How Is Health Care Reform Affecting the Federal Deficit?

Some analysts think it is helping reduce the deficit; but others wholeheartedly disagree.

Has the Affordable Care Act actually cut Medicare spending? The numbers from the Congressional Budget Office make a pretty good argument for that, and suggest that the ACA has had a distinct hand in the recent drop in the federal deficit. Detractors of the ACA say that statistical argument doesn’t tell the whole story.

Medicare has been a major factor in the deficit’s expansion. Its cumulative cash flow deficits came to $1.5 trillion in the first decade of this century, according to the Congressional Budget Office; across the current decade, those cumulative cash flow deficits are projected to hit $6.2 trillion as more and more baby boomers become eligible.1

Admirers of the ACA contend that its technical changes (reductions in payments to some providers, simplified payment systems geared to holistic care, discouragement of hospital readmissions and greater use of generic drugs) are holding Medicare costs in check. These changes have led the CBO to hack 12% off its estimate for Medicare spending across 2011-20. In 2014 dollars, the federal government spent about $12,700 on Medicare per recipient in 2010; the CBO sees that declining to about $11,300 in 2019.2

In the big picture, the savings projects to $95 billion in Medicare’s 2019 budget. That is more than the projected 2019 federal outlay for welfare, unemployment insurance and Amtrak combined. It also means Medicare’s trust fund will now last until at least 2030 according to the Medicare Trustees.1,3

Does the ACA deserve all the credit? Not really, say its detractors. They argue that while health care spending and Medicare spending have slowed in the past few years, it isn’t because of the ACA’s changes. The counterargument posits that Medicare spending lessened as a consequence of the recession (and the shallow recovery that followed) and higher-deductible health plans that meant greater out-of-pocket costs for consumers.1

Another contention: lawmakers could have done much more to reduce Medicare spending all along, but backed off of that opportunity. When Congress passed the Balanced Budget Agreement in 1997, it authorized cuts in federal payments to doctors who treat Medicare patients. These cuts (which would have significantly reduced Medicare spending) were supposed to occur in 2003, but Congress has postponed them 17 times since that date.1

Hasn’t the federal deficit declined anyway? It has, and it is also about to grow again. By the CBO’s estimate, the federal deficit for the current fiscal year will be $506 billion, equivalent to 2.9% of U.S. gross domestic product. At the turn of the decade, the deficit was above $1 trillion, corresponding to 9.8% of GDP. The CBO thinks that the deficit will rise again in two years, however, as an effect of increasing federal spending. As for the federal debt held by the public, it has risen 103% during the current administration.4

The deficit aside, the self-insured may pay cheaper premiums in 2015. Preliminary research from the non-profit Kaiser Family Foundation estimates that the mean premium on “silver” plans (the popular and second-cheapest choice among standard plans) will decline 0.8% next year. The KFF’s per-city projections vary greatly, though. For example, it forecasts “silver” plan premiums dropping 15.6% in Denver next year and rising 8.7% in Nashville.4

Bottom line, the CBO sees less Medicare spending ahead. That will contribute to a reduction in the federal deficit, and whether the projected decline is attributable to economic or demographic factors or the changes stemming from the ACA, that is a good thing.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – forbes.com/sites/gracemarieturner/2014/10/07/its-time-to-end-the-doc-fix-dance-and-move-on-to-real-reform/ [10/7/14]

2 – nytimes.com/2014/08/28/upshot/medicare-not-such-a-budget-buster-anymore.html [8/28/14]

3 – washingtonpost.com/blogs/plum-line/wp/2014/08/27/yes-obamacare-is-cutting-the-deficit/ [8/27/14]

4 – msn.com/en-us/news/politics/obama%E2%80%99s-numbers-october-2014-update/ar-BB7PQFw [10/6/14]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by access.att.com, ING Retirement, fidelity.com, netbenefits.fidelity.com, Northrop Grumman, Raytheon, hewitt.com, resources.hewitt.com, AT&T, Qwest, Chevron, Hughes, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

 

Is it time to make a few alterations for the near future? Financial Considerations for 2015

 2015 is less than three months away. Fall is the time when investors look for ways to lower their taxes and make some financial changes. This is an ideal time to schedule a meeting with a financial, tax or estate planning professional.

 

How do economists see next year unfolding? Morningstar sees 2.0-2.5% GDP for the U.S. for 2015, with housing, export growth, wage growth, very low interest rates and continuing vitality of energy-dependent industries as key support factors. It sees the jobless rate in a 5.4-5.7% range and annualized inflation running between 1.8-2.0%. Fitch is far more optimistic, envisioning U.S. GDP at 3.1% for 2015 compared to 1.3% for the eurozone and Japan. (Fitch projects China’s economy slowing to 6.8% growth next year as India’s GDP improves dramatically to 6.5%.)1,2

 

The Wall Street Journal’s Economic Forecasting Survey projects America’s GDP at 2.8% for both 2015 and 2016 and sees slightly higher inflation for 2015 than Morningstar (with the CPI rising at an annualized 2.0-2.2%). The Journal has the jobless rate at 5.9% by the end of this year and at 5.5% by December 2015.3

 

The WSJ numbers roughly correspond to the Federal Reserve’s outlook: the Fed sees 2.6-3.0% growth and 5.4-5.6% unemployment next year. A National Association for Business Economics (NABE) poll projects 2015 GDP of 2.9% with the jobless rate at 5.6% by next December.4

 

What might happen with interest rates? In the Journal’s consensus forecast, the federal funds rate will hit 0.47% by June 2015 and 1.17% by December 2015. NABE’s forecast merely projects it at 0.845% as next year concludes. That contrasts with Fed officials, who see it in the range of 1.25-1.50% at the end of 2015.3,4

 

Speaking of interest rates, here is the WSJ consensus projection for the 10-year Treasury yield: 3.24% by next June, then 3.58% by the end of 2015. The latest WSJ survey also sees U.S. home prices rising 3.3% for 2015 and NYMEX crude at $93.67 a barrel by the end of next year.3

 

Can you put a little more into your IRA or workplace retirement plan? You may put up to $5,500 into a traditional or Roth IRA for 2014 and up to $6,500 if you are 50 or older this year, assuming your income levels allow you to do so. (Or you can spread that maximum contribution across more than one IRA.) Traditional IRA contributions are tax-deductible to varying degree. The contribution limit for participants in 401(k), 403(b) and most 457 plans is $17,500 for 2014, with a $5,500 catch-up contribution allowed for those 50 and older. (The IRS usually sets next year’s contribution levels for these plans in late October.)5

 

Should you go Roth in 2015? If you have a long time horizon to let your IRA grow, have the funds to pay the tax on the conversion, and want your heirs to inherit tax-free distributions from your IRA, it may be worth it.

  

Are you thinking about an IRA rollover? You should know about IRS Notice 2014-54, which lets taxpayers make “split” IRA rollovers of employer-sponsored retirement plan assets under more favorable tax conditions. If you have a workplace retirement account with a mix of pre-tax and after-tax dollars in it, you can now roll the pre-tax funds into a traditional IRA and the after-tax funds into a Roth IRA and have it all count as one distribution rather than two. Also, the IRS is dropping the pro rata tax treatment of such rollover amounts. (Under the old rules, if you were in a qualified retirement plan and rolled $80,000 in pre-tax dollars into a traditional IRA and $20,000 in after-tax dollars into a Roth IRA, 80% of the dollars going into the Roth would be taxed under the pro-rated formula.) The tax liability that previously went with such “split” distributions has been eliminated. The new rules on this take effect January 1, but IRS guidance indicates that taxpayers may apply the rules to rollovers made as early as September 18, 2014.6

  

Can you harvest portfolio losses before 2015? Through tax loss harvesting – dumping the losers in your portfolio – you can claim losses equaling any capital gains recognized in a tax year, and you can claim up to $3,000 in additional losses beyond that, which can offset dividend, interest and wage income. If your losses exceed that limit, they can be carried over into future years. It is a good idea to do this before December, as that will give you the necessary 30 days to repurchase any shares should you wish.7

 

Should you wait on a major financial move until 2015? Is there a chance that your 2014 taxable income could jump as a consequence of exercising a stock option, receiving a bonus at work, or accepting a lump sum payout? Are you thinking about buying new trucks or cars for your company, or a buying a building? The same caution applies to capital investments.

 

Look at tax efficiency in your portfolio. You may want to put income-producing investments inside an IRA, for example, and direct investments with lesser tax implications into brokerage accounts.

   

Finally, do you need to change your withholding status? If major change has come to your personal or financial life, it might be time. If you have married or divorced, if a family member has passed away, if you are self-employed now or have landed a much higher-salaried job, or if you either pay a lot of tax or get unusually large IRS or state refunds, review your current withholding with your tax preparer.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – news.morningstar.com/articlenet/article.aspx?id=666682&SR=Yahoo  [9/29/14]

2 – 247wallst.com/economy/2014/09/30/downside-risks-to-global-gdp-growth/ [9/30/14]

3 – projects.wsj.com/econforecast [9/30/14]

4 – blogs.wsj.com/economics/2014/09/29/business-economists-see-lower-interest-rates-than-the-fed-sees-in-late-2015/ [9/29/14]

5 – shrm.org/hrdisciplines/benefits/articles/pages/2014-irs-401k-contribution-limits.aspx [11/1/13]

6 – lifehealthpro.com/2014/09/30/irs-blesses-split-401k-rollovers [9/30/14]

7 – dailyfinance.com/2013/09/09/tax-loss-selling-dont-wait-december-dump-losers/ [9/9/13]

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, Hughes, Northrop Grumman, Merck, Pfizer, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Raytheon, ExxonMobil, Glaxosmithkline,Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

A hugely volatile week concludes. What’s next as earnings season gets underway?

The Market’s Wild Swings

A hugely volatile week concludes. What’s next as earnings season gets underway?

During this past trading week, volatility ruled Wall Street. In fact, stocks either fell or rose 1.5% or more on three consecutive trading days. That had happened only 54 times since 1928.1

What prompted these ups & downs? Several factors.  The International Monetary Fund just cut its global and Asia growth forecasts for 2015 and stated that the eurozone could soon slide into another recession. European Central Bank president Mario Draghi wants easing to stimulate the eurozone economy, yet German finance minister Wolfgang Schäuble doesn’t. The DAX and CAC 40 (the benchmark indices of Germany and France) have both corrected since spring.2

So has the Russell 2000, which wrapped up last week down 13% from its peak in early March. Oil entered a bear market Thursday. Finally, the end of the month will presumably see the end of the Federal Reserve’s quantitative easing effort – which has played a big role in the market’s bull run. The S&P 500 ended Friday down more than 5% from its September 18 record close, and Friday actually saw a rare 100-point drop for the Nasdaq Composite (102.10, to be precise).2,3

Where might things go from here? Stocks could fall further – keep in mind that the S&P has gone more than two years without a correction, definitely an abnormality. On the other hand, fall earnings seasons have tended to give stocks a lift throughout history, so let’s hope history repeats. Bespoke Investments cites some encouraging data: in instances where the market sees 1.5% or greater swings on three straight trading days, the S&P has averaged a gain of 0.55% on the next trading day and 1.13% during the following trading week.1

How big a drag will Europe continue to exert on the market? Agreement between EU finance ministers would give domestic and foreign stocks a lift. If that isn’t there, perhaps earnings – the “mother’s milk” of stocks – will help guide the market back to equilibrium and gains.2

Perhaps the wisest words came from Cornerstone Wealth Management CIO Alan Skrainka, who told USA TODAY Friday: “The market was overdue for a correction. Not every correction develops into a bear market. Every economic slowdown is not a recession. Look for opportunities and maintain a long-term perspective.”3

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/k9nfbxc [10/10/14]

2 – bloomberg.com/news/2014-10-09/index-futures-slip-as-stocks-slump-while-oil-extends-drop.html [10/10/14]

3 – usatoday.com/story/money/markets/2014/10/10/stocks-friday/17022819/ [10/10/14]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, Hughes, Northrop Grumman, access.att.com, ING Retirement, AT&T, Raytheon, ExxonMobil, Qwest, Chevron, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

It isn’t always top of mind, but it should be. Taking Taxes Into Account When Saving & Investing.

Taking Taxes Into Account When Saving & Investing

It isn’t always top of mind, but it should be.

How many of us save and invest with an eye on tax implications? Not that many of us, according to a recent survey from Russell Investments (the global asset manager overseeing the Russell 2000). In the opening quarter of 2014, Russell polled financial services professionals and asked them how many of their clients had inquired about tax-sensitive investment strategies. Just 35% of the polled financial professionals reported clients wanting information about them, and just 18% said their clients proactively wanted to discuss the matter.1

Good financial professionals aren’t shy about bringing this up, of course. In the Russell survey, 75% of respondents said that they made tax-managed investments available to their clients.1

When is the ideal time to address tax matters? The end of a year can prompt many investors to think about tax issues. Investors’ biggest concerns may include any sudden changes to tax law. Congress often saves such changes for the eleventh hour. Sometimes they present opportunities, other times unwelcome surprises.

The problem is that your time frame can be pretty short once December rolls around. You can’t always pull off that year-end charitable donation, gift of appreciated securities, or extra retirement plan contribution; sometimes your financial situation or sheer logistics get in the way. It is better to think about these things in July or January, or simply year-round.

While thinking about the tax implications of your investments year-round may seem like a chore, it may save you some money. Your financial services professional can help you stay aware of the tax ramifications of certain financial moves.

Think about taxes as you contribute to your retirement accounts. Do you contribute to a qualified retirement plan at work? In doing so, you can lower your taxable income (and your yearly tax liability). Why? Those contributions are made with pre-tax dollars. In 2014, you can contribute up to $17,500 to a 401(k) or 403(b) account or the federal government’s Thrift Savings Plan. If you are 50 or older this year, you can put in up to $23,000 into these accounts. The same is true for most 457 plans. This can reduce your taxable income and lower your tax bill.2,4

Think about where you want to live when you retire. Certain states have high personal income tax rates affecting wealthy households, and others don’t levy state income tax at all. If you are wealthy and want to retire in a state with higher rates, a Roth IRA may start to look pretty good versus a traditional IRA. Withdrawals from a Roth IRA aren’t taxed (assuming the Roth IRA owner follows IRS rules), because contributions to a Roth are made with after-tax dollars. Distributions you take from a traditional IRA in retirement will be taxed.2

 

What capital gains tax rate will you face on a particular investment? In 2013, the long-term capital gains tax rate became 20% for high earners, up from 15%. On top of that, the Affordable Care Act Surtax of 3.8% effectively took the long-term capital gains tax rate to 23.8% for investors earning more than $200,000.2,3

Greater capital gains taxes can actually be levied in some cases. Take the case of real estate depreciation. If you sell real property that you have depreciated, part of your gain will be taxed at 25%. The long-term capital gains tax rate for collectibles is 28%. Own any qualified small business stock? If you have owned it for over five years, you typically can exclude 50% of any gains from income, but the other 50% will be taxed at 28%. Lastly, if you sell an asset you’ve held for less than a year, the money you realize from that sale will be taxed at the short-term rate (i.e., regular income), which could be as high as 39.6%.2,3

Are you deducting all you can? The mortgage interest deduction is not always noticed by taxpayers. If a home loan exceeds $1.1 million, interest above that amount may not qualify for a deduction. Itemizing can be a pain, but may bring you more tax savings than you anticipate.2

A tax-sensitive investing approach is always specific to the individual. Therefore, any strategy needs to start with an in-depth discussion with your tax or financial professional.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – russell.com/us/newsroom/press-releases/2014/russell-survey-advisors-say-tax-aware-investment-strategies-not-top-of-mind.page? [4/29/14]

2 – foxbusiness.com/personal-finance/2014/08/07/investments-and-tax-planning-go-hand-in-hand/ [8/7/14]

3 – bankrate.com/finance/money-guides/capital-gains-tax-rates-1.aspx [3/27/14]

4 – irs.gov/uac/IRS-Announces-2014-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$17,500-to-their-401%28k%29-plans-in-2014 [11/4/13]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by ING Retirement, AT&T, Northrop Grumman, Raytheon, fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Qwest, Chevron, Hughes, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

They are no longer exempt from creditors & bankruptcy proceedings

Less Protection for Inherited IRAs

They are no longer exempt from creditors & bankruptcy proceedings.

 

A SCOTUS ruling raises eyebrows. On June 12, 2014, the Supreme Court ruled 9-0 that assets held within inherited IRAs by non-spousal beneficiaries do not legally constitute “retirement funds.” Therefore, those assets are not protected from creditors under federal bankruptcy statutes.1,2

 

This opinion may have you scratching your head. “IRA” stands for Individual Retirement Arrangement, right? So how could IRA assets fail to qualify as retirement assets?

 

Here is the background behind the decision. In 2010, a Wisconsin resident named Heidi Heffron-Clark filed for Chapter 7 bankruptcy. In doing so, she listed an inherited IRA with a balance of around $300,000 as an exempt asset. No doubt this seemed reasonable: the Bankruptcy Abuse Prevention and Consumer Protection Act provided a cumulative $1 million inflation-adjusted bankruptcy exemption for both traditional IRAs and Roth IRAs in 2005.3

 

So under BAPCPA, wasn’t that $300K in inherited IRA funds held by Ms. Heffron-Clark creditor-protected? Her creditors, the bankruptcy trustee and the Wisconsin bankruptcy court all thought not. That wasn’t surprising, as bankruptcy trustees have issued numerous challenges to the exemption status of inherited IRAs since BAPCPA’s passing.3

 

Clark v. Rameker made it all the way to the country’s highest court, and boiled down to one question: is an inherited IRA a retirement account, or not?

 

The Supreme Court rejected the idea that a retirement account for one individual automatically becomes a retirement account for the individual who inherits it. It made that stand based on three features of inherited IRAs:

 

** The beneficiary of an inherited IRA can draw down all of the IRA balance at any time and use the money for anything without any penalty. Compare that to the original IRA owner, who will face penalties for (most) IRA distributions taken before age 59½.

** Typically, beneficiaries of inherited IRAs must start to take required minimum distributions (RMDs) in the year after they inherit the IRA; it doesn’t matter how old they are when that happens. They could be 68 years old, they could be 8 years old – age doesn’t factor into the RMD rules.

** Unlike the original IRA owner, the beneficiary of an inherited IRA can’t contribute to that account – another strike against the contextualization of an inherited IRA as a retirement fund.3

 

All this gave the high court a basis for its decision.

 

Do IRA funds that pass to surviving spouses remain creditor-protected? It would seem so. Frustratingly, the Supreme Court didn’t tackle that question in its ruling. IRAs inherited from spouses are still presumably exempt from federal bankruptcy laws, and if a surviving spouse rolls over inherited IRA assets into an IRA of his or her own, the resulting enlarged IRA is presumably still defined as a retirement account. Oral arguments heard in Clark v. Rameker may help to reinforce this view; the bankruptcy trustee’s lawyer emphasized the differences between Ms. Heffron-Clark’s inherited IRA and one inherited from a decedent.3

 

State laws may save some inherited IRA assets. If a non-spousal beneficiary inherits an IRA and lives in Alaska, Arizona, Florida, Missouri, North Carolina, Ohio or Texas, state law is on his or her side. In those states, bankruptcy exemption statutes shelter inherited IRAs.2

 

What if the heir lives elsewhere? That could pose a problem. If an IRA owner fails to play defense, the IRA assets could one day be at risk if a non-spousal beneficiary inherits them.

 

Designating a trust as the IRA beneficiary isn’t the only option here, but it certainly has merit. The hitch is that putting an IRA into a trust is rather involved. Trusts also come with fees, paperwork and complexity, and the non-spousal beneficiary of the IRA assets should have some financial literacy.1

 

In the case of a traditional IRA, a Roth conversion might be an option worth examining. (The conversion would have to happen during the original owner’s lifetime.) Another option: some of the IRA balance could be spent on life insurance which could be left to a trust; life some of the IRA balance could be spent on life insurance which could be left to a trust; life insurance proceeds are tax-free, and a life insurance policy is much more suited to inclusion in a trust than a traditional or Roth IRA.2

 

The bottom line? If you fear that the heir(s) to your IRA might face bankruptcy proceedings someday, talk with a financial or legal professional about your options. If state law won’t protect those assets, a trust might be wise.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – blogs.marketwatch.com/encore/2014/06/12/scotus-inherited-iras-not-retirement-accounts/ [6/12/14]

2 – tinyurl.com/n9g4acw [7/13/14]

3 – theslottreport.com/2014/06/supreme-court-inherited-iras-are-not.html [6/18/14]

 

The Retirement Group is not affiliated with nor endorsed by Chevron, Hughes, ING Retirement, AT&T, fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Qwest, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.