IRA

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]

Traditional vs. Roth IRAs

Perhaps both traditional and Roth IRAs can play a part in your retirement plans

IRAs can be an important tool in your retirement savings belt, and whichever you choose to open could have a significant impact on how those accounts might grow.

IRAs, or Individual Retirement Accounts, are tax advantage accounts used to help save money for retirement. There are two different types of IRAs: traditional and Roth. Traditional IRAs, created in 1974, are owned by roughly 35.1 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households. 1

Both kinds of IRAs share many similarities, and yet, each is quite different. Let's take a closer look.

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into the retirement account. Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2019 has been phased out for incomes between $103,000 and $123,000 for married couples filing jointly and between $64,000 and $74,000 for single filers. 2,3

Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2019, contributions to a Roth IRA are phased out between $193,000 and $203,000 for married couples filing jointly and between $122,000 and $137,000 for single filers. 2,3

In addition to contribution and distribution rules, there are limits on how much can be contributed to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year. 4

Individuals who reach age 50 or older by the end of the tax year can qualify for annual “catchup” contributions of up to $1,000. So, for these IRA owners, the 2019 IRA contribution limit is $7,000. 4

If you meet the income requirements, both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: opening an account.

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 - https://www.ici.org/pdf/per23-10.pdf [12/17]

2 - https://www.marketwatch.com/story/gearing-up-for-retirement-make-sure-you-understand-your-tax-obligations-2018-06-14 [6/14/18]

3 - https://money.usnews.com/money/retirement/articles/new-401-k-and-ira-limits [11/12/18]

4 - https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits [11/2/18]

Your 2019 Financial To-Do List

Things you can do for your future as the year unfolds.

What financial, business, or life priorities do you need to address for 2019? Now is a good time

to think about the investing, saving, or budgeting methods you could employ toward specific

objectives, from building your retirement fund to lowering your taxes. You have plenty of

options. Here are a few that might prove convenient.

Can you contribute more to your retirement plans this year? In 2019, the yearly

contribution limit for a Roth or traditional IRA rises to $6,000 ($7,000 for those making “catch-

up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can

put into a Roth IRA: singles and heads of household with MAGI above $137,000 and joint filers

with MAGI above $203,000 cannot make 2019 Roth contributions.1

For tax year 2019, you can contribute up to $19,000 to 401(k), 403(b), and most 457 plans,

with a $6,000 catch-up contribution allowed if you are age 50 or older. If you are self-

employed, you may want to look into whether you can establish and fund a solo 401(k) before

the end of 2019; as employer contributions may also be made to solo 401(k)s, you may direct

up to $56,000 into one of those plans.1

Your retirement plan contribution could help your tax picture. If you won’t turn 70½ in 2019

and you participate in a traditional qualified retirement plan or have a traditional IRA, you can

cut your taxable income through a contribution. Should you be in the new 24% federal tax

bracket, you can save $1,440 in taxes as a byproduct of a $6,000 traditional IRA contribution.2

What are the income limits on deducting traditional IRA contributions? If you participate in a

workplace retirement plan, the 2019 MAGI phase-out ranges are $64,000-$74,000 for singles

and heads of households, $103,000-$123,000 for joint filers when the spouse making IRA

contributions is covered by a workplace retirement plan, and $193,000-$203,000 for an IRA

contributor not covered by a workplace retirement plan, but married to someone who is.1

Roth IRAs and Roth 401(k)s, 403(b)s, and 457 plans are funded with after-tax dollars, so you

may not take an immediate federal tax deduction for your contributions to them. The upside is

that if you follow I.R.S. rules, the account assets may eventually be withdrawn tax free.3

Your tax year 2019 contribution to a Roth or traditional IRA may be made as late as the 2020

federal tax deadline – and, for that matter, you can make a 2018 IRA contribution as late as

April 15, 2019, which is the deadline for filing your 2018 federal return. There is no merit in

waiting until April of the successive year, however, since delaying a contribution only delays

tax-advantaged compounding of those dollars.1,3

Should you go Roth in 2019? You might be considering that if you only have a traditional IRA.

This is no snap decision; the Internal Revenue Service no longer gives you a chance to undo it,

and the tax impact of the conversion must be weighed versus the potential future benefits. If

you are a high earner, you should know that income phase-out limits may affect your chance to

make Roth IRA contributions. For 2019, phase-outs kick in at $193,000 for joint filers and

$122,000 for single filers and heads of household. Should your income prevent you from

contributing to a Roth IRA at all, you still have the chance to contribute to a traditional IRA in

2019 and go Roth later.1,4

Incidentally, a footnote: distributions from certain qualified retirement plans, such as 401(k)s,

are not subject to the 3.8% Net Investment Income Tax (NIIT) affecting single/joint filers with

MAGIs over $200,000/$250,000. If your MAGI does surpass these thresholds, then dividends,

royalties, the taxable part of non-qualified annuity income, taxable interest, passive income

(such as partnership and rental income), and net capital gains from the sale of real estate and

investments are subject to that surtax. (Please note that the NIIT threshold is just $125,000

for spouses who choose to file their federal taxes separately.)5

Consult a tax or financial professional before you make any IRA moves to see how those

changes may affect your overall financial picture. If you have a large, traditional IRA, the

projected tax resulting from a Roth conversion may make you think twice.

What else should you consider in 2019? There are other things you may want to do or review.

Make charitable gifts. The individual standard deduction rises to $12,000 in 2019, so there

will be less incentive to itemize deductions for many taxpayers – but charitable donations are

still deductible if they are itemized. If you plan to gift more than $12,000 to qualified charities

and non-profits in 2019, remember that the paper trail is important.6

If you give cash, you need to document it. Even small contributions need to be demonstrated

by a bank record or a written communication from the charity with the date and amount.

Incidentally, the I.R.S. does not equate a pledge with a donation. You must contribute to a

qualified charity to claim a federal charitable tax deduction. Incidentally, the Tax Cuts and Jobs

Act lifted the ceiling on the amount of cash you can give to a charity per year – you can now

gift up to 60% of your adjusted gross income in cash per year, rather than 50%.6,7

What if you gift appreciated securities? If you have owned them for more than a year, you will

be in line to take a deduction for 100% of their fair market value and avoid capital gains tax

that would have resulted from simply selling the investment and donating the proceeds. The

nonprofit organization gets the full amount of the gift, and you can claim a deduction of up to

30% of your adjusted gross income.8

Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a

qualified charitable organization, you should ask that charity or non-profit group for a receipt.

You should always request a receipt for a cash gift, no matter how large or small the amount.8

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at

IRS.GOV/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

Open an HSA. If you are enrolled in a high-deductible health plan, you may set up and fund a

Health Savings Account in 2019. You can make fully tax-deductible HSA contributions of up to

$3,500 (singles) or $7,000 (families); catch-up contributions of up to $1,000 are permitted for

those 55 or older. HSA assets grow tax deferred, and withdrawals from these accounts are tax

free if used to pay for qualified health care expenses.9

Practice tax-loss harvesting. By selling depreciated shares in a taxable investment account,

you can offset capital gains or up to $3,000 in regular income ($1,500 is the annual limit for

married couples who file separately). In fact, you may use this tactic to offset all your total

capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled

over into 2020 (and future tax years) to offset ordinary income or capital gains again.10

Pay attention to asset location. Tax-efficient asset location is an ignored fundamental of

investing. Broadly speaking, your least tax-efficient securities should go in pre-tax accounts,

and your most tax-efficient securities should be held in taxable accounts.

Review your withholding status. You may have updated it last year when the I.R.S. introduced

new withholding tables; you may want to adjust for 2019 due to any of the following factors.

* You tend to pay a great deal of income tax each year.

* You tend to get a big federal tax refund each year.

* You recently married or divorced.

* A family member recently passed away.

* You have a new job, and you are earning much more than you previously did.

* You started a business venture or became self-employed.

Are you marrying in 2019? If so, why not review the beneficiaries of your workplace

retirement plan account, your IRA, and other assets? In light of your marriage, you may want to

make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If

you will have a new last name in 2019, you will need a new Social Security card. Additionally,

the two of you, no doubt, have individual retirement saving and investment strategies. Will

they need to be revised or adjusted once you are married?

Are you coming home from active duty? If so, go ahead and check the status of your credit

and the state of any tax and legal proceedings that might have been preempted by your

orders. Make sure any employee health insurance is still in place. Revoke any power of attorney

you may have granted to another person.

Consider the tax impact of any upcoming transactions. Are you planning to sell (or buy) real

estate next year? How about a business? Do you think you might exercise a stock option in the

coming months? Might any large commissions or bonuses come your way in 2019? Do you

anticipate selling an investment that is held outside of a tax-deferred account? Any of these

actions might significantly impact your 2019 taxes.

If you are retired and older than 70½, remember your year-end RMD. Retirees over age

70½ must begin taking Required Minimum Distributions from traditional IRAs, 401(k)s, SEP IRAs,

and SIMPLE IRAs by December 31 of each year. The I.R.S. penalty for failing to take an RMD

equals 50% of the RMD amount that is not withdrawn.4,11

If you turned 70½ in 2018, you can postpone your initial RMD from an account until April 1,

2019. All subsequent RMDs must be taken by December 31 of the calendar year to which the

RMD applies. The downside of delaying your 2018 RMD into 2019 is that you will have to take

two RMDs in 2019, with both RMDs being taxable events. You will have to make your 2018 tax

year RMD by April 1, 2019, and then take your 2019 tax year RMD by December 31, 2019.11

Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on

your Social Security income. Some Social Security recipients don’t know about the “provisional

income” rule – if your adjusted gross income, plus any non-taxable interest income you earn,

plus 50% of your Social Security benefits surpasses a certain level, then some Social Security

benefits become taxable. Social Security benefits start to be taxed at provisional income levels

of $32,000 for joint filers and $25,000 for single filers.11

Lastly, should you make 13 mortgage payments in 2019? There may be some merit to

making a January 2020 mortgage payment in December 2019. If you have a fixed-rate loan, a

lump- sum payment can reduce the principal and the total interest paid on it by that much

more.

Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in 2019.

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 - forbes.com/sites/ashleaebeling/2018/11/01/irs-announces-2019-retirement-plan-contribution-limits-for-401ks-and-more [11/1/18]

2 - irs.com/articles/2018-federal-tax-rates-personal-exemptions-and-standard-deductions [11/2/17]

3 - irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [7/10/18]

4 - forbes.com/sites/bobcarlson/2018/10/26/7-ira-strategies-for-year-end-2018/ [10/26/18]

5 - irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax [6/18/18]

6 - crainsdetroit.com/philanthropy/what-donors-need-know-about-tax-reform [10/21/18]

7 - thebalance.com/tax-deduction-for-charity-donations-3192983 [7/25/18]

8 - schwab.com/resource-center/insights/content/charitable-donations-the-basics-of-giving [7/2/18]

9 - kiplinger.com/article/insurance/T027-C001-S003-health-savings-account-limits-for-2019.html [8/28/18]

10 - schwab.com/resource-center/insights/content/reap-benefits-tax-loss-harvesting-to-lower-your-tax-bill [10/7/18]

11 - fool.com/retirement/2018/01/29/5-things-to-consider-before-tapping-your-retiremen.aspx [1/29/18]