion.

If you have a traditional IRA, you can convert part of it to your Roth IRA.

Because tax laws are constantly changing, a conversion that didn’t make sense last year might do so in 2021.

While it might not be a great option for everyone, it is worth discussing with your tax specialist.

3. Know How to Move Your Money.

I can’t stress this enough. Know how to move your IRAs.

If you’re wanting to consolidate retirement accounts, make sure to roll over them to a like-titled account.

This will also avoid the 60-day and once-per-year rollover rule.

Do not accept a check in your name. Otherwise, you will owe taxes on that account immediately.

4. Update Your Beneficiary Designation.

Make sure your hard-earned money will be left to the right people. Family and friend dynamics change often.  Be sure to keep your beneficiary designation form up-to-date.

Recent changes like the SECURE Act could also impact your current beneficiary form. Spend some time making sure your wishes are accurately documented.

5. Use QCDs and Other IRA Tax Breaks.

IRA rules can be overwhelming, but make sure that’s not keeping you from options you might benefit from.

If you’re over 70 ½ and charitably inclined, you might consider a Qualified Charitable Distribution (QCD). First-time homebuyers might be able to use a portion of their IRA to help fund their down payment.

Take some time to learn what options you have available to you.

6. Plan for the Unexpected.

Our tax laws and IRA rules are constantly changing. I think we should expect more change in 2021 than in previous years.

Remember, IRS guidance on recent rule changes and a new administration and Congress could have a big impact on your IRA.

The bottom line? Plan ahead and work closely with a fiduciary professional who will seek out the best solutions to fit your situation.

The post How Can I Ramp Up My IRA in 2021? appeared first on AWM.

I hope you enjoyed a Merry Christmas and a wonderful New Year!

Our office is looking forward to what this new year will bring.

Quick Recap of 2020

A quick glance at your December statement might give you the impression that 2020 was smooth sailing. Unfortunately, that was not the case.

Do you remember the last time you were on a wooden rollercoaster? Your car trudges upward as you enjoy the view.  Suddenly, the track disappears!  You race towards the ground and fly around corner after corner.

That’s a good depiction of 2020.

Here’s a quick recap:

• Market started out with a bang in January
• Coronavirus hit the U.S. / world
• Market dropped nearly -40% from February to March
• Government went into rescue/bailout mode
• Treasury went on a money printing spree
• The Fed lowered rates and kept them at near-zero
• By 4^th quarter, markets recovered and ended positive

It’s important to look back on where we came from. For those of you with a Financial Plan in place, you were able to stomach the wild ride of 2020.

How We Manage Your Money

A client recently asked me how I managed their money, especially with so much volatility. How do I know when/what to sell and when/what to buy?

You might have seen a lot of activity on your accounts this last year. 2020 was a very challenging and unusual year.

We had to react quickly, stay vigilant, and be innovative to follow new trends in the economy. Things that worked before, stopped working, and vice versa.

Additionally, I have to make decisions for each of my clients based on their personal situation with the information I had.

My hope is to have enough information about each of my client’s finances to keep them on the right track.

The four big questions I try to answer are:

1. Do you need money to live off of your investments?
2. What kind of risk can you tolerate?
3. Where is the market going?
4. Are there any other factors I need to be aware of?

For those who have a very close relationship with us, we know where you stand and can act proactively for you, no matter what the market throws our way. Most of you have a Financial Plan in place and know what to expect during the good and rough seasons.

If you are still on the fence about scheduling a planning session, know that both you and we can benefit. I will be more informed of what your goals, needs, and plans are. You can have greater peace of mind knowing we have your back and will act in your best interest.

The more you share with us, the more beneficial it can be for you.

Who Benefits the Most? (*Hint* It is not necessarily how much you have!)

Our top clients who reap the most benefits from me do these 3 things:

• You engage with me because you see the value of getting the most out of us in a relationship.
• You share information so I am better informed on seeking to protect you and when to take opportunities.
• You introduce us to your other professionals so we can work as a team to optimize your planning strategies.

Clients who pay taxes can save money by having us explore and execute tax harvesting, Roth conversions, and RMD distribution strategies for you.

Do you know anyone who struggles with these roadblocks to financial success?  (See the sidebar below.).

What Happens When You Don’t Engage?

From my experience, clients are tempted to quickly become disengaged, passive, and lose sight of the big picture.

When we feel we’re missing information, we are forced to exercise caution, even for clients who could be taking more risks.

Disengaged clients can often experience fear and emotions without a plan to keep them grounded. Not willing to invest, because of fear, or staying out of the market because of emotions.

We serve you best when we are proactive. There is still time to engage and benefit more fully from working with us.

What to Expect in 2021:

1. The Market. Expect volatility – a new roller coaster ride?
2. A New Administration. Many things will change, including higher taxes and more regulations.
3. Taxes. Regardless of what happens in the market or the new administration, there will be tax changes. RMDs are back.

How Are We Watching Out for You?

We will be vigilant on investments and diversification, focusing on opportunities that will benefit from higher government spending.

Heading into 2021, we are less confident on things like fixed income that are dependent on interest rates staying low forever.

Inflation is also on the top of our minds.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 1Q21 appeared first on AWM.

I hope each of you and your loved ones are healthy and well. It has been an incredible year.

As we enter the fourth quarter, I want to touch on a few Issues where clients have sought our help.

Early Retirement

Several of our clients have had to make the hard decision to retire early, take a severance package, or even consider other employment options.

Here are some of the challenges they face:

• Getting close to retirement age
• Already had a scheduled retirement date
• Forced into an early retirement
• Given a choice and needed our help to figure out the best option(s)

No matter the situation, people who talked to us early on were able to plan for this huge change(s).

Some areas we focused on were Social Security, medical coverage, taxes, and cash flow planning.

We helped answer difficult questions like:

• How will retiring early impact my cash flow?
• When should I take Social Security?
• How will this impact my tax situation?

A lot of people wait to work on a plan because they’re busy and tomorrow is always an option. 2020 has taught us that tomorrow can come faster than one might think.

You might find yourself in a position where you have to make hard decisions and sacrifices.

We can’t predict the future, but we can help you prepare for possible outcomes and navigate the challenges. We’re here to help you make the best decisions amid uncertain times.

Upcoming November Elections

As the election draws nearer, we have been reviewing each portfolio and taking off appropriate risk. We don’t know what the election will look like and, depending on the outcome, the results could have severe consequences.

Knowing this, we have been strategizing possible scenarios to protect you. Right now, we have multiple scenarios to put in place once we know the election results.

Tax Planning

We have worked with many clients on tax planning this year. If you can afford it, we are encouraging our clients to consider doing more Roth conversions.

If you have not taken your RMD for 2020 yet and do not need it, remember, you are not required to.

There is much uncertainty going forward. We are watching the political environment and who will control the Senate and the House. Potential risks might include higher tax rates, big changes in the tax code, and a reduction in purchasing power.

Higher market volatility is also possible, which usually tends to generate higher capital gains.

Real Estate

I am becoming increasingly concerned with real estate.  Many markets appear overpriced, especially with commercial real estate.

Factors that are pumping up home prices include low-interest rates, nationwide exoduses from highly populated cities with high income taxes, cash offers, and buyers who are willing to trade financial security for a home.

We are carefully watching the real estate market.

Assisted Living

We have heard from a number of our clients in independent or assisted living that they have felt like prisoners in their rooms. Due to COVID-19 restrictions, many of them were looking for alternative options and the opportunity to regain their independence.

Some of our clients decided that moving would be the best option. We helped guide them and work through the financial challenges.

After a year like 2020, many people will reassess whether independent living, assisted living, and nursing homes are best for them or their loved ones. The pandemic showed that people in these facilities are not as safe as previously thought. Indeed, COVID-19 exposed that care facilities are the most at risk.

Summary

We are here for you. Please talk to us!

Maybe you want to share about changes in your life or concerns about taxes.  Perhaps you need help for yourself or a loved one regarding assisted living.   Whatever your situation, you deserve to understand your options (physical and financial).  We can help you plan your future.

We are being vigilant. There are a lot of moving parts that could impact whether we have a good market or a bad one. I don’t want to bore you with the technical details, but know we are considering different scenarios.

Let us help you plan and prepare in the midst of uncertainty.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 4Q20 appeared first on AWM.

Sadly, one of America’s hottest growth industries is retired families in bankruptcy.

How did we get here?

According to AARP, close to half of retirees still carry debt into retirement.

But how is that possible?

You worked so hard and saved so much.

The fact of the matter is, only 23% of Americans have a retirement plan. That means only 1 in 4 have some kind of roadmap for their retirement journey.

If you don’t want to be part of these statistics, here are 3 things you can do:

1. First, get a strategic financial plan.  Understand where you are going.
2. Second, understand your budget. Be willing to take radical steps to adjust your lifestyle once you retire. The first 12 months of retirement are the hardest to adjust to. Preparing ahead of time can make this transition easier for you and your family.
3. And third, admit that it is possible to run out of money. Think through every possibility.

• • What if the market corrects?
  • What if you or your spouse are diagnosed with an illness?
  • What if your kids or grandkids need help paying for college?

So many variables can impact your retirement lifestyle.

You don’t have to settle for bankruptcy if you take action now.

It is time to invest in yourself and reap the rewards of your labor.

Request a free consultation.

Free Consultation

The post Are You Ready for Retirement? appeared first on AWM.

The start of a new year is the perfect time to set new goals and save more. In 2019, you can contribute more than ever into your retirement accounts. Total contributions increased by $500, now totaling $19,000. If you are expecting a raise, bonus, or are able to sock away a little extra, consider upping your contributions this year to take full advantage. Don’t forget that even the little increases can have a large impact in the long run.

2.    Make catch-up 401(k) contributions

Anyone over or turning 50 years old this year can make catch-up-contributions. That means you can add an extra $6,000 to your 401(k), maxing out at $25,000. If you are turning 50 in 2019, it doesn’t matter when your birthday is, you can start making these catch-up contributions anytime. Think of it as a birthday present to yourself—you’ll be thankful you took full advantage later on.

3.    Go Roth 401(k)

There can be great benefits in contributing to a Roth 401(k) vs. a traditional 401(k). Traditional accounts are pretax and grow tax-deferred until retirement. Then, they are subject to taxation. Roth contributions have no immediate tax break – but once they are rolled into a Roth IRA, you won’t pay taxes on your distributions.

Roth 401(k)s have no required minimum distributions (RMDs) once you hit age 70 ½. Another thing to keep in mind is that Roth IRAs have limited contributions, whereas a Roth 401(k) will not. If most of your savings are in a traditional 401(k) or IRA, consider diversifying and making your 2019 contributions to a Roth 401(k). Ask your employer about switching contributions – it’s an increasingly more common option.

4.    Don’t forget after-tax 401(k) contributions

You might be able to make after-tax contribution to your 401(k). Many plans, both traditional and Roth, allow for the contributions to help you reach the $62,000 limit

HR departments often don’t mention this option because not many people are able to take advantage of it. If you earn a large bonus or commission checks or are living within your means, this might be a good fit for you. Then, once you retire or separate from service, you can roll over most of this money into a Roth IRA.

5.    Take the time to review

It’s a good idea to review your 401(k) investments with your fiduciary financial advisor each year. They can help to make sure your contributions are still in line with your goals, evenly distributed, your risk is frequently re-evaluated, your cash flow needs, etc. Even if you have a rebalancing feature on your portfolio, it never hurts to double check. Most people don’t think about this as part of their annual review, but we review our clients’ 401(k)s in our annual meetings. Many things can influence your 401(k) contributions, like the economy, investment options, or changes in your own life.

6.    Do you have a side hustle?

If you have multiple sources of income, consider various retirement plans, a SEP plan or a cash balance profit-sharing plan. SEP plans could allow you to contribute up to $255,000 each year, depending on your age and income. You have lots of options, but they can quickly become complicated. Ask your financial advisor to go over your options if you are earning multiple incomes.

7.    Max out your IRA contributions

Don’t forget your annual IRA contributions! As long as you or your spouse are earning an income, you can contribute $6,000 into a traditional or Roth IRA. Anyone over the age of 50 can contribute up to $7,000. Ask your financial advisor about building out your Roth IRA – either by meeting the income requirements or making a “back door” Roth conversion.

8.    Include a health savings account

Do you have a health savings account (HSA)? These are not well known or utilized, but have triple tax-free benefits. Basically, you can take tax deductions when funding the plan, the money grows tax-free and is not taxed on withdrawals when used for health care expenses.

In 2019, a family can contribute $7,000 towards an HSA and individuals can make $3,500 in contributions each year. An HSA acts as a Roth IRA for health care costs—the money is tax-free after the age 65 when used for medical care. If you don’t use this money for medical care, then it is taxed similarly to a traditional IRA. But you will most likely have more and more medical expenses as you grow older, so this should not be a concern

You cannot contribute unless you have a high deductible medical plan and only before the age 65. If you are contributing to an HSA, make sure they match your time horizon and focus on the account is you plan to use it for medical expenses in retirement.

9.    Consider Roth conversions

Especially when the market drops or in low-income years, Roth conversions can be a really good idea.

Roth conversions allow you to convert all or some of your traditional IRA into a Roth – tax-free growth in the future with no RMDs. Just a reminder, the 2018 tax law eliminated the ability to “recharacterize” a Roth IRA. So, no do-overs if you change your mind. Roth conversions are best left for the end of the year once you have a better idea of what your income will look like.

10.    Roll old 401(k)s into IRAs

Are your old 401(k)s consolidated and rolled into IRAs? If not, it might be time to roll them over. Not only is it easier to track your performance, you might even have more investment options and be able to avoid some fees if your new balance exceeds a certain threshold. Talk to your financial advisor to see if this is the right option for you.

11.    Design a comprehensive financial plan

Are you on track to reach your retirement goals? Do you need to make any changes? The ups and downs of the market are easier to manage if you have a solid plan to follow. If you are unsure, it might be a good idea to review your portfolio with a financial advisor annually. We encourage all of our clients to put together a plan that reflects their family goals and priorities and is achievable and measurable.

You have the potential ability to contribute up to $69,000 + $7,000 to an HSA in 2019. If you have multiple sources of income, there are even more options for you. The markets will always be uncertain, but you can always get ahead and have some peace of mind by designing a financial plan with your fiduciary advisor.

Schedule Appointment

The post 11 Retirement Planning Strategies to Jumpstart 2019 appeared first on AWM.

However, many people struggle with the transition into retirement.

What is the Honeymoon Phase of Retirement?

According to Dr. Joseph Coughlin, there are four phases of retirement.

The first being the honeymoon phase. If you pay any attention to advertising, you might be expecting your retirement years to be filled with beaches, bike riding, golf, and whatever else strikes your fancy. Once you stop working, it’s true that you will have more time on your hands to do the things you love.

But those romantic advertisements neglect to tell you something.

Once these activities become a routine, they might not continue to provide the happiness you were hoping for.  Instead of being stressed in your working years, you might find yourself bored and restless in your retirement years.

The Honeymoon Will Not Last Forever

Retirees will experience different levels of financial, cognitive, physical, and social resources throughout their retirement years. The longer you are in retirement, the more these resources will diminish.

Let me explain. Financial resources tend to be the highest in the honeymoon phase of retirement because retirees have just started to spend their savings. Aging, for the most part, hasn’t taken its toll on the body and mind at this point either. Because of this, your lifestyle and health can feel similar to life during your working career.

How You Can Survive – and Thrive – in the Retirement Honeymoon

The first stage of retirement is often the hardest to adjust to. Recent retirees have to re-establish their routines, roles, and relationships.

1. Breaking your life-long Routine.

   Get up. Get ready. Eat breakfast. Go to school or work. Come home. Eat. Go to bed.

   Sound familiar? We’ve all been doing this since kindergarten. Retirement can break this routine since there is nothing forcing you into this habit anymore. You now have so much time on your hands. All this freedom can sound enticing, but if you’re not sure what to do with it, boredom can set in very quickly.

2. Roles will Change.

   Your career probably gave you a sense of pride, purpose, and self-fulfillment. Once you retire, you might miss that identity and sense of accomplishment. If you are not prepared for this big change, you might feel under-appreciated and lost in a world without structure.

   Your family might also have assumptions about your new life. They may want more of your time and energy. Set boundaries for yourself as you re-discover your new identity as a retiree.

3. Relationships will change.

   Once you stop working, you might miss the socialization, intellectual stimulation, and sense of accomplishment from the career you built.

   In the honeymoon phase of retirement, you will likely spend less, if any, time with co-workers and more time with your spouse. This is a big adjustment, especially if you and your significant other don’t share similar interests or social groups. If you haven’t thought through this transition, sharing chores, how to spend leisure time, and managing the household can also turn into conflicts.

   You should also think through the amount of assistance you are able to provide for family members, like aging parents. If they need financial support, this can cause stress on your relationships if you have little flexibility in your retirement budget.

Tips for a Smoother Transition:

1. Plan your new routine – How do you plan to spend your time? What are your hobbies? What actives will fill your day? Take some time and plan out your new routine. Think about your long and short-term goals. Moving towards these goals can be very fulfilling and could give you a sense of purpose.
2. Do some soul searching – Retirement is a big change and requires a new identity. Maybe you will get involved with a local non-profit or learn a new skill like woodworking.
3. Develop new relationships – Look for ways to replace your work relationships with new ones. Maybe take a class or work part-time to meet new people.
4. Give yourself time – You might not find your retirement groove right away, and that’s okay. It can take six to twelve months to really adjust to a new situation and way of life.
5. Seek out clarity about finances – Before, during, or after you retire, it’s a good idea to seek out professional advice from a fiduciary financial advisor. They can help you understand your financial situation and create a retirement income plan.

Thriving in Retirement Still Involves Work!

Defining your new role, routine, and relationships will take time, planning, and effort. You might even be pushed out of your comfort zone, but it’s so worth it. Think of the alternative—a boring and lonely retirement.

As you near retirement, it’s easy and understandable to feel anxious for all the change. You will have a smoother transition if you have a proper plan in place and know what to expect.

Rather than viewing retirement as a single “life stage”, you might benefit from having a conversation with your financial specialists to reflect on all the phases of retirement and plan accordingly.

Start the Conversation

The post Don’t Get Stuck in the Honeymoon Phase of Retirement appeared first on AWM.

Advisors can show their added value by focusing on these seven specific topics:

1. Required Minimum distributions (RMDs).
   

   While this annual IRA ritual is well known among financial advisors, it’s just as common to miss distributions or deal with computational errors. Remember, clients who don’t take their required minimums will get hit with a hefty 50% penalty on any distribution amounts they should have taken. This fee in some special circumstances could be waived by the IRS, but why add stress to you or your client.

   Advisors should be aware of every client who is or will be subject to RMDs by the end of the year. Most have the experience with regular clients who are over 70½ years old and are taking their RMDs annually. Even though it’s not obvious, you will have clients who sneak up as newcomers to the 70½ club or sophomores who might need to take two RMDs this year (their first and second) and required distributions for IRAs or Roth IRAs that they inherited (these include trusts that are IRA beneficiaries). Roth 401(k) plans are also subject to required minimum payouts (Roth IRAs owners are not). This is an important conversation to have with clients if a Rollover is appropriate.

2. Qualified charitable distributions.

   The Tax Cuts and Jobs Act of 2017 provided help for taxpayers through an expansion of standard deductions. That being said, clients who do not itemize their deductions will no longer be able to deduct their charitable contributions. If any of your clients have IRAs subject to RMDs, it’s not too late to contact them and suggest the qualified charitable distributions (QCD) provision. They should also consider making their contributions directly from their IRA.

   The amount your client contributes will count towards their RMD amount and be excluded from income. This creates an “effective” tax deduction on top of the standard deduction. The QCD only applies to IRAs—not plans and IRA owners or beneficiaries who are at least 70½ years old. Donor-advised funds and private foundations are not eligible for the qualified charitable distribution and nothing is given in return for the gift. The annual limit per person is $100,000.

   When contemplating a one-time large donation, clients can still do the QCD even though the gift might exceed the RMD amount, so long as the amount is below the $100,000 limit. Giving more than the RMD removes more IRA funds that will then not fall under income and might even lower the RMD amount for the next year. QCDs will lower adjusted gross income, which may help you with other tax benefits or deductions. Qualified charitable deductions lower tax bills and must be completed before year’s end in order to count for the same tax year.

3. Roth conversions.
   

   The biggest change for IRA planning affected Roth conversions. As of January 1, 2018, conversions are no longer allowed to be reversed. They are permanent and taxes will be due as soon as the funds are converted. Roth conversions are still valuable for certain clients, but going forward, conversions need to be carefully and accurately thought through. In order to qualify for a Roth conversion this year, the funds must leave the IRA or plan by year’s end. Some people confuse Roth conversions deadline (year’s end) with Roth IRA contributions which can be made until April 15th of next year.

   Other tax changes should become a factor when projecting the tax on a Roth conversion. This is in addition to the usual items like taxability of Social Security, increases in Medicare Part B and D premiums, student financial aid eligibility, to name a few. Also, be aware that some clients will lose state tax deductions (the cap is now $10,000, also known as SALT) and the increased standard deduction might not make up the difference. All 2% miscellaneous deductions are also gone.

   For business clients, the new 20% deduction for qualified business income (the section 199A deduction) and the effect a Roth conversion should be reviewed carefully. While some might think these are reasons to avoid a Roth conversion, when looking at long-term financial and tax planning strategies, they are short-term bumps as the additional taxes would only be for the year in which conversion takes place. These issues should be considered carefully, Roth conversions no longer can be undone.

4. Check estimated taxes on RMDs.
   

   Double check to make sure any clients that are new to RMDs had enough money withheld or paid in through estimated tax payments to avoid any penalties. If they did come up short, it might be a good idea to withhold taxes from year-end IRA distributions. This would help satisfy the estimated tax payment timing requirement.

   Add this item to your end-of-the-year checklist for clients with RMDs. Some of our clients will even withhold projected taxes due for the year of their required minimum distributions—taking one more step to avoid penalties. We make it a practice to get to know our client’s network of other professionals, especially their tax advisors. This can build trust and loyalty while also providing holistic services for your clients. IRA withholdings can sometimes be used to cover other income items. RMD money is not usually needed for a large number of clients, which is why the IRA withholdings work so well. The required minimum distribution will often go straight into an investment account. Instead of writing checks for taxes owed, use IRA withholding strategy to satisfy tax liabilities.

   It’s easy for older clients (or even the family members caring for them) to forget or make quarterly estimated payments late and trigger penalties. This is where the IRA withholding works. It eliminates penalties and additional taxes during tax season. Do what you can to relieve some pressure from your clients and their families. This is your time to shine.

5. Split inherited IRAs by year’s end.
   

   If one of your clients, who owned an IRA with multiple individual beneficiaries, passed away during 2017, it’s time for you to help their family make sure all necessary paperwork is completed timely. Each named beneficiary can use their own life expectancy to calculate required minimum distributions (known as the stretch IRA) if the inherited IRAs are split into separate shares before the end of this year. It’s important to get this done in order to use the Stretch IRA. If not, all beneficiaries will be stuck using the age of the oldest, named beneficiary—even if they decide to split their shares later on. The split must be completed by the end of the year after the IRA owner’s death. (We strongly encourage our clients to split the IRAs as soon as possible to avoid forgetting and missing the deadline).

6. You should know how to time a 10% penalty exception.
   

   If your client had to take an early withdraw from their IRA, they may qualify for an exception to the 10% penalty. If they do, the payment must be made in the same year as the IRA (or plan) distribution. This is easily missed at the end of the year, which voids the exception and forces the client to pay a huge penalty that could easily have been avoided. This situation usually affects those who need the money and cannot afford the extra penalties on top of their tax bill.

   Here’s a theoretical example: your client is 54 and needs to help her son pay a college tuition bill by the end of the year. She adds the charge to her credit card in December of 2018. In January, when the credit card bill comes in, she takes an early distribution from her IRA—thinking she qualifies for the education exception to the 10% early distribution penalty for IRAs. Only to find out, she doesn’t actually qualify.

   Your client still has to pay the 10% penalty because the tuition payment (made in December 2018) and the January 2019 IRA distribution were not in the same year.

   Check to make sure your clients who took, or are planning to take an early withdrawal will actually qualify for an exception and not run into similar situations with this “same year” rule. This is a more common issue than most people realize and as advisors, it’s our job to protect our clients.

7. Check the state of lump-sum distributions for the net unrealized appreciation tax break.

   Don’t forget about net unrealized appreciation (NUA) in employer securities. This can dramatically cut your client’s tax bill down. This tax break is for clients who own a share of their companies’ stock through their 401(k). Depending on the stock’s appreciation, it might qualify for the lump-sum distribution tax break on NUAs. Generally, this is triggered by an event: the employee leaves the company, they reach the age 59½, they pass away, or becomes disabled. Under any of these situations, the company funds must be distributed within one year of this life-altering event taking place. If any of your clients qualify for this tax break, check with them to make sure all their plan funds have been withdrawn before the year’s end.

   Non-company stock funds can be rolled over, tax-free, to an IRA, while the company stocks go into a taxable account. Tax (ordinary income) is only paid on the cost of the stock. The appreciation is not taxed until the stock is sold. When it is sold, the NUA is taxed at a lower, long-term capital gain rate—regardless of how long the stock was held.

Here’s a free extra tip: while you are checking these items off your list, check your client’s beneficiary forms. Make sure they exist and are updated with your client’s latest wishes. Beneficiary form errors are rampant, costly, and far too frequent. Do your client a favor and show your added value. When you go the “extra mile”, your clients will notice that you truly have their back and will reciprocate with their loyalty and trust. They will also know that you have their back and are helping them to live their lives with purpose.

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