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Financial Information for Senior Military Officers

Your Life Expectancy After You're Dead? Yes, the IRS Says You Have One.

Your Life Expectancy After You're Dead? Yes, the IRS Says You Have One.
One of the great advantages of Qualified Plans and Traditional IRAs is that you get to deduct your contributions today and the earnings on your account accrue tax deferred.  But, the IRS wants to get that tax money...and the sooner the better.  You must take Required Minimum Distributions (RMDs) by your Required Beginning Date (RBD).  (By the way, I like this article...I've already worked in two acronyms in the first paragraph!)  For most, the RBD is 1 April of the year after you turn 70 1/2.  Most of us know that.  But most of us don't know how much we have to take out.  The amount you have to take out is based upon your life expectancy.  But you say, "I don't know how long I'll live!"  Not to worry, the IRS knows how long you will live.  They know everything...

Your Own IRA

In most cases, calculating RMDs for your IRA is relatively simple.  The IRS has a uniform life expectancy tables that will tell you how long you will live.  For example, at age 70 the life expectancy of an IRA owner is 27.4 years.  What is interesting is that if your spouse is more than 10 years younger than you, your life expectancy increases (I'll leave that to the IRS to explain).  For example, if you're aged 70 and your spouse is age 50 your life expectancy is 35.1 years.    Once you determine your life expectancy you simply divide your account balance on 31 Dec of the prior year by your life expectancy to determine your RMD.

On a related note, according to the IRS if you make it to 115 you may never die as the life expectancy for those age 115 and older is 1.9 year.  So, at each birthday after age 115 you've still got 1.9 years to live.  Again, I'll leave it to the IRS to explain.

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TSP and Your Estate

TSP and Your Estate

Have you thought about (or researched) what will happen to your Thrift Savings Plan (TSP) when you're no longer around? I know...you're invincible. No reason to worry about that.

 

Well, while I'm a pretty big fan of TSP I'm not all that "jazzed" with the estate planning ramifications associated with holding TSP for the entirety of your life. You may want to put just a little bit of brain-power on the question of what happens to your TSP account when it's not yours anymore. Here is a primer on what will happen if you don't do anything.

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Gifting. Do You Know the Rules?

Gifting. Do You Know the Rules?

Gifts seem to be confusing to a lot of people.  Are gift taxes due?  How much can I give? To whom can I give?  Anything with gifting and estate planning is complicated and I advise getting professional advice.  But, with that said, here are some basic rules/concepts.

 

Annual Gift Tax Exclusion. All American taxpayers have the ability to give up to $14,000 (in 2015) to anyone with zero gift tax implications.  A married couple can each give $14,000 for a total of $28,000.

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Some Resolutions

Some Resolutions

I tried...I really did.  No resolution article...but I just can't help myself.  I know I'm not the first one to give you some financial resolutions for the year, but here are some that have big "pay-back" for relatively little effort (and in some cases you don't have to do it more than once): 

  1. Stop supporting your free-loading Uncle.  Will you get a tax refund this year?  How much interest is your deadbeat Uncle (Sam) going to pay you for that loan?  Adjust your withholding to get back a small amount, or even better, owe less than $500 (make him loan money to you).
  2. Figure out and document your digital accounts.  How many bills do you pay electronically/automatically?  How would someone handle your accounts if you couldn't?  Provide instructions (secured) for someone to handle your digital accounts.
  3.  Check your estate documents.  Figure out how old they are.  If you drafted your documents more than about 5 years ago, there almost certainly changes to the law that affect documents such as your health-care proxy and tax calculations in regards to your estate tax plan.
  4.  Check your insurance policies.  How much is your car worth?  How much would your insurance policy actually pay to replace that old "clunker".  What about your deductibles?  Are you paying for a low deductible when you could afford to pay a higher deductible and reduce you annual premiums?  Do you have an umbrella policy?  Should you?  What is one?
  5. Update your employer plan contributions. You can contribute up to $18,000 to your 401(k)/TSP this year.  Did you increase your contributions?  And don't forget if you turn 50 this year (it doesn't hurt that much) you can contribute an additional $6,000 to your 401(k)/TSP.

None of them are that hard and if you do at least 3 of them, your financial life will be in a lot better shape.

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New Option for Parents of Special Needs Children

New Option for Parents of Special Needs Children

There were a lot of things in the "Cromnibus" budget law with which people took issue.  One thing that shouldn't be objectionable is the establishment of 529A plans.  The purpose of the 529A is to allow parents and others to accumulate assets for special needs children and subsequently use those assets without paying taxes (assuming qualified use).

529A plans will become "legal" in 2015 although you may not be able to get one next year.  The IRS has around 6 months to establish the rules to govern the accounts.  After that, the states will have to set up the plans...you will only be able to establish accounts through the state where you are a resident.  But, once they are established the plans should be a nice benefit for parents of special needs children.

Traditionally, if you wanted to accumulate assets for the future use of a special needs child you probably would need a trust.  Trusts were needed to make sure the funds did not disqualify the child for state benefits.  The 529A plan will accomplish the same thing...Assets available for the special needs child and the ability to qualify for state aid.  The 529A plan will also eliminate some of the "nasty" things that come with a trust.  The first is expense.  Trusts can be expensive to administer especially if a professional trustee is needed.  Trusts also need to pay taxes if they don't pay out all their income.  It appears that a 529A plan won't have this issue.  Finally, a gift to a trust is not eligible for the annual gift tax exclusion (currently $14,000) as the gift is not a gift of a present interest.  "Normal" 529 plans are not subject to this limitation so I assume that will be the case for 529A plans as well...we'll see.

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Disclaimer

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.

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