Retirement Reform in 2019

Two years ago, the current government built their own mark on the United States with what some call the most necessary and important tax reform. The retirement reform that they are planning might be the long shot of 2019 since there are four important pieces of retirement reform in legislation before Congress. Every single piece tends to have been supported by both sides in their latest drafts, on the other hand there are various regulatory advancements and state level when it comes to retirement savings that are also moving onward and upward.

The Four Extensive Retirement Acts

  • Retirement Enhancement and Savings Act
  • Retirement Parity for Student Loans Act of 2018
  • Retirement Security and Savings Act of 2019
  • Social Security 2100 Act

The RESA or the Retirement Enhancement and Savings Act was originally introduced almost four years ago, however, it was reintroduced once again this year. The Director of Economic Policy at the Bipartisan Policy Center, Shai Akbas, said this bill has been the primary objective in Congress for years.  He also said that Washington has been expecting the bill to move on at a binary level and basis. The current Congress simply thinks that this bill has the capacity to create numerous changes to the current retirement system by making it more accessible to workers in various employer contribution plans, eliminating the limitation of age on their Individual Retirement Account for contributions, eliminating several restrictions on the enrollment for 401k plans, and making it easier for them to acquire the available options of lifetime income from their retirement plan that has been qualified and accepted.

The Retirement Party for Student Loans Act of 2018 (or the RPSLA) was originally introduced last year and was referred to the Finance Committee of the Senate. In relation to the Retirement Security and Savings Act, the introduction of this act also requires to be reintroduced. The RPSLA has the ability to allow 403b and 401k plans (and other straightforward retirement plans) to build contributions that match the retirement account of an employee by dealing with student loan payments just like salary deferral contributions. An employee would focus on paying off any student debts while having their current employer contribute to the retirement plan that they selected. The strategy of the bill tends to be wide and strong in support but it is still not clear whether or not the bill can proceed as a stand-alone since it has the possibility to become attached as a provision or to combine with another retirement bill.

On the other hand, the Retirement Security and Savings Act of 2019 was initially introduced to the Senate of the United States during their final session last December. The RSSA or the Retirement Security and Savings Act is a bill that currently has some controversial factors such as increasing the savings in 401k plans and Individual Retirement Account.  This would  assist with a small employer coverage for those who work part-time, a change in required minimum distribution laws for individuals who are planning to work after the age of 71, and eliminating the hurdles for the inclusion of lifetime income options when it comes to retirement plans.

Last but not least, the Social Security 2100 Act was first introduced in the Senate this year and the Act currently has more than two hundred cosponsors in the House. Shai Akabas stated that the Act has the power to increase benefits in Social Security and to resolve the issues in funding and the affected system through an increase in taxes.

2019 could be quite a year for current and future retirees.  We are here to help you navigate through your journey.

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At 59 ½ – You Can Take Control!

Before you turn 60 years old, your 401k plan has a set up that you may want to take advantage of. In the past, there has been a lot of middle-aged taxpayers who were scared to open certain bank accounts. Nowadays, those thoughts of being financially taken advantage of are not what investors are thinking about. In fact, if you have contributed to a 401k plan, you can have in-service withdrawals happen before you turn 60. Primarily, these withdrawals are those who are still employed at that age.

Whenever you are starting a 401k plan, it’s best to ask about all of the benefits of having the account before starting your investing process. There are some advantages and disadvantages that you would have to think about. For instance, the advantages of taking charge of your 401k through in-service withdrawals are:

  • greater flexibility
  • benefits for beneficiaries
  • exceptions on certain penalties
  • protection of the money you have invested or earned over the account
  • if you have stock in your company, this could be a great retirement plan
  • early retirement could be an option
  • 401k plans will move to another employer when you turn 55 or older with no penalty

When choosing to find out about the disadvantages that an in-service withdrawal contains, you may run into the following issues:

  • If you have an IRA, your penalties will take place if you are under 60 years old
  • moving your money from a 401k plan to an IRA changes the rules for your account
  • 401k protects you from creditors that would want to be paid through your account

There are different employers that will offer in-service withdrawal plans. On the other hand, there are employers that don’t offer this valuable money-making tool. For advice on investing, you can speak to someone in the administrative department at your job. From there, you should be guided to the right solution. For more information, you can research 401k plans at contolling your assets.

When an employee qualifies for an in-service withdrawal, it can be looked at as an early retirement contribution to themselves. In fact, you can use that money to vacation and travel without worrying about penalties at all. Additionally, you don’t have to worry about tax laws diminishing what you’ve earned. Each employer that offers this in-service withdrawal plan has ordering rules. If you want to read about in-service withdrawal plans a little more, you can research the topic at in-service withdrawl.

Believe it or not, your employer will start helping you plan an in-service withdrawal through your 401k at 59½ years old. You could feel your best days once you plan the withdrawals. For affluent individuals, a 401k plan could be the very reason why you start a new adventure or look for a new trade. Moreover, there could be a new lease on life for you as well as your family.

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Your Retirement Paycheck Matters

Your Retirement Paycheck Matters Retirement income is not a one size fits all calculation as wants and needs vary significantly from one person to the next. Several factors such as life expectancy inflation, and balances do play a huge part but considering your retirement expectations for the “golden years” will help in the planning process to make the most of your retirement.

Remember your first payday? How excited were you to get that hard-earned cash in your hands? You opened the envelope and found all sorts of deductions from your pay, federal taxes, social security, and healthcare expenses. You officially started paying bills and contributing to your retirement years with that first paycheck. You continued to work hard and grew in your career, you were given opportunities for employee stock purchase plans, profit sharing, and retirement plans, including pensions and 401Ks. You on your way and building your nest egg.

As you get closer to the retirement years, you need to start making plans. Whether it be traveling, a summer home purchase, or just relaxing with family, your plans are important to your retirement income needs. Some people retire right at 62 when they can collect social security benefits. Did you know if you continue to work till 66 you will receive the full benefit payout? And if you work till 70, you will receive a 32% bonus!

Sadly, but understandably, many new retirees worry they haven’t saved enough. Sometimes life happens and plans become changed. You may hesitate and not do the things you looked forward to during your working years due to fear of over spending or running out of money. When this happens, retirees often realize they had enough funds for their plans when it’s too late. Their health deteriorated, and that can make it hard for us to enjoy the things we were looking most forward to in our retirement years.

How can we prevent emotions from controlling our spending? By planning. Part of your retirement plan should include setting an amount for your retirement paycheck. Much like the paycheck received from work, a retirement paycheck is an amount you set to cover all monthly expenses and include the costs of your retirement activities, like traveling or moving.

It’s generally safe to assume you will need 80% of your current salary. This should serve as a good starting point. Then, you can look at your plans. Is there a big wedding or healthcare costs that may incur a large payment? Where will you be living? Many retirees may move into a retirement community while others may just downsize their home or stay put where they are.

As you look at your plans, be flexible but realistic. Your income needs may vary from year to year. You may buy a new car ever 5 years or so and vacations may be every other year. Some people will continue to work after retiring. Adjust accordingly. There is no need to take more money than out of your retirement vehicles than required. Allow those long-term savings to grow until it’s necessary to retrieve them. You will find confidence in knowing you have a steady income stream with consistent retirement paychecks to meet your spending needs.

If you’re looking for planning help, we are here to guide you to and through your retirement years.

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Avoid Tax Season Scams

Tax season is once again in full swing. While many concerned taxpayers file tax returns to meet the required deadline, criminals work harder to cash in taking advantage of the hectic tax season. Tax fraud remains a growing concern nationally, and counterfeit scams cost millions of dollars. Individuals who take a proactive approach can deter fraud and protect their identity, information and their finances. Here are a few recent scams catching the watchful eye of the IRS.

TAX PREPARATION SCAMS
The IRS just released notice IR-2019-09 to alert taxpayers of unscrupulous tax preparers. Deceitful tax preparers file erroneous tax returns for many unknown taxpayers. The law requires all preparers who receive payment for preparation of federal tax returns to have a valid Preparer Tax Identification Number (PTIN). The tax preparer must include their PTIN and sign the return. For e-filed tax returns, a dishonest preparer will omit his electronic signature. Additionally, they may falsify tax information to increase the refund, while directing the refund into their bank account. Tax payers must review their tax returns for accuracy of income and deductions. Ensure the tax preparer signs the return and includes their PTIN. Make sure the bank account and routing numbers are correct. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications provides an excellent resource to locate established tax preparers with the IRS.

CHARITABLE GIVING SCAMS
In the fall of 2018, the IRS posted notice IR-2018-188 to inform individuals of charitable giving scams. The 2018 hurricane season ended with Hurricane Florence and Michael wreaking destruction in its pathway, destroying homes and causing millions of dollars in damages. Natural disasters bring out the best in generous individuals seeking to aid donations to humanity in times of a national emergency. Sadly, criminals take advantage of benevolent individuals who desire to financially aid their fellow man in dire need. Counterfeit websites disguise themselves as other well-known established charities to deceive generous individuals to donate money to a dire cause. Additionally, some individuals receive solicitations from fraudulent charities, promising a nice tax deduction in return for your donation. Don’t fall victim to their schemes. Donors can prevent thousands of dollars from falling into the wrong hands. The IRS provides a tool to help prevent against charitable giving scams. Donors can verify if a charity is legitimate by utilizing the IRS search tool, Tax Exempt Organization Search. Never give to a charity who solicits a donation without first verifying the authenticity of their organization.

EMAIL PHISHING SCAMS
In IRS notice IR-2018-226, the IRS alerts taxpayers to a recent spike in email phishing scams. While fraudulent emails and phishing scams have been around awhile, data thieves continue working diligently to improve new tactics to steal valuable information. Emotet is the infected malware of choice in many email scams, and Emotet remains well-known as the most damaging and expensive to fix. Many of these scam emails display tax account transcript in the subject line of the email and include infected attachments with similar wording. These emails appear legitimate. They often disguise themselves as representatives with banks, financial institutions and the IRS. The IRS logo and other well-known bank logos appear real, and many unsuspecting individuals open the infected email attachment. The IRS does not contact individuals through email. The IRS warns individuals to not open suspecting emails. The IRS remains diligent to combat against fraud. If you suspect a suspicious email, you can also forward the email to phishing@irs.gov.

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What is the Social Security 2100 Act?

Democratic Congressman John B. Larson introduced the Social Security 2100 Act on January 30, 2019. The proposed legislation seeks to raise payroll taxes to keep Social Security solvent and expand benefits.

Payroll Tax Increases

Some say that Social Security is in crisis. The program has had a deficit every year since 2010. If Congress does not act, the Social Security Trust Fund is forecast to become insolvent by 2034. The Social Security 2100 Act would address that problem by raising the 12.4 percent payroll tax by 0.1 percent annually until the tax reaches 14.8 percent.

The bill increases payroll taxes in another way. Today, the Social Security payroll tax is levied on all earned income up to $132,900. The new legislation would subject earned income over $400,000 to the payroll tax. Initially, earned income between $132,900 to $400,000 would be exempt from the payroll tax. This exemption gradually would be phased out as long as the cost of living adjustment is going up. All of the bills combined tax increases are projected to keep the Social Security solvent for 75 years.

Benefits Expand

In addition to addressing the insolvency crisis, the other goal of the proposed bill is to expand Social Security benefits. The key measures to increase benefits follow.

  • All recipients would see their benefits rise by about two percent.
    To accomplish this, the primary insurance amount factor would move from 90 percent to 93 percent starting in 2020.
  • The cost of living adjustment would increase.
    Currently, the cost of living adjustment is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Although the Social Security cost of living adjustment has been tied to CPI-W since 1975, the index doesn’t reflect the spending habits of the Social Security’s primary demographic group, the elderly. The Social Security 2100 Act would base the cost of living adjustment on the Consumer Price Index for the Elderly, which takes into account that the elderly spend more in certain categories such as healthcare.
  • The minimum benefit would increase.
    Today’s benefit is below the poverty level. Starting in 2020, the bill would raise the minimum benefit to reduce poverty among new retirees and the newly disabled.
  • Federal income tax would be reduced or eliminated on Social Security benefits for select recipients.
    Currently, Social Security benefits are taxed if the recipient’s overall income reaches certain income tiers. For example, single tax filers who have an adjusted gross income (AGI) plus one half of benefits of greater than $25,000 can have up to 50 percent of their Social Security benefit taxed. However, at greater than $34,000 of AGI plus one half of benefits, up to 85 percent of Social Security benefits are taxed. The Social Security 2100 Act would simplify taxation by eliminating the tiers and create one income threshold for each taxpayer filing status. The new threshold is up to 85 percent of benefits are taxed for single filers with an AGI over $50,000 and an AGI over $100,000 for joint filers.

Planning for your own retirement income will likely provide you with peace of mind.  Let us know, we can help.

 

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How a Divorce Can Affect Your Retirement

The divorce is being called the most expensive divorce in recent history, the divorce of Amazon CEO & Founder, Jeff Bezos and his wife.  While his divorce could be expensive, he will financially be able to survive the transition.  Some of us are not so lucky.

Divorce is always hard on many levels. One of the things that is most important is the financial split of the couple’s assets. These assets include retirement benefits and investments. Figuring out how benefits should be divided, or if they are even able to be divided, can be a minefield if not navigated properly.

It is often that one of the spouses becomes the couple’s treasurer, but it is important that both partners are aware of the couple’s financial situation. This is especially true when it comes to investments. If one spouse was not as attentive to the tax responsibilities, it could affect the other spouse’s share. If the spouse was deceptive about the couple’s investments, this could make issues between the couple even worse. Hiring a forensic accountant can help find discrepancies or deceptive practices by the responsible spouse.

When it comes to retirement benefits, there are only certain things eligible to be split during a divorce. Those eligible are considered community property, and include things like military pensions, GI Bill benefits, IRAs, employee stock option plans, and 401(k) plans. Benefits that are not considered community property are Social Security benefits, Worker’s compensation, and any military injury compensation. It is often advised that if the spouse’s benefits are sizable that the other spouse should petition to split the benefits. Benefits are usually split by percentage instead of a money value in case the value of some of the benefits fluctuates between the time of evaluation and actual settlement.

There are some other exceptions and considerations when it comes to benefits. For instance, if a spouse invested money or started a 401(k) before the marriage and continued to pay into them during the marriage, the amount invested before the marriage must be deducted from the total amount before any valuation can be made.

When it comes to Social Security benefits, a couple must have been married at least 10 years for one spouse to have a claim to them. However, the claiming spouse cannot have their own Social Security benefit value exceed half of their spouse’s. If there is a possibility that a spouse will have a claim to the other’s Social Security benefits, they may request a delay in proceedings in order to pass the 10 year threshold. If the length of marriage is close to 10 years, the court may issue a continuance. If the spouse with the Social Security benefits dies after the proceedings are over, the surviving former spouse can collect 100 percent of their Social Security.

When married couples split up, the financial quandaries can be messy. Knowing the law, and getting advice from a financial expert is a good idea for both spouses involved. It is beneficial for both spouses to be well aware of the collective financial situation so surprising issues like back taxes or hidden assets can be avoided. Maintaining the financial futures of both former spouses is key to making sure the separation is a clean one with no resentment or animosity between those involved.

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