401 K

Are Your Beneficiary Designations Up to Date?

Presented by Beacon Financial Group

Who should inherit your IRA or 401(k)? See that they do

Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k) or annuity? You may be saying, “I’m not sure.” It is smart to periodically review your beneficiary designations.

Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Nineties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed?

While your beneficiary choices may seem obvious and rock‐solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life and may warrant changes in your beneficiary decisions.

In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. (It has happened.) If you don’t have a designated beneficiary on your retirement accounts, those assets may go to the “default” beneficiaries when you pass away, which might throw a wrench into your estate planning. An example: under ERISA, your spouse receives your 401(k) assets if you pass away. Your spouse must waive that privilege in writing for those assets to go to your children instead. 1

How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k), or life insurance policy may be your spouse, your child, maybe another loved one, or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away.

Many people do not realize that beneficiary designations take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die, regardless of what your will states. 2

You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets?

How your choices affect your estate. If you are naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen. 3

When the beneficiary isn’t your spouse, things get a little more complicated – for your estate and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) And the problem will persist: when your non‐spouse beneficiary inherits those retirement plan assets, those assets become part of their taxable estate, and their heirs might face higher estate taxes. Your non‐spouse heir might also have to take required income distributions from that retirement plan someday and pay the required taxes on that income. 4

If you properly designate a charity or other 501(c)(3) non‐profit organization as a beneficiary of your retirement account assets, the assets can pass to the charity without your estate being taxed, and the gift will be deductible for estate tax purposes. 5

Know someone who could use information like this? Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)


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/ashleaebeling/2018/01/08/five‐retirement‐housekeeping‐moves‐for‐the‐new‐year/ [1/8/18]

2 ‐ thebalance.com/why‐beneficiary‐designations‐override‐your‐will‐2388824 [8/28/17]

3 ‐ nolo.com/legal‐encyclopedia/estate‐planning‐when‐you‐re‐married‐noncitizen.html [2/4/18]

4 ‐ corporate.findlaw.com/law‐library/who‐should‐be‐the‐beneficiary‐of‐your‐qualified‐retirement‐plan.html [2/4/18]

5 ‐ ameriprise.com/research‐market‐insights/financial‐articles/insurance‐estate‐planning/charitable‐giving/ [2/4/18]

End-of-the-Year Money Moves

Here are some things you might want to do before saying goodbye to 2018

What has changed for you in 2018? Did you start a new job or leave a job behind? Did you

retire? Did you start a family? If notable changes occurred in your personal or professional life,

then you will want to review your finances before this year ends and 2019 begins. Even if your

2018 has been relatively uneventful, the end of the year is still a good time to get cracking and

see where you can plan to save some taxes and/or build a little more wealth.

Do you practice tax-loss harvesting? That is the art of taking capital losses (selling securities

worth less than what you first paid for them) to offset your short-term capital gains. If you fall

into one of the upper tax brackets, you might want to consider this move, which directly lowers

your taxable income. It should be made with the guidance of a financial professional you trust.1

In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in

excess of capital gains can be deducted from ordinary income, and any remaining capital

losses above that can be carried forward to offset capital gains in upcoming years. When you

live in a high-tax state, this is one way to defer tax.1

Do you want to itemize deductions? You may just want to take the standard deduction for

2018, which has ballooned to $12,000 for single filers and $24,000 for joint filers because of

the Tax Cuts & Jobs Act. If you do think it might be better for you to itemize, now would be a

good time to get the receipts and assorted paperwork together. While many miscellaneous

deductions have disappeared, some key deductions are still around: the state and local tax

(SALT) deduction, now capped at $10,000; the mortgage interest deduction; the deduction for

charitable contributions, which now has a higher limit of 60% of adjusted gross income; and

the medical expense deduction.2,3

Could you ramp up 401(k) or 403(b) contributions? Contribution to these retirement plans

lower your yearly gross income. If you lower your gross income enough, you might be able to

qualify for other tax credits or breaks available to those under certain income limits. Note that

contributions to Roth 401(k)s and Roth 403(b)s are made with after-tax rather than pre-tax

dollars, so contributions to those accounts are not deductible and will not lower your taxable

income for the year. They will, however, help to strengthen your retirement savings.4

Are you thinking of gifting? How about donating to a qualified charity or non-profit

organization before 2018 ends? In most cases, these gifts are partly tax deductible. You must

itemize deductions using Schedule A to claim a deduction for a charitable gift.5

If you donate publicly traded shares you have owned for at least a year, you can take a

charitable deduction for their fair market value and forgo the capital gains tax hit that would

result from their sale. If you pour some money into a 529 college savings plan on behalf of a

child in 2018, you may be able to claim a full or partial state income tax deduction (depending

on the state).2,6

Of course, you can also reduce the value of your taxable estate with a gift or two. The federal

gift tax exclusion is $15,000 for 2018. So, as an individual, you can gift up to $15,000 to as

many people as you wish this year. A married couple can gift up to $30,000 in 2018 to as many

people as they desire.7

While we’re on the topic of estate planning, why not take a moment to review the beneficiary

designations for your IRA, your life insurance policy, and workplace retirement plan? If you

haven’t reviewed them for a decade or more (which is all too common), double-check to see

that these assets will go where you want them to go, should you pass away. Lastly, look at

your will to see that it remains valid and up-to-date.

Should you convert all or part of a traditional IRA into a Roth IRA? You will be withdrawing

money from that traditional IRA someday, and those withdrawals will equal taxable income.

Withdrawals from a Roth IRA you own are not taxed during your lifetime, assuming you follow

the rules. Translation: tax savings tomorrow. Before you go Roth, you do need to make sure you

have the money to pay taxes on the conversion amount. A Roth IRA conversion can no longer

be recharacterized (reversed).8

Can you take advantage of the American Opportunity Tax Credit? The AOTC allows

individuals whose modified adjusted gross income is $80,000 or less (and joint filers with

MAGI of $160,000 or less) a chance to claim a credit of up to $2,500 for qualified college

expenses. Phase-outs kick in above those MAGI levels.9

See that you have withheld the right amount. The Tax Cuts & Jobs Act lowered federal

income tax rates and altered withholding tables. If you discover that you have withheld too

little on your W-4 form so far in 2018, you may need to adjust your withholding before the year

ends. The Government Accountability Office projects that 21% of taxpayers are withholding

less than they should in 2018. Even an end-of-year adjustment has the potential to save you

some tax.10 Talk with a financial or tax professional now rather than in February or March.

Little year-end moves might help you improve your short-term and long-term financial

situation.

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.

«RepresentativeDisclosure»

Citations.

1 - nerdwallet.com/blog/investing/just-how-valuable-is-daily-tax-loss-harvesting/ [4/16/18]

2 - marketwatch.com/story/how-to-game-the-new-standard-deduction-and-3-other-ways-to-cut-your-2018-tax-bill-2018-10-15 [10/15/18]

3 - hrblock.com/tax-center/irs/tax-reform/3-changes-itemized-deductions-tax-reform-bill/ [10/10/18]

4 - investopedia.com/articles/retirement/06/addroths.asp [2/2/18]

5 - investopedia.com/articles/personal-finance/041315/tips-charitable-contributions-limits-and-taxes.asp [10/1/18]

6 - savingforcollege.com/article/how-much-is-your-state-s-529-plan-tax-deduction-really-worth [9/27/18]

7 - fool.com/retirement/2018/06/28/5-things-you-might-not-know-about-the-estate-tax.aspx [6/28/18]

8 - marketwatch.com/story/how-the-new-tax-law-creates-a-perfect-storm-for-roth-ira-conversions-2018-03-26 [9/15/18]

9 - fool.com/investing/2018/03/17/your-2018-guide-to-college-tuition-tax-breaks.aspx [3/17/18]

10 - money.usnews.com/money/personal-finance/taxes/articles/2018-10-16/should-you-adjust-your-income-tax-withholding [10/16/18]