Insights: The C&J Blog

We offer clients educational insights that help them make sense of the current market & economic environment.  Each monthly investment letter is written by our investment analyst and contains candid insight and perspective that facilitates a clearer and deeper understanding of our views.  Alongside our monthly investment letters, we also maintain a blog that touches on a variety of topics relating to financial planning and investing.  If there is a question or topic on your mind that you’d like for us to discuss in a future investment letter, feel free to let us know at ssmith@cjwealth.com.

Planning for a Disclaimer in 5 Easy Steps

What is a disclaimer?

beneficiary disclaimerA disclaimer is a formal refusal of an inheritance (or part of an inheritance) by a beneficiary.  By creating a “path” for disclaimed assets to follow, a skilled planner can provide a beneficiary with the option to pass assets to alternate beneficiaries.

1. Make sure the IRA owner names contingent beneficiaries.  Naming a contingent beneficiary directly on the beneficiary form is good practice and a pivotal part of most disclaimer planning.  When a disclaimer is executed, the person making the disclaimer is treated as if he or she had predeceased the IRA owner.  The contingent beneficiary would then inherit the property.  If there is no contingent beneficiary listed, often the funds will default to the estate of the deceased IRA owner.

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Quick Facts on Roth IRA Contributions

Here are some facts that you need to know about Roth IRA Contributions.

  • Roth IRA ContributionsYou have earned income
  • You contribute already taxed funds (after-tax funds) to a Roth IRA
  • You receive no tax deduction for your Roth IRA contribution
  • You can continue to contribute to a Roth IRA after age 70 ½
  • Qualified withdrawals are income-tax free (a withdrawal made after any Roth account has been established for 5 years and the Roth owner is over the age of 59 ½ or qualifies for the first-time homebuyer exception or the distribution is due to the account owner’s death or disability)

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Roth IRAs Favored for Annual Contributions, Neglected for Rollovers from Company Plans

Roth IRAsRoth IRAs become 20 years old in January of 2018 and now hold more than $660 billion in retirement wealth, reports the Investment Company Institute (the source of the data in this article). 

Yet while Roth IRAs have become very popular among individuals who make annual contributions to IRAs, they are near totally avoided by persons who roll over big-dollar distributions from company retirement plans into their IRAs, with these funds going overwhelmingly into Traditional IRAs.

This suggests that some people are undervaluing the benefits of making a rollover into a Roth IRA. If you are an individual with funds to roll over, it may pay to re-examine the benefits of choosing a Roth IRA to be the destination of a big-dollar rollover.

IRA Snapshots

Contributions to Roth IRAs exceeded those to Traditional IRAs by $21.9 billion to $17.5 billion in 2014, even though only about one-third of IRA owners have a Roth.  Yet Traditional IRAs now hold near $7 trillion in assets, dwarfing the total in Roths. The main reason is that rollovers of large balances from employer plans flow overwhelmingly into Traditional IRAs. Rollovers totaled $423.9 billion into Traditional IRAs versus a mere $5.7 billion into Roth IRAs in 2014 – Traditional IRAs received 98% of rollovers.

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10 Things to Know About the Still-Working Exception

By Sarah Brenner, JD
IRA Analyst with Ed Slott

Still-Working Exception

Are you approaching retirement age and not looking forward to being forced to take unwanted required minimum distributions (RMDs) from your retirement account? You may be looking for a way to delay those distributions. You may have heard about the still-working exception, which can allow RMDs to be put off. Will this exception help you? Here are 10 things you need to know.

1.  The still-working exception does not apply to IRAs. It only applies to company plans. If you are still working, that can’t help you delay RMDs from your IRA.

2.  The exception will only apply to the plan of the company for which you are still working. If you have other funds in other company plans it won’t help you with those.

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Is Your IRA Haunted?

IRA HauntedIt’s Halloween! This is the time for ghosts, witches, and trick or treating. What does Halloween have to do with your IRA? You might be surprised to hear that your IRA may be haunted. How can that be? Believe it or not, actions you take, or don’t take, can haunt your beneficiaries for years down the road.

Many IRA owners think that naming their estate as their IRA beneficiary is a good way to go. They think that they have spent time and money consulting with an attorney to draft the perfect will. All the work has been done. Why not just name their estate as their IRA beneficiary? Wrong move! That can result in scary stuff that can haunt your IRA beneficiaries. If you name your estate as the beneficiary on your IRA beneficiary designation form, your beneficiaries will not be able to stretch distributions over their own life expectancy. They may even have to take a total distribution of the IRA assets in five years. That could be a serious tax hit. There is no way to fix this after your death. To have the maximum stretch options possible, living people or a qualified trust must be named on the beneficiary designation form.

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Contact the C&J Ghostbusters!

The Importance of Financial Certifications

Financial certifications are a commitment to the client’s best interest

Financial certificationsYou’ve decided to get serious about your financial future and want to find a financial advisor to guide your decisions. There’s a lot to consider in creating a comprehensive financial plan.

Pulling all the pieces of your financial life together—budgeting, retirement planning, saving for education, insurance, taxes, and investing—is a challenging endeavor.

Finding credentialed professionals is essential. Many professionals call themselves financial planners and most people think all financial advisors are “certified,” but this isn’t true. Only those that have fulfilled and maintained the requirements of the CFP Board can display the CFP® trademark and call themselves a CERTIFIED FINANCIAL PLANNER™.

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How Your Inherited IRA is Taxed

Couple inherited IRA Have you inherited an IRA? What type of IRA is it? Your answer will matter a lot when it comes to your tax bill. Inheriting a traditional IRA will have very different tax consequences than inheriting a Roth IRA.

Consider the following example. Let’s say Tom named his three children as beneficiaries of his three-million-dollar traditional IRA. He never made any nondeductible contributions. When his children take distributions from the traditional inherited IRA those distributions will be fully taxable, but not subject to penalty. What if Tom converted his traditional IRA to a Roth IRA more than five years ago? All distributions from the Roth IRA paid to his children would be tax and penalty free. That is a very different result.

Traditional IRA

If you were named the beneficiary of a traditional IRA, you will most likely face income tax consequences. This is because most funds in traditional IRAs are tax-deferred but not tax-free. Uncle Sam will eventually want his share. Distributions to beneficiaries will be taxable to the beneficiaries in the year taken. You can minimize the tax impact by using the stretch and taking distributions over the longest period of time the rules allow.

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5 Easy Steps to a Roth IRA Recharacterization

What is a Roth IRA recharacterization?

Roth IRA recharacterizationIn the simplest of terms, a Roth IRA recharacterization is an “undo.”  It erases a Roth IRA conversion, and the conversion is treated as if it never occurred.

1.  Meet the deadline.   A Roth IRA conversion can be recharacterized until October 15 of the year after the calendar year of conversion. That means that either a January 1, 2017 or a December 31, 2017 conversion can be recharacterized through October 15, 2018. If you miss the October 15 deadline, the only way to get an extension is to go for a private letter ruling from the IRS.

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5 Retirement Strategies for Younger Workers

retirement strategies for younger workersNo one can argue that the millennial generation faces big challenges when it comes to savings. Younger workers are dealing with record setting student loan debt, high housing costs and stagnant wage growth. It’s hard to save for retirement when you are worried about the next month’s rent. Here are five retirement strategies for younger workers.

1.  Start Small

If you are just getting a foot in the workplace then there is nothing wrong with starting small. Time is something that you have on your side. Starting early can make all the difference, even with a very small amount of money.

For twenty-somethings, just starting out in the work place and looking to pay the rent, enjoy life and still save for retirement, there are options out there. Even a small salary deferral to a 401(k) or contribution to an IRA is worth considering. It is a small step in the right direction and it gets you into the saving habit early!

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