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Tax Prep Checklist

How To Get Ready For The Upcoming Tax Season

By Financial Planning, Tax Planning

Getting organized early puts you in a stronger position to avoid penalties, interest, and last-minute stress before the April 15 deadline. Here’s a tax preparation checklist to help you stay organized, collect the necessary documents, and prepare your tax information accurately.

  1. Gather and organize income documentation, personal information, and tax records. The IRS publishes an annual Get Ready campaign, offering important updates, helpful reminders, and tips to prepare for the upcoming filing season. Keeping your tax records organized not only helps ensure accurate and complete returns but also reduces the risk of errors that could delay refunds.

W-2s, 1099s, and other tax forms start arriving early in the year. Don’t let them get buried in a drawer. Set up a dedicated folder, either physical or digital, to keep all your tax-related documents organized as they come in. Additionally, be sure to include other essential items such as Social Security numbers, bank account information, other income statements, health insurance information, and last year’s tax return for reference.

  1. Understand key tax law changes. While you are working on gathering everything to file your 2025 tax return, now is also the time to plan for 2026 taxes. Several new provisions in the One Big Beautiful Bill Act (OBBBA) will affect planning. For example, for tax year 2025 (return filed in 2026), the OBBB raised the standard deduction amount to $31,500 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction for 2025 is $15,750, and for heads of households, the standard deduction is $23,625. For 2026, the standard deduction amounts are even higher: $32,200, $16,100 and $24,150 respectively. Understanding these updated deduction amounts now is important because they directly affect how much income is taxable on the return you’re about to file and can help you decide whether or not it is worth it to itemize.
  1. Review your withholdings and estimated payments early. Now is a great time to take a quick look at your W-4 withholdings or your estimated tax payments. Doing this early can help you spread your tax obligations more evenly over the year and possibly reduce the risk of underpayment penalties. Even if last year you got a large refund or ended up owing money, reviewing your situation now can help prevent surprises and make your tax year more manageable.
  1. Track your deductions and credits and maximize retirement and HSA contributions. Start tracking your tax deductions now to stay organized and make filing easier. Home office expenses, charitable donations, education costs, and child and dependent care credits all require documentation you don’t want to hunt down later. Additionally, starting your IRA, 401(k), or HSA contributions now may help reduce taxable income and give your investments more time to grow.
  1. Consider professional help to avoid filing mistakes. If your tax situation is complex, consider consulting a tax professional for guidance. Most audits happen because of simple mistakes, like missing forms, mismatched income, wrong Social Security numbers, or filing before you have everything you need. That’s why it’s important to work with a financial professional who can help you avoid these errors, keep your records organized, and make sure you are taking full advantage of available deductions.

Make tax season less stressful. Contact us today to review your financial and retirement plan and discuss personalized strategies. You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

This article is for general information purposes only from sources believed to be accurate. It should not be construed as tax advice. In every case, you should consult with your own personal team of tax, financial, and legal advisors for tax advice specific to your own personal financial situation.

 

Sources:

https://www.irs.gov/individuals/get-ready-to-file-your-taxes

https://www.msn.com/en-us/money/taxes/2026-tax-brackets-could-lower-your-bill-heres-what-changed/ar-AA1TezKF

https://www.aol.com/articles/head-start-2026-tax-return-160512082.html

https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill

https://www.irs.gov/newsroom/what-taxpayers-can-do-to-get-ready-for-the-2026-tax-filing-season

https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

2026-01-21
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Can I Automate My Required Minimum Distributions With My Retirement Account Provider?

By Retirement Planning

Required minimum distributions (RMDs) are not well understood, and we would like to clear up some confusion about them. First of all, they cannot be automated, so you are responsible for remembering that they must be taken, by their due dates and in the right amounts from the right accounts. Of course, feel free to reach out to us for more information about your personal situation. We are here to help!

The Basics About RMDs

1) RMDs are not automatic, and not all institutions or custodians provide reminders. Retirees must proactively remember to take RMDs.

2) You must take RMDs from all your traditional (non-Roth) qualified accounts annually, including IRAs, 401(k) plans, 403(b) plans, 457(b) plans, TSPs, SEP IRAs, SIMPLE IRAs and similar types of accounts.

3) The deadline for RMDs is December 31 each year, not April 15. Missing the deadline can come with a 25% excise penalty along with income taxes owed.

4) For clients taking their very first RMD, the distribution must be taken by April 1 of the year following the calendar year in which they reach age 73.

5) Required minimum distributions are subject to ordinary income taxes and are added to your combined income (sometimes called provisional income) for Social Security tax purposes.

6) The first dollars you withdraw from taxable retirement accounts in any given year are considered RMDs. This is important to remember if you decide to do Roth conversions.

7) Depending on type, there are different rules regarding taking a percentage of the aggregated amount held in multiple qualified accounts, versus requiring separate withdrawals from each different account. For instance:

a) You can generally aggregate your traditional (non-Roth) IRA account amounts and withdraw the total amount due from one of your IRAs.

b) For 401(k) and 457(b) accounts, you must calculate and withdraw RMD money separately from each individual account that you own. (This is why some retirees choose to roll over accounts for simplicity.)

c) For 403(b) plans, you can aggregate amounts in all your 403(b)s, but you can’t aggregate those amounts with other types of accounts that you own, such as IRAs or 401(k)s.

d) Spouses cannot aggregate their accounts. Each spouse must take RMDs separately from their own accounts.

e) For inherited IRAs, RMDs can only be aggregated with other inherited IRAs if they were inherited from the same original owner.

8) Miscalculated amounts, late RMDs, or withdrawals taken from the wrong accounts often come with a 25% excise tax on top of income taxes owed.

9) The SECURE Act, which took effect January 1, 2020, changed RMD rules significantly, and many people who inherit taxable qualified accounts are still unaware of how this affects them. Non-spousal heirs must take RMDs, and empty inherited accounts completely within 10 years of inheritance. Surviving spouses must take RMDs, too. The IRS uses several tables to calculate RMD amounts owed.

10) If you give to charity, you can often directly distribute all or part of your RMD to your chosen nonprofit, reducing your taxable income by that amount. These are called qualified charitable distributions (QCDs). But there is a caveat. Some financial institutions don’t break down or delineate that your distribution was a charitable contribution—they just send you a 1099. It is critical for you to make sure these amounts are deducted rather than added to your tax return!

A recent breakdown of the most common (and surprising!) RMD mistakes revealed just how easy it is for retirees to make costly errors. We can partner with your tax advisors to make a plan for your future RMDs, potentially finding ways to mitigate your tax burden. You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

This article is for general information purposes only from sources believed to be accurate. It should not be construed as tax advice. In every case, you should consult with your own personal team of tax, financial, and legal advisors for tax advice specific to your own personal financial situation.

Sources:

https://www.financialadvisoriq.com/c/4991394/692364/affluent_investors_want_planning_cerulli

https://insights.smartasset.com/7-of-the-biggest-rmd-mistakes-people-make

https://www.thinkadvisor.com/2025/09/23/the-worst-rmd-mistakes-clients-made-advisors-advice/

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

2025-12-18
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Is Long-Term Care Insurance Worth It?

By Financial Planning

There’s a lot of debate surrounding Long-Term Care (LTC) insurance. What if you don’t need it? Would you be throwing away your money? How will you pay for it? Is it worth it? Those are all fair questions that many people have. But here’s the thing: Waiting could cost you more. As you get older, premiums typically increase and changes in your health could make it more difficult to qualify for coverage.  It might be hard to imagine now, but the reality is someone turning 65 has a 70% chance of needing some type of long-term care. With those odds, it’s worth taking a closer look.

Understanding LTC Insurance

LTC insurance is designed to help cover services that traditional health insurance and Medicare don’t, like the costs of custodial and personal care. It can help pay for care in a nursing home, assisted living facility, or at home, including light medical and non-medical services. For example, LTC insurance with a home care component may cover things like help with bathing, showering, cooking, eating, and taking medications, or even skilled services like physical therapy, or simple companionship or temporary relief for a family care-giver. Policies and coverages vary.

While Medicaid can cover long-term care, it is typically only available for very low-income seniors or individuals with disabilities who meet strict income and asset requirements. Irrevocable trusts can sometimes help families preserve assets, but Medicaid has a five-year lookback period for those. There are strict rules about asset transfers with or without a trust in place, and a single senior can only have $2,000 in cash assets in order to qualify. Sometimes a married couple will even be forced to divorce if one of them develops Alzheimer’s or needs full-time care so that the healthy spouse won’t be bankrupted. An additional problem when it comes to Medicaid for long-term care is that the program is subject to political changes, and can be defunded.

With all of these challenges, the need for planning for long-term care may be even more critical than before.

Types of Insurance Coverage

There are generally two categories of long-term care insurance coverage: Traditional LTC insurance, which is “use it or lose it,” and hybrid policies that combine long-term care coverage with life insurance benefits. These policies typically allow the policyholder to access the life insurance benefit to help cover long-term care costs. If long-term care is not needed, the policy’s death benefit is generally paid to beneficiaries, although any amounts used for care may reduce the final payout. The specific terms and benefits vary by policy and insurer, and sometimes even annuities have hybrid coverage for long-term care.

You typically become eligible to receive long-term care insurance benefits when you are unable to perform at least two Activities of Daily Living (ADLs). This could be needing assistance with eating, bathing, or dressing.  Most policies include a waiting period, also referred to as an elimination period or deductible period, which must be satisfied before benefits can begin.

Things To Consider And Keep In Mind

Depending on your financial situation you may be able to self-fund to pay for long-term care expenses if you need them. But keep in mind that a 2024 Fidelity study estimates that a 65-year-old couple retiring today could need up to $315,000 just for medical expenses alone, a figure which includes Medicare premiums, deductibles and co-pays, but not vision, hearing, dental or long-term care expenses. And the average cost for a shared room in a nursing care facility is more than $9,000 per month.

Two of the biggest barriers to getting LTC insurance can be eligibility and cost. Both can be influenced by factors such as age, health history, pre-existing conditions, and even gender. Because women tend to live longer, they are statistically more likely to need extended care, which can result in higher premiums.

When choosing an LTC policy, think carefully about when to buy and about what features make the most sense for you. Consider your personal and family health history. Has anyone in your family had Alzheimer’s, a stroke, or another serious health condition? Does your family have a history of longevity? Most people who need long-term care do so because of cognitive decline, physical disability, or both.

Your financial advisor will be able to help you look at your overall picture to help you see whether or not you can self-fund to pay for long-term care. They can also help you analyze and compare between the features and costs of many different types of insurance or annuity policies that are currently available.

So, Is It Worth It?      

At the end of the day, it all comes down to your individual risk level and personal financial situation. Like other financial decisions, it’s important to remember that LTC insurance is not a universal solution. Every financial situation is unique; for some, the premiums may outweigh the potential benefits, while for others, like affluent individuals and retirees seeking to protect their wealth and legacy, the case for coverage has grown stronger. The key is to start thinking and planning now, long before the need arises and to consult a financial professional who specializes in retirement and long-term care planning. Planning proactively may provide you with more options than waiting until a critical moment.

Give us a call today and understand your options before you need them! You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

This content is for informational purposes only and does not constitute financial, legal, or tax advice. Consult a qualified professional before making any decisions regarding long-term care insurance.

 

Sources:

https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2025.php

https://www.aaltci.org/news/long-term-care-insurance-news/need-paid-ltc

https://www.nerdwallet.com/article/insurance/long-term-care-insurance

https://www.fidelity.com/viewpoints/personal-finance/long-term-care-costs-options

https://www.reviewjournal.com/livewell/is-long-term-care-insurance-worth-the-investment-3508530/

https://insights.smartasset.com/7-ways-financial-advisor-can-help-plan-long-term-care

https://smartasset.com/insurance/what-does-long-term-care-insurance-cover

https://www.carescout.com/cost-of-care

https://smartasset.com/insurance/should-i-buy-long-term-care-insurance

https://investor.genworth.com/news-events/press-releases/detail/982/genworth-and-carescout-release-cost-of-care-survey-results

2025-11-20
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Medicare

How Medicare Works

By Financial Planning, Retirement Planning

In order to start to understand how Medicare works, it’s helpful to have a bit of background. Both the Medicare and Medicaid programs were signed into law in 1965 by President Lyndon B. Johnson to provide basic health services for Americans who didn’t have health insurance. Medicare was designed for retirees, while Medicaid was designed for low-income individuals and families, minor children, and people with disabilities. Fast forward to today.

The Sign-Up Period for Medicare

For people turning 65 who are retired or considering retirement, signing up for Medicare comes with deadlines. You must sign up for Medicare within a seven-month window—the time period three months before, the month you turn 65, and three months after—or pay late enrollment fees which are often permanent and go up the longer you wait. The only exception is for people who are still working (or whose spouse is still working) and have health insurance coverage through an employer with 50 or more employees that qualifies as creditable coverage by Medicare. Even if you have coverage through work, when you turn 65 it is advisable to go ahead and sign up for Medicare Part A because it’s free for most people who qualify.

Medicare Doesn’t Provide Long-Term Custodial Care

As it has evolved through time, Medicaid provides long-term care services, not Medicare. Medicare Part A covers up to 100 days of care for approved rehabilitation or medical treatment, but it does not cover ongoing custodial care needed for things like dressing, bathing, going to the bathroom, and other help required by the elderly, disabled, or those with dementia. Eligibility rules vary by state, but in general, in order to qualify for Medicaid for long-term or nursing care you must have a need for constant care, have very limited physical ability, and spend down all assets to total around $2,000 or less. The need for spend-down has taken many families and spouses by surprise during a time of crisis, potentially leaving them with nothing. In some cases, a spouse may even be forced to divorce in order to continue to have the assets needed for living expenses. The average cost for long-term custodial care in a semi-private room in a nursing facility in 2024 was more than $9,000 per month!

The Parts A, B, C, and D of Medicare

  • Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care, and limited home health care. This is normally free for most people who have qualified for Medicare coverage.
  • Part B (Medical Insurance): Covers doctor visits, outpatient care, home health care, and preventive services like screenings and wellness visits, along with durable medical equipment (e.g., wheelchairs). Part B coverage is the premium that will be deducted from your Social Security check if you don’t choose Medigap or Part C.
  • Part D (Prescription Drug Coverage): Helps cover the cost of prescription medications, including certain vaccines. You can get Part D as a standalone plan along with Part B or as part of a Medicare Advantage Plan.
  • Medicare Supplemental Insurance (Medigap): Extra coverage from private insurers to help pay for out-of-pocket costs in Original Medicare, such as copayments and coinsurance. Plans are standardized by letter (e.g., Plan G, Plan K).
  • Part C (Medicare Advantage Plans): Private, Medicare-approved plans that may bundle Part A, Part B, and often Part D (prescription drug) coverages. Usually limited to providers within the plan’s network. May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

                Comparing Your Choice of Original Medicare with Medicare Advantage Part C Plans

Original Medicare

  • Includes Part A and Part B.
  • Option to add Part D for prescription coverage.
  • Flexibility to see any Medicare-accepting provider in the U.S.
  • You can also add supplemental Medigap for extra coverage on costs not covered by Original Medicare.
 Medicare Advantage (Part C)

  • Private, Medicare-approved plans that bundle Part A, Part B, and often Part D (prescription drug) coverages.
  • Usually limited to providers within the plan’s network.
  • May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

Medicare Is Not Free

Fidelity’s 2025 retiree health care cost estimate for an individual 65 or older is $172,500, which includes expected Medicare premiums, out-of-pocket costs, and services not covered by original Medicare. The estimate does not include costs such as dental care, vision care, over-the-counter medications, or long-term care, which are significant out-of-pocket expenses not covered by original Medicare.

Medicare Costs More For Higher Income People With a 2-Year Lookback

One thing that will have a big impact on your Medicare costs is your modified adjusted gross income (MAGI). Once you retire, you may be surprised to find that a combination of income from pensions, investment earnings, traditional (non-Roth) IRA withdrawals, and traditional 401(k) withdrawals may land you with a higher MAGI than you realized. While you may no longer be earning a traditional income from working a job, your MAGI will still reflect all of your taxable income. For 2025, the monthly premium per person for Medicare Part B for those with MAGIs of $106,000 or less in the 2023 tax year is $185 per month. At the highest income bracket for Medicare, the monthly Part B premium is $628.90 per person.

 

If you would like to discuss Medicare as part of your overall retirement plan, call us at least five to 10 years before you plan to retire! You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

Sources:

https://www.cms.gov/about-cms/who-we-are/history

https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties

https://www.medicare.gov/

https://www.ncoa.org/article/does-medicare-cover-nursing-homes-what-older-adults-and-caregivers-should-know/

https://www.medicaidplanningassistance.org/medicaid-divorce/

https://www.carescout.com/cost-of-care

https://newsroom.fidelity.com/pressreleases/fidelity-investments–releases-2025-retiree-health-care-cost-estimate–a-timely-reminder-for-all-gen/s/3c62e988-12e2-4dc8-afb4-f44b06c6d52e

2025-10-17
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Life Insurance Awareness Month

What Life Insurance Can You Borrow From?

By Life Insurance

September is “Life Insurance Awareness Month,” and we wanted to answer this common question: “What life insurance can you borrow from?” Since life insurance policies come in so many forms, let’s start with the type you can’t borrow from. The most common form of life insurance is called “term life.” Term is the simplest form of life insurance and most common because it contains only a “death benefit” which is paid to a beneficiary upon the insured person’s death.

You cannot borrow from a term life policy because it’s strictly used to provide financial protection in the form of a death benefit, or cash for a loved one in the event of an insured’s passing. Term life insurance guarantees a certain death benefi­t payout if the insured dies during a speci­fied period, such as 1, 2, 10, 15, or 30 years, and then the policy ends. Often premiums for term insurance are level for a certain number of years but some policies may go up as the insured gets older.

Life Insurance Policies You Can Borrow From

Permanent life insurance policies can be borrowed from, because in addition to a death benefit, there is a cash value portion of the policy which you contribute to as part of your premium cost, and the cash portion can grow through time.

Permanent means permanent as opposed to term; the policies don’t end at a certain point of time, they continue for as long as you live and pay the premiums. The cash value in a life insurance policy can be borrowed during your lifetime—you can borrow the cash to fund college costs, start a new business, pay for retirement expenses, and more—sometimes with significant tax advantages as long as the policy remains in force.

Will I Owe Interest On Amounts I Borrow From a Life Policy?

If you borrow part of your cash value, you will borrow the money tax-free in most cases, but you will be charged a fixed or fluctuating interest rate on the outstanding balance of any loan depending on your policy’s terms. You will have to carefully assess or consult with your financial advisor to make sure your policy stays in good standing if you borrow from it.

Some policies continue to credit interest to the total cash-value portion of your account even if you have borrowed money from it, treating the cash value portion as though all the money were still there. In some cases, with some policies, this equals or exceeds the interest you will be charged. You will want to make yourself aware of all policy terms and conditions before making any decisions about borrowing from an insurance policy; this is where good advice can help.

Permanent Types Of Insurance You Can Borrow From

The major types of permanent insurance policies which can build cash value are whole life, universal life, and variable life.

  • Whole Life

Whole life insurance policies are permanent policies with fairly simple terms. They have ­fixed premiums that don’t go up, and cash value accumulation guaranteed by the financial strength of the insurance company providing the policy.

  • Universal Life

Universal life insurance gives consumers flexibility in the premium payments, death benefi­t amounts, and the savings or cash-value elements of their policies, which is why it’s sometimes called adjustable life insurance. There are different types, including one of the more popular forms, called indexed universal life (IUL). With IUL policies, the cash value is benchmarked to the performance of an index or indices, such as the S&P 500 for potential growth. While an IUL policy’s cash value growth is tied to the performance of the selected index or indexes, the money is not actually invested in the market, it is a contract with the insurance company which determines how crediting works based on the index/indices’ performance. Therefore, your principal is protected from stock market risk, but it can grow based on stock market growth as outlined by your particular policy’s terms.

  • Variable Life

With variable life insurance, the cash-value portion of a variable policy is actually invested in the market in what are called “subaccounts;” therefore, there is the potential for loss of principal based on stock market losses. With variable life, you will actually invest and receive prospectuses to review so that you can determine whether or not the subaccount or subaccounts you choose fit with your overall risk strategy. Often variable life policies have higher fees than other types of policies due to the investment management of subaccounts.

If I Borrow Money, What Happens to the Policy After I Die?

Many permanent life insurance policies can be purchased on a “joint survivorship” basis. There are two types: first-to-die, which pays out to the surviving spouse after the first dies; and second-to-die, or survivorship, which pays a death benefit to the heirs after both spouses are gone.

Whether joint survivorship or not, if you borrow cash value from a policy, the amount borrowed is deducted from the total death benefit paid to your named beneficiaries in addition to any remaining fees or interest owed. If you don’t borrow money, the cash value is added to the death benefit.

What Else You Should Know About Life Insurance

  • The death benefit paid to your beneficiaries is usually tax-free and bypasses probate, provided the policy’s beneficiary is an individual rather than a trust.
  • Life insurance is considered part of a comprehensive financial plan, and can be used in various ways for estate planning or leaving a tax-advantaged legacy to your loved ones.
  • Most life insurance policies require a medical exam, and in cases of ill health, your policy may be denied or the policy costs may be higher. As long as you continue to pay all premiums, your policy cannot be canceled if your health status changes in the future.
  • Some policies have provisions for chronic, critical, terminal illness, or long-term care benefits that can be used in lieu of, or in addition to, the death benefit.

 

Each life policy from each different insurance carrier has different features, and the various product choices can be confusing for a consumer to navigate. Additionally, new types of policies are being introduced to the market all the time which may offer better terms. It is very important to work with a qualified advisor to find the policy that might be best suited for you to meet your family’s needs. Call us to learn more about life insurance!

 

This article is for general information purposes only and is not to be relied upon for financial advice. In every case, you should seek the advice of qualified tax, financial and legal professionals to ensure that a life policy is advisable based on your unique circumstances.

Guarantees are provided by insurance companies and are reliant upon the financial strength and claims-paying ability of each individual insurance carrier issuing a life insurance contract.

Life insurance requires medical underwriting; therefore, not everyone will be able to purchase a life insurance policy. Life insurance policies can be complex, and it is recommended that you work with a professional to examine policy terms.

Sources:

https://www.iii.org/article/what-are-different-types-permanent-life-insurance-policies

https://www.investopedia.com/articles/pf/07/whole_universal.asp

2025-09-25
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Breaking Down the One Big Beautiful Bill Act

By Retirement Planning, Tax Planning

The “One Big Beautiful Bill Act” (OBBBA), often called the “Big Beautiful Bill,” is a sweeping piece of legislation that touches nearly every aspect of American life. Spanning over 800 pages, it introduces changes across the tax code, retirement savings, estate planning, border security, ICE, and government operations. The IRS is expected to issue further clarifications on many provisions, but what’s clear is that this bill brings a wide range of reforms that can impact nearly every household.

Here are just a few of the biggest changes as we understand them:

  1. Lower Tax Rates Made Permanent and a Higher Standard Deduction

The bill makes permanent the individual tax rate percentages first introduced by the 2017 Tax Cuts and Jobs Act (TCJA) for the tax year 2025 and beyond; thereafter income brackets will be indexed for inflation annually. The tax rates, as well as brackets for 2025, are as follows:

  • The top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
  • 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
  • 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
  • 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
  • 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
  • 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
  • 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).

Along with this, the standard deduction has been increased slightly to $31,500 for joint filers, $23,625 for heads of household, and $15,750 for single filers for 2025—adjusted annually for inflation going forward.

  1. Temporary Deductions (For Tax Years 2025–2028 Only)
  • Up to $25,000 of tips may be deducted from federal taxable income for those who work in industries where tips are customary. The deduction amount phases out by $100 for each $1000 when adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers. While the deduction applies to “cash” tips only, the OBBBA broadly defines “cash” tips to include tips paid in cash or charged.
  • Overtime Pay Deduction: Up to $25,000 of overtime compensation for married filers and $12,500 for single filers may be deducted from federal taxable income. The deduction phases out when adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers.
  • Senior Deduction: Mistakenly referred to as a Social Security tax cut, the OBBBA established a temporary income tax deduction of $6,000 per eligible filer for people age 65 or older—provided their modified adjusted gross income does not exceed $75,000 for single filers, or $150,000 for those married filing jointly.
  • Auto Loan Interest: Auto loan interest is made income tax deductible for new autos with final assembly in the United States. The deduction is limited to $10,000 and phases out when income exceeds $100,000 for single filers and $200,000 for joint filers.

These deductions can help reduce taxable income to support some middle-income earners but will sunset after 2028 unless renewed.

  1. Child and Family Benefits
  • The child tax credit was permanently raised by another $200 to $2,200 per qualifying child for 2025. Beginning in 2026, this will be indexed for inflation. (Earned income must be at least $2,500 in order to claim any child credit.) The OBBBA also makes permanent the $500 nonrefundable credit for other dependents who do not qualify for the child tax credit, including those over the age of 16, and makes permanent a requirement that the child and at least one parent have a Social Security number.
  • New Trump Accounts: A tax-deferred savings account is meant for American children born between 2025 and 2028. There is a one-time government deposit of $1,000 and families can contribute up to $5,000 per year with investment growth tax-deferred. Employers can also contribute $2,500 to the employee’s eligible dependent child.
  1. Permanently Higher Estate and Lifetime Gift Tax Exemption Amounts

The higher federal Estate and Lifetime Gift Tax exemption amounts will no longer sunset in 2026. Instead of reverting to pre-TCJA levels, the OBBB permanently increases the exemption to $15 million per person, or $30 million for joint filers starting in 2026, with the new exemption amount indexed for inflation going forward. The Generation-Skipping Transfer (GST) exemption will match this amount. (For the 2025 tax year, the exemption amount is $13.99 million or $28.98 million per couple.)

  1. SALT Deduction Expands Until 2030 and Current Mortgage Interest Deduction Amount Made Permanent
  • The deduction cap for State and Local Taxes (SALT) has been increased to $40,000 starting in 2025 and will then climb by 1% annually through 2029 before reverting back to $10,000 in 2030 (phases out for taxpayers with an income over $500,000).
  • Qualified residence interest deduction: Originally set to increase to $1 million, the OBBBA modified the limit on the deduction for qualified residence interest to a maximum of $750,000 of home acquisition debt permanently. The disallowance of interest on home equity loans has been made permanent unless loan proceeds are used to buy, build, or substantially improve the home securing the loan.
  1. Charitable Deduction Increase for Nonitemizers

The OBBB expands the ability of nonitemizers to take a bigger charitable deduction permanently. The preexisting limit of $300 ($600 for married individuals filing jointly) is increased to $1,000 ($2,000 for joint returns). This above-the-line deduction is available only for cash gifts made to public charities.

  1. What’s Ending

While some incentives were expanded or made permanent, others are being phased out. For instance, tax credits for electric vehicles (EVs) end September 30, 2025. Other homeowner tax credits for home energy improvements, such as solar panels, doors and windows, and heat pumps, will end December 31, 2025.

While we’ve only highlighted a few key changes, this bill spans over 800 pages, making it important to stay informed and regularly review your plan. Planning ahead remains foundational, as future shifts or challenges could bring additional changes. More guidance is expected from the IRS in the months ahead, but in the meantime, contact us with any questions or concerns. You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

This overview is compiled from information believed to be true. This article should not be relied upon for tax or financial advice. Please check with your tax and financial professionals before making any changes to your plan.

Sources:

https://www.whitehouse.gov/articles/2025/06/capitol-hill-touts-benefits-of-the-one-big-beautiful-bill/

https://waysandmeans.house.gov/2025/05/22/passed-the-one-big-beautiful-bill-moves-one-step-closer-to-president-trumps-desk/

https://www.forbes.com/sites/martinshenkman/2025/07/05/big-beautiful-estate-plan-impact-of-the-big-beautiful-bill-obbba/

https://www.fedsmith.com/2025/07/10/what-the-one-big-beautiful-bill-act-means-for-federal-employees/

https://www.whitehouse.gov/articles/2025/07/president-trumps-one-big-beautiful-bill-is-now-the-law/

https://www.cnbc.com/2025/07/11/when-provisions-from-trumps-big-beautiful-bill-go-into-effect.html

https://www.npr.org/2025/07/11/nx-s1-5459955/social-security-megabill-trump-tax-cuts

https://www.calt.iastate.edu/blogpost/one-big-beautiful-bill-act-implements-significant-tax-package

 

2025-08-20
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The Pursuit of Financial Freedom In Retirement

By Financial Planning, Retirement Planning

Financial freedom in retirement means more than just having enough money, it means having choices. Putting a comprehensive retirement plan in place can not only help you take control of your finances, but also address how you will spend your time by defining your desired lifestyle and delineating strategies for your future as you get older. With peace of mind as your goal, the true reward of financial independence may not be found in a bank account balance, but in the ability to shape your days around what matters most to you in retirement.

Unfortunately, many retirees find themselves feeling “stuck” because of poor planning. Whether it’s running short on savings, carrying lingering debt, or facing unexpected healthcare costs, take a look at these steps designed to help reduce uncertainty and guide you towards financial freedom.

Set Your Foundation

Financial freedom in retirement starts with a clear vision. That begins with defining what freedom looks like to you and getting specific about the goals that will get you there.

For some, financial independence may mean early retirement or a debt-free lifestyle. For others, it’s the ability to travel or support family. Maybe it’s all the above. Start by outlining both your short- and long-term goals. What does your ideal lifestyle look like at different stages of retirement? Use measurable benchmarks such as savings targets, debt reduction timelines, and milestone ages, to create a structure you can track.

Build a Budget

Now that you’ve defined your ideal retirement lifestyle, the next step is understanding how much income you’ll need to support it. Creating a realistic budget can give you the framework to manage your money with purpose.

Start by tracking your income, expenses, debts, and investments. Work with a financial advisor to map out your income sources—such as Social Security, pensions, and retirement investments—and to plan for required minimum distributions (RMDs). Your budget should prioritize your essential living expenses while also making space for the things that bring fulfillment. Whether it’s a weekend getaway or a new set of golf clubs, a budget can give you the freedom to spend without guilt. The goal of budgeting isn’t to restrict your lifestyle—it’s to make sure your spending aligns with your priorities.

Ditch the Debt

Even in retirement, financial freedom can be compromised by lingering debt. While many retirees enter this chapter debt-free, others may still be carrying balances. If that’s you, it’s never too late to take control.

Start by focusing on high-interest debt first, as it tends to be the most damaging to your financial stability. Consider strategies like the snowball method (tackling the smallest debts first for quick wins) or the avalanche method (prioritizing the highest interest rates to help save money over time).

Downsize the Stress

Not everyone will need to consider this step—after all, everyone’s definition of financial freedom is based on their own goals. But for some, learning to live below your means can be a move toward greater freedom in retirement. This doesn’t mean sacrificing the things that matter most, but more so being intentional with your resources so you can align your lifestyle with your financial reality.

Start by evaluating whether your current home, spending habits, or overall lifestyle still make sense for this stage of life. Could downsizing your home reduce your expenses and free up cash flow? Could simplifying your lifestyle reduce stress and create more time for the things you love? Downsizing doesn’t mean downgrading. In fact, it can often create more freedom. Fewer expenses, less maintenance, and a smaller footprint can translate into more time and flexibility.

Prioritize Your Health

You can’t plan for everything, but you can prepare for a lot. Taking care of your health in advance is an important step in protecting your financial freedom in retirement. Planning for medical needs before they become urgent can help you avoid major financial setbacks down the road.

Start by building healthcare and potential long-term care costs into your retirement budget. From prescriptions, dental work, and even assisted living or in-home care, these expenses can add up quickly if you’re unprepared. But don’t just budget—prioritize your wellness. Regular checkups, preventive screenings, and healthy habits can help catch issues early. Think of it as protecting your most valuable asset: you. You’ve worked hard to reach financial freedom—now, make sure you’re able to enjoy it.

Whether you’re reviewing your current retirement plan, speaking with a trusted advisor, or simply taking time to define what financial freedom truly looks like for you, the most important step is to start. The goal isn’t just to stop working, it’s to build a life you don’t want to retire from. Are you ready to take that next step? Let’s do it together! Contact us today to explore how we can help you in your pursuit to financial freedom. You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

Sources

https://www.investopedia.com/articles/personal-finance/112015/these-10-habits-will-help-you-reach-financial-freedom.asp

https://www.tfnbtx.com/7-steps-to-take-to-achieve-financial-freedom-for-2025/

https://finance.yahoo.com/personal-finance/banking/article/what-is-financial-independence-130044125.html

https://www.forbes.com/sites/enochomololu/2024/01/20/7-steps-to-achieve-financial-freedom-and-retire-early/

 

2025-07-17
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Annuities Don’t Have to be Confusing

By Annuities, Retirement Planning

In the past, annuities have been a topic avoided by many, but lately interest levels have risen—a lot. In fact, online searches for terms like “annuities” and “pensions” are up by 160% while “are annuities good or bad” are up by 200%, according to ThinkAdvisor.

With retirement lasting longer and retirees worried about recent market volatility, tariff uncertainty, potential Social Security cuts, and continued inflation, now may be a good time to learn more about annuities and the role they can play in the retirement portfolio. And since June is Annuity Awareness Month, we decided to open up the conversation and provide some clarity.

To start, whether you’re planning for retirement, getting close, or already in it, it’s important to have a retirement plan in place, and review it regularly. Having an account like a 401(k) doesn’t mean you have a retirement plan. Too often, people put away money in a tax-deferred 401(k) or similar plan and don’t think about how they will create a stream of income from it once they are no longer getting a paycheck.

As you get closer to retirement, it’s important to reconsider how much of your savings are exposed to the ups and downs of a volatile stock market. This is especially true because of “sequence of returns risk.” Breaking this risk down, if you retire during a stock market downturn and begin withdrawing money from your 401(k) for income, your savings can shrink much faster over time compared to someone who retires and withdraws income when the market is doing well. And since no one can actually predict the future, it’s best to leverage several strategies in your retirement plan.

An annuity is a contract between an individual and an insurance company designed to provide a monthly stipend or income during retirement. There are many different types of annuities, and some have different fee structures and contract terms which may, or may not, be better in your case. That’s why it is best to work with an independent financial advisor who has access to many different types of annuities from multiple highly-rated insurance companies to compare between.

Some annuities, like lifetime fixed indexed annuities, even provide retirement income that won’t run out no matter how long you live, guaranteed by the financial strength and claims-paying ability of your insurance company providing the annuity policy. And some even have contract provisions to address inflation.

Annuities can be appealing because they allow you to take part of your retirement nest egg and purchase monthly retirement income in the form of an annuity, so you don’t have to worry about managing withdrawals aside from required minimum distributions (RMDs).

With your income accounted for, the rest of your portfolio can be accessed or left in the market, depending on future need and economic conditions.

A recent study by David Blanchett and Michael Finke found that many retirees prefer the security of guaranteed lifetime income rather than dipping into their savings or 401(k), even when they could afford to. It can be hard to think of your savings as a source of retirement income, which is why working with a retirement advisor to create a real retirement plan can help give you confidence in your financial future.

Every day, about 10,000 people turn 65 in America, and annuities may be indicated for a portion of the fixed part of their portfolios depending on their situation. Times have changed, and it’s no longer just about the ratio of stocks to bonds. Research done by academic heavyweights in economics and finance in the last 10 years indicates that annuities can help. Roger Ibbotson, Robert Shiller, and Wade D. Pfau have shown that fixed indexed annuities, when used correctly, can improve retirement outcomes compared to using bonds, with annuities helping to address longevity and market risk in the fixed portion of the typical retirement portfolio.

In today’s interest rate environment, some fixed indexed annuities even offer bonuses that can help boost your annuity’s value. Additional features such as optional coverage for long-term care, terminal illness, or spousal income can also be included, making annuities customizable.

With so many choices, it’s important to remember that every person’s situation is unique, meaning annuities may or may not be indicated depending on your specific needs and goals. That’s why we’re here to help you explore your options, explain how different annuities work, and create a long-term retirement plan. If you’d like to discuss how annuities might fit into your retirement strategy, give us a call! You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

Sources:

https://www.thinkadvisor.com/2025/04/15/6-reasons-annuity-is-no-longer-a-dirty-word/

https://www.thinkadvisor.com/2025/04/23/for-most-americans-going-broke-in-retirement-is-a-bigger-fear-than-death-survey/

https://www.thinkadvisor.com/2025/04/15/7-things-retirement-savers-are-asking-google-about-annuities-now/

https://401kspecialistmag.com/retirees-prefer-spending-lifetime-income-over-savings/

https://www.kiplinger.com/retirement/annuities-what-you-dont-know-can-hurt-you

https://www.limra.com/en/newsroom/news-releases/2025/limra-2024-retail-annuity-sales-power-to-a-record-%24432.4-billion/

https://www.protectedincome.org/wp-content/uploads/2023/06/RP-20_Pfau_final.pdf

https://thequantum.com/a-closer-look-at-bonds-versus-fixed-indexed-annuities/

https://markets.businessinsider.com/news/stocks/insurmark-announces-barclays-bank-and-yale-economist-robert-shiller-research-showing-fixed-indexed-annuity-with-cape-index-would-have-outperformed-bonds-1028505495

https://safemoney.com/blog/annuity/shaquille-oneals-strategy-why-annuities-are-essential/

 

 

 

2025-06-20
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Will Your Nest Egg Withstand Inflation and Market Volatility?

By Financial Planning, Retirement Planning

It’s no secret that inflation is on the rise, impacting millions of Americans. Mix that in with on-again off-again tariffs, and it’s a good time to assess if your accumulated wealth is being managed in a way that will outlast inflation and a volatile market. It’s important to note that a financial plan is never supposed to be stagnant, it’s supposed to change as your situation and world economic conditions shift. But anxiety around the market and inflation is still very real, so how can we get ahead of it?

Remember, Nothing Stays the Same Forever

In early April, we saw massive swings in market sentiment as Trump teetered back and forth about tariffs. While we all hope to avoid increased inflation or, worse, a recession, we have to be strategic in how we face challenges in the market. This is a good time to remember that the markets are similar to us in the sense that nothing stays the same. The challenges you faced in your early 20s are not the same ones you have today. How long they took to resolve may vary, but they never stayed forever. Imagine if you followed your initial knee-jerk, emotional reaction to those challenges you faced when you were younger. Making decisions based on emotion, especially fear, rarely helps you reach your goals, and frankly, they can sabotage you from ever getting close to them.

So, going back to our current market situation, what can investors do right now? Well, depending on their specific situation, the answers vary.

If You’re Young, or You Have More Than 10-15 Years to Retirement

If you have a long time-horizon to retirement, it may be best to wait it out, and continue to invest. A financial principle called “dollar cost averaging” might apply to you, as you may come out ahead in the long-term by continuing to “buy” during both market lows as well as highs through the years.

See the chart below:

This chart shows that those who exit the market the day after every -2% market move or worse over a 25-year time period usually underperform those who remain fully invested. When you leave the market, you don’t just avoid future bad days, you also miss out on the future good days. Ultimately, missing even just a few of the market’s best days, or getting back into the market only after the market is already up, can significantly impact long-term returns. Because, remember, just like in life, nothing stays bad forever; good days will come again. The market is no different.

If You’re Older and Getting Close to Retirement

As you get closer to retirement, continuing to stay in volatile stock markets exposing all of your savings to stock market risk probably doesn’t make sense due to a financial principle called “sequence of returns risk.” With all things being equal, someone who retires during a down market can see their retirement savings drop precipitously for the long-term if they start withdrawing funds, versus someone who retires when markets are going up. This is a very important consideration at the very beginning of your retirement when your account balance is at its highest, but unfortunately, no one has a crystal ball. You probably need to rebalance in order to reduce portfolio risk.

Consider Rebalancing Your Portfolio

First, you’ll want to ensure your portfolio’s ratios of international stocks, large-cap and mid-cap, bonds, cash, and fixed options make sense in the current economic environment. Different asset classes have varying cycles of performance, which can help address inflation headwinds. But keep in mind that there are other ways you can de-risk your portfolio, especially as you head toward retirement.

Sometimes considered a separate asset class, in the last few years, annuity sales have risen as 10,000 people per day turn 65 in America. An annuity is a contract between an individual and an insurance company designed to provide a monthly stipend during retirement. Some annuities even provide retirement income that won’t run out no matter how long you live, guaranteed by the financial strength of the insurance company providing the annuity policy. There are many different types of annuities, contracts can be complex, they are illiquid, and there should always be other cash and investments to balance out your retirement plan even if you have an annuity or annuities. Furthermore, annuities are not right for everyone. It’s advisable to work with a financial professional to look at your overall plan, compare your options, and closely examine contract terms.

Other Personal Actions You Can Take To Manage Inflation

Additionally, to help make your dollar in your day-to-day life last longer, do a thorough review of your spending. This is the time to evaluate essential vs. discretionary expenses, for example, a mortgage versus a new car. This gives you a chance to identify unnecessary spending that you can cut back on. Most people are shocked by how much they were spending on things they did not need!

Some common expenses that are good to look at critically during this audit:

  • Takeout & Dining – Frequent restaurant visits, coffee runs, food delivery, and takeout orders.
  • Subscription Services – Streaming (Netflix, Hulu, HBO Max), music, gaming, news, and fitness apps.
  • Retail & Impulse Shopping – Clothing, accessories, home décor, and non-essential purchases.
  • Unused Memberships – Gym memberships, fitness classes, warehouse clubs, and subscription boxes.
  • Premium TV Packages – Expensive cable or satellite plans with unnecessary channels.
  • Frequent Travel – Weekend getaways, flights, hotels, and vacation entertainment costs.
  • Luxury & Self-Care – Salon visits, spa treatments, manicures, and pedicures.
  • High-End Brands – Designer clothing, accessories, and premium tech gadgets.
  • Hobby Expenses – Collectibles, gaming, crafting supplies, and other leisure-related purchases.
  • Tech Upgrades – Constantly replacing smartphones, tablets, and accessories with the latest models.
  • Costly Entertainment – Concerts, sporting events, amusement parks, and other high-ticket experiences.

Also, see if you can negotiate on those essential bills. While many essential bills are a fixed amount, some can be adjusted or reduced. You may be able to lower expenses for service contracts like internet or insurance. You may also be able to lower your credit card rates. While there’s no guarantee, it never hurts to call a service representative and see if you can get a better price for the things you have to pay for.

While dealing with inflation and market volatility is no one’s ideal situation, it doesn’t have to be a nightmare either. With a strategic approach, you can get through this stressful time and on to the other side! Do you need help getting your accumulated assets inflation-ready and putting a plan together to hedge against market risk? Call us today! You can reach The Financial Education Group by calling (360) 900-3837 or setting up an appointment with us here. 

 

Sources

https://www.kitces.com/blog/clearnomics-10-charts-recession-fears-tariff-risk-market-volatility-economy-investor-anxiety/

https://www.limra.com/en/newsroom/news-releases/2025/limra-2024-retail-annuity-sales-power-to-a-record-%24432.4-billion/

https://www.aarpinternational.org/initiatives/aging-readiness-competitiveness-arc/united-states

2025-05-15
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It’s Financial Literacy Month. How Much Do You Know About Retirement Accounts?

By Retirement Planning

April is often known for spring cleaning, Easter, and Passover, but it’s also Financial Literacy Month. At its core, financial literacy refers to understanding and effectively being able to use various financial tools and strategies. So, in honor of the month, we’re offering a basic financial primer, with some quick definitions and simple breakdowns of common retirement accounts.

Background: The Decline of Pensions

During the rise of the industrial age, as workers migrated and began working for factories and other enterprises, they shifted away from farming and self-sufficiency and began relying on pensions to fund their retirement. Because these pension plans were managed by their employers who tended to take care of and provide for their loyal employees, workers were little involved in strategies or decision-making when it came to planning for their own retirements.

But times have changed. The first implementation of the 401(k) plan was in 1978, and since then, has gradually supplanted the pension for most American workers. According to a congressional report, between 1975 and 2019, the number of people actively participating in private-sector pension plans dwindled from 27 million to fewer than 13 million, although public employees sometimes still have them.

Today, most workers are responsible for funding their own retirement, which makes understanding and participating in retirement accounts vital.

401(k) Plans

A 401(k) is an employer-sponsored retirement savings plan. With the traditional 401(k), employees can contribute pre-tax income into their own account, selecting among the plan’s list of options which funds they want their money invested in. Many employers will even match employee contributions up to a certain percentage.

(NOTE: In the public sector, there are 403(b)s, 457s, the TSPs (Thrift Savings Plan), and many other retirement plans which work similarly to the 401(k), but may have slightly different rules.)

With a traditional pre-tax 401(k), the employee’s contributions can reduce their taxable income for the year, since the money is deducted from their paycheck. Once an employee reaches age 59-1/2, per the IRS they can start taking withdrawals without incurring penalties, depending on their employer’s 401(k) plan rules. In retirement, they must begin taking withdrawals every year beginning at age 73, and pay taxes on the money withdrawn. (These are called required minimum distributions, or RMDs.)

Some employers also offer a Roth 401(k) option, which uses after-tax dollars. Although you must pay income taxes on the money you put into a Roth 401(k), including any employer Roth account matching amounts, a Roth option offers tax-free withdrawals in retirement as long as the account has been in place for five years or longer, no RMDs, and no taxes to your beneficiaries or heirs.

While the 401(k) can be a great way to save, it’s important to be mindful of how much you’re contributing, how your funds are invested, and what the tax ramifications of your decisions are.

Social Security

Social Security is a part of many Americans’ retirement planning. It was created as a national old-age pension system funded by employer and employee contributions, although later it was expanded to cover minor children, widows, and people with disabilities.

Established in 1935, Social Security payments started for workers when they reached age 65—but keep in mind at that time, the average longevity for Americans was age 60 for men and age 64 for women. With people living much longer, sometimes spending as long as 20 or 30 years in retirement, today Social Security must be supplemented with your own personal savings and other retirement accounts.

IRA

Individual Retirement Accounts (IRAs) were created in the 1980s as a way for those without pensions or workplace retirement plans to save money for themselves for retirement in a tax-advantaged manner. While the tax treatment and contribution limits vary, the goal is to provide you with the means to build a retirement nest egg that can grow over time.

Types of IRAs:

  • Traditional IRA: Allows for tax deductible contributions for some people, depending on their income level and whether they have a plan through their workplace. Any growth in a traditional IRA is tax-deferred, and you’ll pay taxes when you withdraw the money in retirement. Contributions are subject to annual limits, and penalties apply if funds are withdrawn before age 59 ½, with some exceptions. RMDs must be taken annually beginning at age 73 and ordinary income taxes are due on withdrawals.
  • Roth IRA: Contributions to a Roth IRA are made with after tax income, meaning you don’t receive a tax deduction when you contribute. However, withdrawals in retirement are tax free if certain conditions are met. This account may be ideal for individuals who expect to be in a higher tax bracket in retirement. Roth IRAs are also tax free to those who inherit them if all IRS rules are followed.
  • SEP IRA (Simplified Employee Pension) and SIMPLE IRA (Savings Incentive Match PLan for Employees): For self-employed individuals and small business owners, a SEP IRA or SIMPLE IRA plan can allow for higher contribution limits for both themselves and/or their employees. And since the SECURE 2.0 Act, they can be set up as either traditional or Roth IRAs.

Annuities

Annuities are financial products designed to convert your savings into a monthly income stream, particularly during retirement. When you purchase an annuity, you exchange a sum of money for guaranteed monthly payments over a set period, or for the rest of your life, much like a pension. (Guarantees are provided by the financial strength of the insurance company providing your annuity contract.)

Annuities can be purchased using pre-tax or after-tax dollars, and they can be purchased with deferred payments over time, or with a lump sum—for example, many people roll over funds from a 401(k) into an annuity. While annuities can provide retirement income, they are not suitable for everyone.

Types of Annuities:

  • Fixed Annuity: A contract offering a fixed interest rate for a set period of time.
  • Fixed Indexed Annuity (FIA): A contract offering guarantees and policy crediting benchmarked to a stock market index, providing potential for growth along with the protection of principal from market downturns. Not actual market investments, instead, with FIAs there is the chance for crediting based on contract terms and index performance. (Guarantees are provided by the financial strength of the insurance company providing your annuity contract.)
  • Variable Annuity: A contract where the value and income payments fluctuate based on the performance of investments chosen within the annuity. The choice of investment subaccounts, like mutual funds, can increase or lose value based on market performance.
  • Registered Index-Linked Annuity (RILA): Like a variable annuity, except there is often a certain level of contractual protection from market downturns.

Life Insurance

Life insurance can provide financial protection for your loved ones by offering a death benefit paid to a beneficiary upon your passing. Policies vary widely, but they generally aim to replace lost income, cover debts, or fund future expenses. Some policies, like permanent life insurance, can also build cash value over time, which can be borrowed for various needs, including retirement income.

It’s important to work with your financial advisor to find the right policy for your needs, and remember, medical underwriting may be required.

Types of Life Insurance

  • Term Insurance: Provides a death benefit if the insured passes away within a specified term (e.g., 1, 2, 10, 15, or 30 years). Premiums are typically level for a certain period but may increase with age. Once the term expires, the policy ends.
  • Whole Life: A permanent policy with fixed premiums and guaranteed cash value accumulation.
  • Universal Life: Offers flexibility in premium payments, death benefit amounts, and the policy’s cash value. It allows policyholders to adjust the death benefit and premiums based on changing needs, and in some cases, premiums can be paid using the cash value. Indexed Universal Life (IUL) policies are benchmarked to a market index like the S&P 500 (but not actually invested in the market) and policies may be credited based on performance, while offering protection from market downturns.
  • Variable Life: Comes in two forms—variable and variable universal life. Both variable life insurance (VL) and variable universal life (VUL) insurance are permanent coverage that allocate cash value to market investment subaccounts which can lose value, but with variable life, there is a fixed death benefit, while with VUL, there is a flexible death benefit and adjustable premium payment amounts.

 

Whether you’re just starting to think about retirement or are near retirement age, it’s never too late to learn more, or take action to create your own personal retirement plan. If you’re unsure about your retirement options or would like assistance planning for your financial future, please reach out to us! You can reach The Financial Education Group by setting up an appointment with us here.

 

Sources:

https://en.wikipedia.org/wiki/401(k)#

https://www.usatoday.com/story/money/2024/03/19/pensions-are-popular-why-dont-more-americans-have-them/72968970007/

https://www.schwab.com/ira/traditional-ira/withdrawal-rule

https://u.demog.berkeley.edu/~andrew/1918/figure2.html

https://home.treasury.gov/system/files/131/WP-91.pdf

https://www.indeed.com/career-advice/career-development/financial-litteracy

https://www.investopedia.com/guide-to-financial-literacy-4800530

2025-04-16
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Do You Know the Connection Between Income and Medicare Costs?

By Medicare

As you near retirement you’re probably focused on making sure you have enough income to enjoy the years ahead. While enjoying what you’ve worked hard to build should be a priority, you should also keep in mind that withdrawing the money you’ve saved in traditional 401(k)s and IRAs can impact your Medicare costs throughout your retirement. Read on to see what having a high income could cost you in Medicare premiums and what strategies could potentially help you keep more money in your pocket and less going to Medicare premiums which are deducted from your Social Security check.

Understanding Medicare

First make sure you understand Medicare, how it’s broken up, and what plan you will likely choose. Medicare is sectioned into different parts, each serving a unique role in delivering health care coverage. These parts include Part A, Part B, Part D, and additional coverage options like Medicare Advantage (Part C) and Medigap.

  • Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care, and limited home health care. This is normally free for most people who have qualified for Medicare coverage.
  • Part B (Medical Insurance): Covers doctor visits, outpatient care, home health care, and preventive services like screenings and wellness visits, along with durable medical equipment (e.g., wheelchairs). Part B coverage is the premium that will be deducted from your Social Security check if you don’t choose Medigap or Part C.
  • Part D (Prescription Drug Coverage): Helps cover the cost of prescription medications, including certain vaccines. You can get Part D as a standalone plan along with Part B or as part of a Medicare Advantage Plan.
  • Medicare Supplemental Insurance (Medigap): Extra coverage from private insurers to help pay for out-of-pocket costs in Original Medicare, such as copayments and coinsurance. Plans are standardized by letter (e.g., Plan G, Plan K).
  • Part C (Medicare Advantage Plans): Private, Medicare-approved plans that may bundle Part A, Part B, and often Part D (prescription drug) coverages. Usually limited to providers within the plan’s network. May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

 

Comparing Your Choice of Original Medicare with Medicare Advantage

Original Medicare

  • Includes Part A and Part B.
  • Option to add Part D for prescription coverage.
  • Flexibility to see any Medicare-accepting provider in the U.S.
  • You can also add Medigap for extra coverage on costs not covered by Original Medicare.
 Medicare Advantage (Part C)

  • Private, Medicare-approved plans that bundle Part A, Part B, and often Part D (prescription drug) coverages.
  • Usually limited to providers within the plan’s network.
  • May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

 

Understanding Modified Adjusted Gross Income (MAGI)

There is one thing that will have a huge impact on your Medicare costs— your modified adjusted gross income (MAGI). Your MAGI is your adjusted gross income (AGI) minus allowable tax deductions and credits. Once you retire, you may be surprised to find that a combination of income from pensions, investment earnings, traditional (non-Roth) IRA withdrawals, and traditional 401(k) withdrawals may land you with a higher MAGI than you realized. While you may no longer be earning a traditional income from working a job, your MAGI will still reflect all of your taxable income.

RMD Impacts

A required minimum distribution (RMD) is the amount you are required to withdraw annually from specific retirement accounts, such as traditional (non-Roth) 401(k)s and traditional Individual Retirement Accounts (IRAs). Starting at age 73, you must take your first RMD by April 1 of the following year, and each subsequent RMD must be taken by December 31 each year after. These mandatory withdrawals are added to your taxable income, minus any allowable deductions or credits.

Higher Medicare Premiums for High Earners

How does retirement income connect to Medicare premium costs? If you have a high income, you will be subject to an income-related monthly adjustment amount (IRMAA) that must be paid in addition to Medicare Part B and Part D premiums, and it’s calculated every year. If the SSA determines you must pay an IRMAA, you’ll receive a notice with the new premium amount and the reason for it.

For 2025, the standard monthly premium is $185 per person per month. In 2025, single filers with 2023 MAGI of more than $106,000 and married couples filing jointly with 2023 MAGI of over $212,000 will pay more. (See Two-Year Lookback below for why we used 2023 MAGI.)

The Part B IRMAA surcharge amounts per person per month for 2025 range from $74.00 to $443.90, while Part D surcharges range from $13.70 to $85.50 depending on income!

Other Impacts

Other income sources can also contribute to an increased MAGI. Capital gains, home sale profits, and even Treasury bill yields contribute to a retiree’s MAGI.

Two-Year Lookback

Now that you know what contributes to your MAGI, know that when you go to enroll in Medicare, your MAGI from your tax return two years prior will determine your premiums. This “two-year lookback” rule can catch retirees off-guard if they receive large distributions or gains, increasing their premiums unexpectedly. This is why it’s a good idea to start preparing for premium costs as soon as possible, and be strategic about it. The last thing you want is to be settling into retirement and then be hit with a high premium if you can avoid it. Be aware that the two-year lookback is ongoing throughout your retirement, and your premiums may go up in any given year if your income goes up two years prior.

Potential Strategies

By now you know that your Medicare premiums are directly influenced by your modified adjusted gross income (MAGI)—the higher your MAGI, the higher your premiums may be. To help manage this, it helps to work with a retirement planner years before filing for Medicare at age 65, and years before you plan to retire so that a specific retirement income plan can be created for you.

Your advisor will work with you to map out your retirement with a strategy that includes which accounts to draw from and/or which taxable accounts you might want to convert to Roth accounts to potentially save money for the long-term. It all works together!

 

Planning for Medicare can seem like an overwhelming process. From knowing which retirement accounts to leverage to help keep your MAGI as low as possible, to accounting for that two-year lookback, it can be a lot. That’s why the best place to start in your plan is talking to someone knowledgeable about retirement planning.

If you need help getting started in your Medicare planning, we’re here to help! You can reach The Financial Education Group by setting up an appointment with us here.

 

 

Sources:
https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/parts-of-medicare

https://www.investopedia.com/terms/m/magi.asp

https://www.investopedia.com/terms/r/requiredminimumdistribution.asp

https://www.cms.gov/newsroom/fact-sheets/2025-medicare-parts-b-premiums-and-deductibles

https://www.kiplinger.com/retirement/medicare/what-you-will-pay-for-medicare-in-2025

 

 

 

2025-03-24
Love0

What’s Your Relationship with Your Finances?

By Financial Planning

An often-overlooked relationship is the one we have with our finances. As we celebrate the month of love, reflect on whether the relationship you have with your finances supports your long-term goals, or if a shift in that relationship is needed.

 

When you think about your finances, what’s the first feeling that comes to mind? Is it confidence? Indifference? Or perhaps anxiety? Like any relationship, your relationship with money requires consistent effort and care if you want it to be a fulfilling one. It’s also a malleable relationship, meaning that even if you feel overwhelmed by financial stress or detached from your goals right now, you can always change it to one that makes you feel confident about your financial future.

In psychology, a common way professionals assess relationships is through attachment theory. Attachment theory offers a framework for understanding how people form emotional bonds, particularly in early life with caregivers. These attachment styles include anxious, avoidant, and secure. Attachment theory can help us see how we approach all kinds of relationships, including the one we have with money!

First, understand your relationship with money was probably determined early on in life, maybe before you even understood the concept of money. This could be when you were a child seeing your parents or caregivers anxiously struggling to make ends meet, or seeing them spend money without considering long-term goals, etc. These early experiences shape how we interact with money and should be considered when assessing your current relationship with your finances. With that in mind, here’s how each attachment style may manifest in present-day financial behaviors:

Anxious

In the clinical sense, anxious attachment is characterized by a fear of abandonment and rejection. These individuals probably had inconsistent caregivers who were sometimes there and sometimes not. This made it hard for them to trust when things were good that the other shoe wouldn’t soon drop. When applied to finances, this could manifest as someone feeling overwhelmed, constantly worried that anything and everything could derail the progress they’ve made. These individuals often lack confidence in their ability to achieve their financial goals, even when all evidence suggests otherwise. Consumed by worry, they may find themselves paralyzed, unable to make the decisions necessary to reach their goals.

Avoidant

An avoidant attachment style involves a fear of closeness and difficulty trusting others as trusting others involved consistent disappointment in their earlier life. If someone has an avoidant style when it comes to their relationship with money, they may detach themselves from financial planning and long-term goals. If they avoid making goals, then there’s no fear of failure, but there will also never be any progress. These individuals might procrastinate, downplay the importance of financial milestones, or dismiss the need for accountability, all as a means of maintaining control while avoiding the potential disappointment that comes with falling short of their goals.

Secure

Finally, a secure attachment style enables an individual to feel safety, stability, and trust in close relationships. These are the people who had caregivers who offered affection when needed, encouraged independence, and were consistent. In the context of finances, someone with this attachment style approaches their goals with confidence. They trust their ability to make decisions that support their goals. They’re able to be present, engaged, and adaptable as circumstances change without feeling overwhelmed. Rather than fixating on the possibility of failure, they focus on success and the steps needed to achieve it.

 

Cultivating a Secure Attachment Style

If you feel like your attachment style leans avoidant or anxious at times, don’t worry! As stated previously, these attachment styles are malleable. This means you can change them! To cultivate a more secure attachment with your finances, think about what the behaviors of someone with a secure attachment might be. Some things you may want to consider:

  • General Financial Wellness: This includes having a monthly budget, an emergency fund, and a robust savings account. All of these will lay a foundation for you to build towards your bigger goals, but remember growing a “robust savings account” or creating a monthly budget are goals in themselves. So don’t let this first part overwhelm you, break it down into smaller, manageable steps and turn each one into its own goal!
  • Maintain Financial Awareness: It’s so easy to check out or lose focus on money. You see your monthly power bill or insurance premium go up, and you think, “Well it’s only $20.” But remember, that’s $240 a year! Push back the resistance that makes you want to ignore things, and instead keep track of bill increases, unnecessary purchases, and anything else that can burn a hole through your wallet. Being aware of these increases is the first step in mitigating them!
  • Set Goals: Know what you want to accomplish, because if you neglect to define your goals you will never achieve them. If your goals feel overwhelming, break them up into smaller goals. When you’re setting bigger, long-term goals, consider the power of compound interest. The returns you can gain over time can significantly help you reach those goals. For example, if you know you want to retire one day and your employer has a matching 401(k) plan, perhaps at the very least contribute enough to take full advantage of that match. If you want to send your child off to college one day, look into a 529 plan. If you are starting younger with a few decades before retirement, time is on your side, so take advantage of it.
  • Protect Yourself and Your Family: While preparing for the unexpected can be difficult, having a plan in place can help you face these challenges without feeling overwhelmed or shutting down. For this, you may want to consider a life insurance policy that works for you and your family. Life insurance policies have evolved over the last decade and can be better shaped to a policyholder’s needs, these policies can even have riders added to them to help you plan for long-term care. A will and/or estate plan will also help give you peace of mind knowing that if anything were to happen to you, you have taken steps to ensure your family will be taken care of, with your wishes spelled out and legally documented.
  • Know Your Triggers: If your attachment style leans anxious or avoidant, understand what triggers that attachment style. You can change your attachment style, but it requires a commitment to remaining present and addressing those maladaptive traits when they pop up. For example, maybe when you receive a bill you put off looking at it until the day before a late fee kicks in. Receiving a bill is the trigger, how can you address that trigger? Maybe you can enroll in automatic payments, or maybe set aside time every so many days to go over your bills, or maybe something entirely different altogether. Addressing your triggers will be something for you to figure out and can widely vary from person to person. The first step for everyone, however, is to face those triggers head-on and look for a solution.
  • Seek Help: Changing your attachment style is no small task, but you don’t have to do it alone! Partnering with an experienced financial advisor can make the process more manageable and less overwhelming. An advisor can help you define your goals, break them down into actionable steps, and provide guidance and support along the way!

If you’re looking for support in navigating your financial attachment style or want guidance to maintain a secure mindset, we’re here to help! You can reach The Financial Education Group by setting up an appointment with us here.

2025-02-11
Love0

Start 2025 Strong with These 5 Financial Wellness Tips!

By Financial Planning

The new year is here, which means a fresh start to be the best, healthiest version of yourself, but don’t limit that to just physical health. Make 2025 the year of prioritizing your financial wellness!

As we welcome 2025, it’s the perfect time to refocus on your health and set the tone for your year. Remember, wealth and health often go hand in hand. Use this time to take a closer look at your financial wellness and identify areas where you can grow, improve, and create a stronger foundation for your future. From doing a general review of your budget to revamping your portfolio, harness the momentum of the new year to help set yourself up for a financially successful and healthy 2025!

 

  1. Review Where Your Money is Going

Do you know where all your money is going? From small impulse buys to monthly bills, the start of the year is a great time to review your spending habits. Take a close look at your spending history to get a clear picture of where your money is going. To begin, think of your expenses as being in one of two groups: either needs or fun. For example, healthcare expenses would fall under needs, while a new wardrobe might fit into the fun category.

Next, break down your expenses into fixed, flexible, and discretionary costs. Fixed expenses are those that stay the same each month, like rent, mortgage, or insurance, while flexible (but necessary) expenses fluctuate, such as utility bills or groceries.

Discretionary costs can be decreased or increased. For instance, if you have necessary extra health or dental expenses for the month, you can choose to spend less on coffee or going out to eat. Remember to think about your life goals when you decide what is discretionary. If you have been putting only a small amount that’s left over each month into savings or retirement, consider changing that to have a fixed amount of savings deducted from your income before it ever hits your checking account.

This is also a great time to review your subscriptions to ensure they are still important to you as well as automatic payments to make sure there haven’t been any overlooked changes you need to rectify. Additionally, you may want to set up spending alerts on your accounts to help you monitor your finances throughout the year.

 

  1. Update Your Budget

Once you understand where your money is going, you can begin to determine your necessary monthly spending. Start by identifying your fixed expenses and calculating an average for your flexible and discretionary expenses to estimate your total essential monthly costs for the new year. You can input this information into a spreadsheet or your budgeting app of choice to compare it with your monthly income. Whether you rely on active income from work or retirement income sources such as 401(k)s, pensions, or Social Security, having a clear understanding of how much money you need to maintain your lifestyle is key.

Living within your means should be your biggest goal, and that may require taking an honest look at your spending habits and developing a strategy to better manage your income. By comparing your income streams to your budget and keeping savings and other financial goals in mind, you can create a sustainable plan for the year ahead.

 

  1. Have an Emergency Fund

Once your budget is set, ensure you have an emergency fund of liquid assets to cover at least three to six months of expenses. (Some people may want or need to have more than that, depending on their situation.) Your emergency fund should remain untouched unless needed for those necessary expenses. This will allow you some cushion during market downturns, unexpected expenses like a car breakdown, or hiccups in your income.

 

  1. Check-Up on Your Portfolio

Your portfolio can play a significant role in your overall financial plan, so it’s important to reassess its performance and consider any adjustments for the year ahead. Take some time to reflect on your goals and any planned life events for the upcoming year. While you can’t predict the future, you can evaluate what you expect the year may bring.

This assessment can influence your risk tolerance and guide decisions about diversifying your investments. If your current strategy doesn’t align with what you anticipate for the new year, now is the perfect time to rebalance your portfolio to help support your financial goals.

 

  1. Keep Your Goals in Mind

In everything you do, keep your goals at the forefront. Whether you’re aiming to build a nest egg for retirement, save for your child’s education, or leave a legacy for your loved ones, your financial strategy should reflect that. This is where strategic financial planning comes in.

For your bigger or more long-term goals, you may want to consider exploring strategies such as Roth conversions or charitable contributions to help with taxes, setting up 529 college savings plans for your children, or purchasing life insurance to create a tax-advantaged legacy for your loved ones. There are countless tools and strategies available, and the right ones for you will depend entirely on your unique situation and goals. By keeping your goals in mind with every financial decision you make this year, you’ll be supporting your long-term success.

 

Planning for the year ahead and the goals it entails can be stressful, but rest assured we’re here to help! If you need help with your financial wellness, give us a call! You can reach The Financial Education Group by setting up an appointment with us here.

 

Sources:

https://sfs.harvard.edu/financial-fitness-basics

https://solsticeseniorliving.com/financial-wellness-tips-for-seniors/

https://smartasset.com/investing/portfolio-management-tips

 

 

2025-01-17
Love0

Setting Financial Goals for the New Year

By Financial Planning

It’s that time of year again—the time when many people set ambitious goals but struggle to follow through on achieving them.

As you reflect on your financial health, it’s important to remember that everyone is in a different place financially. Tailoring your resolutions to fit your unique situation can make a significant difference. Here are five steps that can help you set and achieve your financial goals, along with suggestions and strategies for short-term, mid-term, and long-term goals to help keep you on track.

 

Step 1: Reflect on Your Current Financial Situation

Begin with a thorough examination of your existing financial landscape. Review your income, expenses, assets, and liabilities. This analysis will provide a comprehensive understanding of your economic standing and help you craft a personalized plan for your financial future.

Step 2: Establish Clear Objectives

Articulate your financial objectives clearly. Whether your aim is to build an emergency fund, plan for a dream vacation, buy a home, or prepare for retirement, identifying your goals sets the foundation for your financial journey. Consider the time frame associated with each objective, from short-term to long-term commitments. (See below for more.)

Step 3: Make Your Goals SMART

Adhering to the SMART criteria helps to ensure your goals are clear and achievable:

  • Specific: Clearly define what you want to accomplish. For example, “Save $10,000 for a car down payment.”
  • Measurable: Set specific amounts and deadlines, like “Save $500 per month for 20 months to reach $10,000 by a specific date.”
  • Achievable: Make sure your goals are realistic within your current financial situation.
  • Relevant: Align your financial goals with your overall life objectives.
  • Time-Bound: Set a deadline for each goal to create a sense of urgency.

Step 4: Seek Professional Advice

Consider consulting a financial advisor, especially for complex goals like retirement planning or investment strategies. Advisors can provide tailored guidance and valuable insights to help you make informed decisions. Don’t hesitate to ask for help; their knowledge can greatly enhance your financial well-being.

Step 5: Stay Disciplined and Motivated

To achieve your goals, discipline is crucial. Regularly check your progress and celebrate milestones. Keep your ultimate dreams at the forefront of your mind. This personal financial journey requires consistency and enthusiasm.

 

Short-Term Financial Goal Ideas

  • Create and Stick to a Budget

Establishing a budget is a foundational step in financial planning. Track your income and expenses to understand your financial habits and use budgeting tools to categorize your spending. Identify areas to cut back and allocate funds toward savings or debt repayment.

  • Build an Emergency Fund

An emergency fund is important for financial stability. Start small with a goal of $500 to $1,000, and gradually expand it to cover three to six months of living expenses, or more depending on your situation. Consider automated savings transfers to this dedicated account, helping you prepare for unexpected financial shocks.

 

Mid-term Financial Goal Ideas

  • Save for Major Life Events

Consider significant life events like buying a home or funding a child’s education. Start by estimating the total amount needed and set a timeline for achieving it, breaking it down into monthly savings targets.

  • Pay Off Student Loans

If you have student loans, strategize to pay them off effectively. Explore refinancing options to help secure a lower interest rate while considering the potential loss of federal loan benefits.

 

Long-Term Financial Goal Ideas

  • Save for Retirement

Experts recommend that you work toward a comfortable retirement by saving 10-15% of your income in tax-advantaged retirement accounts, or more if possible. As you get closer to retirement, you should work with an advisor to create a customized retirement income plan based on your personal retirement lifestyle goals. Estimate your desired annual expenses to help gauge how much you will need.

  • Plan for Major Life Transitions

Consider potential long-term goals, such as caring for aging parents or planning for long-term care. Early planning and dedicated savings can help alleviate future financial pressure.

 

The Importance of Ongoing Financial Planning

Remember, achieving financial goals is not always a linear process. Life can throw unexpected challenges your way. It’s beneficial to remain flexible and adjust your goals as needed. Embrace the new year as an opportunity to shape your financial future, and take proactive steps toward achieving your dreams.

 

Call us and let’s talk about your goals for 2025! You can reach The Financial Education Group by setting up an appointment with us here.

 

 

Sources:

  1. https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/
  2. https://www.cnbc.com/select/financial-new-years-resolutions/
  3. https://beewiseapp.com/en/setting-financial-goals-a-step-by-step-guide/

 

 

2024-12-18
Love0

Estate Planning Awareness Month: Prepare for Your Family’s Future

By Uncategorized

October is recognized as Estate Planning Awareness Month, a reminder to reflect on the importance of organizing your affairs for the benefit of your loved ones.

As we approach 2025, at the end of which the current estate tax exemption is set to expire to around half of what it is now, it’s important to revisit your estate plan and explore options like life insurance and trusts to safeguard your legacy, especially with significant tax changes on the horizon.

Why Estate Planning Matters

Estate planning involves organizing your financial affairs so that your assets and responsibilities are managed according to your wishes upon your death or in the event you become incapacitated. Ultimately, an effectively written and legally executed estate plan aims to provide peace of mind for you and your loved ones during a stressful time of loss or medical crisis, and can pave the way for an easy, tax-advantaged transfer of assets and decision-making authority to your chosen beneficiaries.

With estate tax changes looming, everyone should make it a priority to work with their financial advisor, tax professional, and estate attorney to help make sure they have a proper, up-to-date estate plan in place.

Key Legal Documents to Consider

Effective estate planning often relies on several essential documents:

  1. Will: This legal document specifies how your assets should be distributed after your death and who you choose as guardians for your children. It is crucial for specifying which items go to whom—like furniture or artwork—even if your estate isn’t large, or even if you also have a trust, when it is known as a pour-over will. Dying without a will (intestate) can complicate matters, as state laws and probate court might dictate asset distribution and make decisions about guardianship for dependents.
  2. Trust: There are many types of trusts, but in general, a trust can allow you to designate a trustee to manage your assets for beneficiaries. This can expedite asset distribution and potentially bypass probate court, as well as keep matters private.
  3. Power of Attorney (POA): This grants someone the authority to make financial or medical decisions on your behalf if you become incapacitated.
  4. Living Will: This document outlines your preferences for medical treatment and end-of-life care, so your wishes are honored.

The Importance of Life Insurance and Trusts

As the estate tax exemption is set to change, it’s a good time to consider life insurance and trusts that might confer tax advantages depending on your situation. Life insurance can provide liquidity to your family to help pay for expenses, usually tax-free, easing the financial burden on beneficiaries, while trusts can help protect assets from estate taxes and streamline distribution, potentially avoiding lengthy and costly probate court.

When planning your estate, your team of advisors might consider strategies like a Credit Shelter Trust (CST), also called a Bypass or AB Trust, which can allow assets to pass to beneficiaries tax-free upon the surviving spouse’s death. Spousal Lifetime Access Trusts (SLATs) also provide creditor protection and can reduce estate value, potentially lowering estate tax liability.

There are many types of trusts to help manage different situations, and it is important to seek legal help to ensure they are properly set up and executed.

Revisiting Your Estate Plan: Key Considerations

For the 2026 tax year, the current lifetime estate and gift tax exemption is set to be cut to almost half and adjusted for inflation. For 2024, the exemption stands at $13.61 million per person and $27.22 million for married couples; however, if the Tax Cuts and Jobs Act (TCJA) provisions sunset as planned, this exemption could drop to approximately $7.5 million for individuals and $14.5 million for married couples.

Families who may face estate tax liability in 2026 should proactively consider transferring assets out of their estate sooner rather than later. Engaging with your attorney or financial professional can help identify the best strategies tailored to your unique needs. With the provisions of the TCJA set to expire, it’s essential to reassess your estate plan to avoid potential tax burdens and seize opportunities for tax savings before it’s too late.

Common Estate Planning Mistakes

The most significant mistake is not having a plan at all. Other pitfalls include failing to communicate your wishes, naming only one beneficiary, and neglecting to update your plan after major life changes like marriage, divorce, or the birth of children. Regularly reviewing your estate plan—ideally every three to five years—can help ensure your documents remain aligned with your current situation. Without a clear estate plan, your assets could end up in probate court, leading to delays and potential family disputes, as a probate judge will determine distribution based on state laws that may not reflect your intentions.

Conclusion

Procrastination is the enemy of effective estate planning, especially as we approach significant changes in estate tax laws. Take this opportunity during Estate Planning Awareness Month to organize your affairs and make certain your wishes are honored. Remember Benjamin Franklin’s words: “By failing to prepare, you are preparing to fail.” Acting now will help protect your loved ones and facilitate efficient management of your estate.

Your Estate Planning Checklist

To help ensure a comprehensive estate plan, consider following this streamlined checklist:

  1. Inventory Assets: List valuable items, property, and sentimental possessions.
  2. Document Finances: Include bank accounts, retirement plans, and insurance policies.
  3. List Debts: Record all obligations, like credit cards and mortgages.
  4. Choose Beneficiaries: Make sure accounts have designated beneficiaries.
  5. Transfer on Death Designations: Set up TOD designations for bank and brokerage accounts, or alternatively, you may transfer assets into a trust.
  6. Select an Estate Administrator: Pick someone responsible for managing your estate.
  7. Draft Your Will: Prepare a legal will with professional assistance.
  8. Create Important Documents: Develop and execute legal powers of attorney and living wills, as well as trusts depending on your situation.
  9. Review Regularly: Reassess your plan after major life events.
  10. Consult Professionals: Work with an estate attorney, financial advisor and tax professional to help ensure you get the right advice. Each discipline has a different perspective and may bring issues to the table that only they fully understand.

 

If you would like us to meet with your estate attorney and tax professional to create or review your estate plan, we would be happy to do so. We can also bring these disciplines to the table if you don’t have them in place. Call us! You can reach The Financial Education Group by setting up an appointment with us here.

 

Sources:

  1. https://www.investopedia.com/articles/retirement/10/estate-planning-checklist.asp
  2. https://www.ncoa.org/adviser/estate-planning/estate-planning-guide-checklist/
  3. https://arizonastatelawjournal.org/2024/01/23/the-future-of-estate-planning-preparing-for-a-new-wave-of-laws-and-regulations/#:~:text=The%20Tax%20Cuts%20and%20Jobs,%E2%80%9Csunset%E2%80%9D%20to%20approximately%20%245%2C490%2C000.
  4. https://www.fidelity.com/learning-center/wealth-management-insights/TCJA-sunset-strategies
  5. https://www.texasbar.com/AM/Template.cfm?Section=articles&ContentID=62534&Template=/CM/HTMLDisplay.cfm
  6. https://www.genworth.com/aging-and-you/finances/cost-of-care
2024-10-21
Love0

Understanding Life Insurance: 7 Things You Should Know

By Financial Planning, Life Insurance

Life insurance is an important part of a comprehensive financial plan. Here are 7 things you should know about it.

At its simplest, you probably already know that life insurance provides funds in the case of unexpected loss of life. But there may be other aspects of life insurance that are less clear to you. If there are things about life insurance that you don’t understand, you are not alone! In fact, from research conducted by LIMRA in 2019, American consumers answered “don’t know” to 40% of the questions on a life insurance knowledge test, and if they did answer, they were correct less than half the time (46%).

Not to worry. It’s September, which means it’s Life Insurance Awareness month, and we’re here to clear up some of the basics about life insurance.

1) Policy Beneficiaries Receive Payouts

The beneficiary or beneficiaries named on a life insurance policy are the ones who receive the payout from the insurance company that issues a life insurance policy. Often a spouse, child, or other loved ones are named as beneficiaries, but in some cases, the beneficiary of a life insurance policy might be a trust.

NOTE: It is very important that a policy owner keeps policy beneficiaries up to date as situations, ages, and relationships change through time. An annual review is recommended.

2) A Life Policy Is “Written On” a Named Insured or Insured Persons, Not Always the Policy Owner

A “named insured” on a life policy is the one whose life is being insured. Generally, an insured person will purchase a policy on themselves, naming themselves as the insured, so that when they die, the death benefit goes to their chosen beneficiaries.

But an owner is not always the same as the insured. As an owner, you control the policy, and you can purchase a life insurance policy on someone else, as long as you would suffer from their death as a family member, business partner, or some other close relationship.

For instance, sometimes spouses will purchase policies naming each of them as joint insureds. These can be set up as “first to die,” where the surviving spouse or other named beneficiary receives the death benefit as soon as the first spouse dies, or as “second to die” (sometimes called “survivorship”) policies that only kick in to pay beneficiaries after both insureds have passed away.

In some cases, you might want to purchase a policy but make someone else the owner, for example, as a strategy inside a trust.

Or sometimes a parent or grandparent will purchase a policy naming a child or toddler as the insured. Naming the child when they are young and healthy (while the cost of insurance is low) can be done as a strategy to help save for the child’s future college expenses, and to ensure that the child has life insurance in place should they develop a health condition later.

3) Life Insurance Usually Requires Medical Underwriting

Life insurance usually requires medical underwriting, which means that once you apply for a life insurance policy, the insured person’s lifestyle, height and weight, medical history, and general level of health will be assessed (and approved) before your policy will be issued. Sometimes a physical exam will be required, and sometimes life insurance coverage will be denied, for example, if the insured person has a terminal condition. But even if you are in poor health, you may be able to obtain a life insurance policy at a higher cost.

And you may be able to purchase life insurance even if you are age 70 or older. In fact, more people are doing so because the estate tax exemption amount is set to drop to around half the amount it is now in the 2026 tax year, and consumers are seeking tax advantaged strategies to pass on wealth to their heirs.

4) Premiums Are What You Pay for Insurance

The word “premium” in the context of a life insurance policy is how much you will pay monthly, annually, or once for single premium life insurance policies. Premiums are determined on an individual policy basis based on many factors, including age, health, and credit.

5) Most Life Insurance Payouts—aka Death Benefits—Are Tax-Free and Probate Free

The money paid by an insurance company to a beneficiary upon the death of the insured person is called a “death benefit.” In most cases, a death benefit is tax-free and bypasses the probate process unless it’s paid to a trust, in which case different IRS rules may apply.

This can be a tremendous help to the spouse and family members during their time of grief and beyond as they look to their futures. It’s often recommended that a life insurance policy’s death benefit be in an amount that can cover monthly living expenses, mortgage payments, future college expenses, etc., protecting families from immediate and future economic devastation.

6) Life Insurance Can Be Used for Estate Planning Trusts and Business Succession Plans

It’s important when setting up complex estate plans, trusts, and business succession plans which may include life insurance that you consult with a team comprised of your financial advisor, estate attorney and CPA/tax professionals. IRS rules and tax laws are always in flux.

For instance, a recent Supreme Court ruling may change the tax ramifications of business buy-sell agreements. Be sure to meet with your team of advisors to review.

7) There Are Many Types of Life Insurance

In addition to term life policies, there are many permanent life insurance policies, including whole life, universal life and variable life. While a death benefit is always part of a life insurance policy, different types of life insurance policies are structured differently, and may contain additional features as part of the structure of the policy itself, or available as a “rider” to the policy for an additional premium amount. For instance, some policies even offer coverage for long-term care should you develop the need for it but provide a death benefit for your heirs if you don’t.

Life insurance is complex, and a life insurance policy is a contract between you and an insurance company. It is recommended that you work with your team of advisors to examine each contract clause thoroughly before purchasing a life insurance policy.

 

If you would like to discuss life insurance, please contact us! You can reach The Financial Education Group by setting up an appointment with us here.

 

This document is for general information purposes only and is not to be relied upon for financial advice. In every case, you should seek the advice of qualified tax, financial and legal professionals to ensure that a life policy is advisable based on your unique circumstances.

Life insurance often requires medical underwriting. Guarantees are provided by insurance companies and are reliant upon the financial strength and claims-paying ability of each individual insurance carrier issuing a life insurance contract.

 

Sources:

https://www.limra.com/siteassets/newsroom/help-protect-our-families/consumer-insights/2021/january/marketfacts_what-consumers-dont-know-anout-life-insurance.pdf

https://www.thinkadvisor.com/2024/08/26/u-s-life-application-activity-soars/

https://www.kitces.com/blog/business-buy-sell-agreements-connelly-v-irs-internal-revenue-service-supreme-court-entity-purchase-agreements-life-insurance-llc/

 

2024-09-18
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Ways to Save for College Costs

By Financial Planning

It’s back to school season—a perfect time to think about your children’s future. Parents and grandparents should start planning for college costs as early as possible.

Most Americans would do almost anything for their children and grandchildren, and sending them to college is a top priority for many. According to studies, more than 50% of parents are willing to go into debt to fund their child’s college education, and at least 95% of parent expect to cover at least half the costs.

The trouble is, college debt is extremely high—currently $1.77 trillion in the U.S. The average student loan debt amount is now $37,338 according to recent data.

Why is college debt so high? Well, for one thing, the average in-state tuition cost at public four-year institutions is $11,260 for the 2023-24 school year—and that’s per semester. That is about three times as high as it was in 1989-90, according to the College Board.

And on top of that, interest rates have risen. For the 2024-25 school year, federal parent PLUS loans will be at their highest point in more three decades, at a whopping fixed interest rate of 9.08% plus fees.

So, what is a loving parent or relative to do? Here are some of your options.

1) 529 Plans

A 529 plan, technically known as a “qualified tuition program” under Section 529 of the Internal Revenue Code, is an education savings plan off­ered by all 50 states and the District of Columbia. There are generally two types—prepaid tuition which allows you to lock in today’s tuition rates for the future college attendee, and the more popular 529 savings plan.

Keep in mind that you aren’t restricted to your own state’s plan. You can invest funds in any state’s plan, and your student can attend college in any state. Each state’s 529 plan is unique, with a diff­erent combination of sales channels, investment off­erings and fees. It can pay to shop around when choosing a plan because even if your state off­ers a tax deduction or credit for contributing to your state’s plan, that benefit might not stack up against the performance or lower cost of another state’s plan.

 

PROS

 

As of 2023, if a 529 plan is owned by a grandparent, aunt, uncle or other person, it is virtually invisible on the FAFSA’s calculations for both assets and won’t count as student income later if used for qualified expenses.

 

Although contributions to a 529 plan aren’t tax deductible on your federal tax return, the earnings grow tax-free when withdrawn and used for qualified education expenses.

 

Many states o­ffer state income tax deductions for contributions if you choose to invest in your state’s plan. (Your child can still attend college anywhere.)

 

There are no income limits on 529 plan contributions, so they’re available to everyone. Plans vary, but most have high total contribution limits—usually in the $235,000 to $529,000 range.

 

  

CONS

 

If owned by a parent or student, a 529 plan is counted as an asset on the student’s FAFSA (free application for federal student aid), although only a percentage of the total account is calculated.

 

There are limited investment options available with 529 plans, and only one investment change per year is permitted. Some plans have high costs and fees.

 

If your child, you or any family member does not want to attend college, and if 529 plan money is withdrawn and not used for education expenses, the account’s earnings are subject to both income tax as well as a 10 percent penalty tax, and you may have to pay back any state income tax deduction amounts as well. (There are exceptions to 529 plan penalties if your student receives scholarships.)

 

 

2) Roth IRAs

If a 529 plan doesn’t work for your family for some reason, a Roth IRA (individual retirement account) may be an option to consider. You can withdraw money from Roth IRA accounts to be used for college expenses for you, your spouse, children or grandchildren as long as the account has been in place for five years. If the account owner is under age 59-1/2, the only tax liability for college expenses will be on any withdrawn earnings—if over 59-1/2, the entire withdrawal amount is tax- and penalty-free for any purpose as long as you’ve owned the account for five years.

 

PROS

 

There is a lot of flexibility with a Roth—you can invest in nearly any type of account you want to within a Roth IRA wrapper.

 

If your child doesn’t choose to go to college, the money can be used for any purpose, including retirement, with no mandated withdrawals or RMDs (required minimum distributions) or taxes due. Inherited Roth IRA accounts are also tax-free.

 

 

  

CONS

 

One of the difficulties with Roth IRAs is that high earners can’t open them, and the yearly limit in 2024 for contributions is only $7,000 ($8,000 per year for those 50 or older). In some cases, what’s called a “backdoor Roth” might be indicated for high earners, where they can legally convert taxable IRA funds into Roth IRA accounts and pay taxes on the money converted, but these are complex and strict IRS rules apply.

 

While a Roth IRA does not show up as an asset for financial aid calculations, amounts withdrawn and used for college expenses are considered income for the next school year, and therefore may reduce the amount of student financial aid that’s available.

 

 

3) Life Insurance

Permanent life insurance policies, such as whole or universal life, include both a death benefit and a savings/cash account component which you can borrow against to pay for college.

 

PROS

 

Many permanent cash value policies regularly credit the policy with interest in a guaranteed* amount specified in the policy terms (*guaranteed by the claims-paying strength of the issuing insurance company.)

 

Money borrowed from the cash value in a life insurance policy is not taxable in most cases. Interest credited to a life policy grows tax-deferred, but the credited interest portion is taxable if that part of the money is borrowed for any purpose, including college.

 

If the insured dies, the death benefit plus remaining cash value is almost always tax-free when left to individually-named beneficiaries.

 

Buying a flexible, permanent policy for a child at a young age when they are healthy can ensure that they are insurable even if there’s an unexpected future adverse event; for instance, if they develop a severe illness later.

 

  

CONS

 

While a life insurance policy does not show up in financial aid calculations as an asset, amounts borrowed to pay for college are considered as income on the next year’s FAFSA, potentially reducing the amount of student financial aid available.

 

Life insurance policies can be costly for those who are older or in poor health. If you are using life insurance to pay for college, consider buying the policy when the child is a healthy toddler—with them as the insured to keep the cost of insurance low.

 

If you borrow money from the cash portion of a permanent life insurance policy, interest is charged by the insurance company on the amount borrowed until you pay the money back—in essence, you are paying “yourself” back—and regular premium payments must be made to keep the policy in force. It is advisable to work with a qualified professional to examine the structure of any policy so that you understand its terms.

 

 

4) Annuities

Annuities are another option to consider.

 

PROS

 

Annuities can offer a tax-advantaged option for college costs in some cases because annuity policy growth is not taxed until funds are withdrawn.

 

You could purchase a fixed annuity with a short payout schedule to make payments to cover tuition, but you may have to contribute a significant amount to achieve the payout needed. Another way to potentially make an annuity work is to start early when your child is young and purchase a deferred annuity policy which guarantees* a high credited interest rate (*guaranteed by the claims-paying strength of the issuing insurance company).

 

  

CONS

 

While an annuity does not show up on the FAFSA as an asset, annuity amounts paid out are considered income the next year, which can reduce your student’s chances of receiving financial aid. So rather than taking annuity payments while attending college, optionally you could take out student loans, allowing your annuity to continue to grow, then use the annuity to pay off­ the loans after graduation depending on interest rates, crediting rates, and whether or not it saves you money in the long run.

 

 

 

 

How College Savings Can Impact Financial Aid Eligibility

Working with a qualified financial and tax professional is advised when planning for college costs. Legislation is always changing for parents and grandparents looking to get a jump-start in funding their child or grandchild’s education. For example, due to the FAFSA Simplification Act of 2020, in July of 2023 the EFC (expected family contribution) was replaced by the SAI (student aid index).

Where the EFC bottomed out at $0, the SAI goes as low as -$1,500, meaning students can qualify for more need-based financial aid. SAI also simplifies the FAFSA form itself, drastically reducing the number of questions. Where possible, the new law mandates data received directly from the IRS be used to calculate the SAI and federal Pell Grant eligibility.

Where the new SAI may truly be a boon to students who need more aid is through 529 plans owned by extended family members. As of July 2023, 529 accounts owned by grandparents, aunts, uncles or others are not counted as assets, nor are qualified distributions taken from them counted as income. Therefore, they no longer have significant impact on eligibility for financial aid.

FAFSA (free application for federal student aid) and the CSS (college scholarship service)

While it is true that life insurance, annuities and 529 plans owned by anyone other than parents or students are not counted as assets on the FAFSA, they may be counted on the CSS (College Scholarship Service) profile, another aid form used for aid by about 240 colleges in addition to the FAFSA. The CSS profile is extremely complex and steps are being taken to simplify it, but changes to the form have not been finalized.

More Resources

Federal Student Aid Estimator https://studentaid.gov/aid-estimator/

FAFSA https://studentaid.gov

 

If you have any questions or would like to discuss your family’s financial goals, please call us! You can reach The Financial Education Group by setting up an appointment with us here.

 

This article is for general information purposes only and should not be relied upon for financial or tax advice. In every case, it is recommended that you work with financial, tax and legal professionals to determine what might be best for you and your family based on your unique situation and circumstances.

 

Sources:

https://www.cnbc.com/2019/06/04/most-parents-would-go-into-debt-for-the-sake-of-a-childs-college-fund.html

https://www.investmentnews.com/industry-news/news/how-much-are-parents-willing-to-cover-for-their-kids-college-252891

https://educationdata.org/average-student-loan-debt#

https://www.lendingtree.com/student/student-loan-debt-statistics/

https://research.collegeboard.org/trends/college-pricing/highlights#

https://www.usatoday.com/story/money/personalfinance/2024/05/28/parent-plus-loan-rate-2024-25-soars/73824155007

https://www.greenbushfinancial.com/all-blogs/grandparent-529-college-savings#

https://www.schwab.com/ira/roth-ira/contribution-limits#

https://www.investopedia.com/terms/b/backdoor-roth-ira.asp

https://www.edvisors.com/student-loans/parent-student-loans/introduction-to-federal-student-loans-parent-plus-loans/

https://unicreds.com/blog/student-aid-index

https://studentaid.gov/help-center/answers/article/fafsa-simplification-act

https://www.savingforcollege.com/intro-to-529s/does-a-529-plan-affect-financial-aid#

https://www.plansponsor.com/secure-2-0-reforms-529-and-able-accounts/

https://www.ncan.org/news/590316/Changes-to-the-2022-23-CSS-Profile-Heres-What-You-Need-to-Know.ht

 

 

2024-08-16
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Personal Finance: The Importance of Starting Early

By Financial Planning, Retirement Planning, Social Security, Tax Planning

Whether you’re just starting out in your career, you are a Gen-X-er sandwiched between your kids’ college expenses and aging parents’ needs, or you are a Baby Boomer eyeing retirement, starting early can help when it comes to your finances. Here are some reasons why.

When You’re Young—In Your 20s

We’ve all heard the famous quote by Albert Einstein, the one where he said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” And it’s true. In many cases, if you start out early—perhaps in your teens or 20s—saving just a small amount each month, you can amass more money through time than if you start saving at a later age, even if you save a larger amount each month. Of course, it depends on what you invest in. Be sure to check with a trusted financial advisor about how this works.

Investopedia uses this example:

Let’s say you start investing in the market at $100 a month, and you average a positive return of 1% a month or 12% a year, compounded monthly over 40 years. Your friend, who is the same age, doesn’t begin investing until 30 years later, and invests $1,000 a month for 10 years, also averaging 1% a month or 12% a year, compounded monthly.

Who will have more money saved up in the end? Your friend will have saved up around $230,000. Your retirement account will be a little over $1.17 million. Even though your friend was investing over 10 times as much as you toward the end, the power of compound interest makes your portfolio significantly bigger.

When You’re Older—In Your 40s, 50s or Early 60s

As you head into retirement, starting early to map and plan out your retirement—well before you retire—can help you for many reasons, because there are a lot of moving pieces to consider. Plus, everyone’s situation is completely different and what might work for someone else might not be right for you at all. For instance, one person’s desired retirement lifestyle could be drastically different than another person’s, requiring different budget amounts. (Consider whether you want to stay home and become a painter, or travel the world with your entire extended family. That’s what we mean by drastically different budgets.)

Once you have your required retirement budget amount settled, timing then becomes very important. A financial advisor with a special focus on retirement can really make the difference by laying out a retirement roadmap just for you. Here are some of the things you should know and think about:

1) Medicare Filing – Age 65

You are required to file for Medicare health insurance by age 65 or pay a penalty for life. To avoid this penalty, be sure to sign up for Medicare within the period three months before and three months after the month you turn age 65. If you are still working or otherwise qualify for a special enrollment period, you can sign up for Part A which is free for most people, and then sign up for Part B after you retire. Visit https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties to learn more about penalties and how you can avoid them.

You are required to have Medicare coverage if you are not working or covered by a spouse with a qualified health insurance plan, and Medicare (other than Part A) is not free. In fact, it costs more if your income is higher. Your Medicare premium is often deducted right out of your Social Security check, and premiums generally go up every year.

When you sign up for original Medicare Part B or a replacement Medicare Advantage plan, the least amount you will pay for 2024 is $174.70 per month per person. For those with higher incomes, the Medicare premiums you pay are based on your income from two years prior—those with higher incomes pay more. For couples filing jointly, the highest amount you might pay for Part B coverage if your MAGI (modified adjusted gross income) is greater than or equal to $750,000 is $594.00 per month per person for 2024.

So, depending on your income for the tax year two years prior to filing for Medicare, your premium could be from $174.70 to $594.00 in 2024, or somewhere in between.

If you plan ahead, your advisor might help you plan to take a smaller income in the years prior to turning age 65 in order to keep your Medicare premium smaller. For instance, some people might want to retire at age 62 or 63 and live on taxable income withdrawn from their traditional 401(k) or IRA account/s before they even file for Medicare or Social Security. Each person’s situation is completely unique, but advance retirement planning may help you come out ahead in the long run.

2) Social Security Filing – Age 62, 66-67, 70 or sometime in between

Another moving piece in the retirement puzzle is Social Security. The youngest age you can file for Social Security is age 62, but a mistake some people can make is thinking that their benefit will automatically go up later when they reach their full retirement age—between age 66 to 67 depending on their month and year of birth. This is not the case. If you file early, that’s your permanently reduced benefit amount, other than small annual COLAs (cost of living adjustments) you might or might not receive based on that year’s inflation numbers.

Filing early at age 62 can reduce your benefit by as much as 30% according to Fidelity. Conversely, waiting from your full retirement age up to age 70 can garner you an extra 8% per year. (At age 70, there are no more benefit increases.)

Planning ahead for when and how you will file for Social Security can make a big difference in the total amount of benefits you receive over your lifetime. And married couples, widows or widowers, and divorced single people who were married for at least 10 years in the past have even more options and ways to file that should be considered to optimize their retirement income.

3) Taxes In Retirement

Thinking that your taxes will automatically be lower during retirement may not prove true in your case, and it’s important to find out early if there is a way to mitigate taxes through early planning. Don’t forget that all that money you have saved up in your traditional 401(k) will be subject to income taxes—and even your Social Security benefit can be taxed up to 85% based on your annual combined or provisional income calculation.

And the IRS requires withdrawals. Remember that by law RMDs (required minimum distributions) must be taken every year beginning at age 73 and strict rules apply. You must withdraw money from the right accounts in the right amounts by the deadlines or pay a penalty in addition to the income tax you will owe on the mandated distributions.

Planning ahead to do a series of Roth conversions—shifting money in taxable accounts to tax-free* Roth accounts—might be indicated to help lower taxes for the long-term in your case, but these must be planned carefully and are not reversible.

Let’s talk about your financial and retirement goals and create a plan to help you achieve them. Don’t put it off—give us a call! You can reach The Financial Education Group by setting up an appointment with us here.

*In order for Roth accounts to be tax-free, all conditions must be met, including owning the account for at least five years.

This article is for general information only and should not be considered as financial, tax or legal advice. It is strongly recommended that you seek out the advice of a financial professional, tax professional and/or legal professional before making any financial or retirement decisions.

Sources:

https://www.investopedia.com/articles/personal-finance/040315/why-save-retirement-your-20s.asp

https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties

https://www.cms.gov/newsroom/fact-sheets/2024-medicare-parts-b-premiums-and-deductibles

https://www.ssa.gov/benefits/retirement/planner/agereduction.html

https://www.fidelity.com/viewpoints/retirement/social-security-at-62

https://content.schwab.com/web/retail/public/book/excerpt-single-4.html

https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html

https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

2024-07-22
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Annuity Sales Are Surging. Do You Know What They Are?

By Annuities, Retirement Planning

We’re here to help clear up some of the confusion about annuities during Annuity Awareness Month, which happens each June!

In the first quarter of 2024, U.S. annuity sales were $106.7 billion, the highest first quarter total since the 1980s, when LIMRA first started tracking annuity sales. Despite these high sales numbers, research indicates that many people don’t really know what annuities are.

One recent study revealed that only 9% of consumers say they feel very knowledgeable about annuities, while other studies confirm this lack of understanding. Research by the American College of Financial Services gave older Americans a score of 12% out of a possible 100% for their knowledge of annuities based on their performance on a short quiz. And a TIAA Institute and Stanford University study showed that the annuity ranks dead last—respondents know more about Medicare, life insurance and long-term care than annuities.

During Annuity Awareness Month, we wanted to cover some facts we hope will help you understand annuities better.

Annuities Are Ancient

The concept of the annuity goes back centuries. In fact, during the Roman Empire, soldiers and their families would receive annual payments for life known as “annuas” in return for their military service; this is the origin of the word “annuity.” In the Middle Ages, annuities were available in France during the 17th century, when lifetime annuities (called “tontines”) could be purchased from feudal lords in exchange for an initial upfront payment.

In other words, for millennia, annuities have been around to provide regular income during retirement. Fast forward to today.

Annuities Are Contracts

When you invest in something, typically you assume all the risk. Since annuities are not investments, but instead are contracts between you and an insurance carrier, one of the main risks you assume with annuities is that the payouts will be made per the terms in your contract. Certain contractual guarantees* are made by any insurance company which issues an annuity, and these guarantees are subject to that company’s financial strength and claims-paying ability.

It is very important that you have a trusted financial professional, tax professional and/or legal professional by your side to examine the terms and language of your annuity contract as well as provide information about the insurance company’s financial rating before you make any decision.

In fact, this is good advice when making any decision that involves investing or entering into any kind of a contract. Some financial industry experts and academic leaders in the financial field, like Dr. Wade Pfau and Dr. Roger Ibbotson, have found that annuities belong in the fixed portion of some people’s retirement portfolios (depending on their individual situation) because of insurance company guarantees, and because some annuities may perform better than stock market investments for retirees.

But there are many different types of annuity contracts.

Today’s Annuities Are Complex

Despite their simple structure in the beginning, annuities have become increasingly sophisticated over time. In addition to providing retirement income, insurance companies have added more features to provide retirees with coverage for spouses, long-term care, death benefit for heirs, etc., either as part of the basic annuity or added on as a rider for an additional cost.

While not a comprehensive list, below is basic information about how some annuities work. We recommend that you work with a financial professional to help you compare and choose between the hundreds of annuity contracts available from dozens of different insurance companies. As with any contract, it’s important to read and understand the fine print before you sign, and you should compare policies from multiple insurance companies to find the best value. That’s where a good independent financial advisor can help.

Fixed Annuities

Fixed annuities are probably the easiest type of annuity to understand because they work similarly to the way a bank CD (certificate of deposit) works. An insurance company will pay a fixed interest rate on your fixed annuity contract for a selected term, usually from one to 15 years.

Variable Annuities

Variable annuities were developed in the 1950s, and unlike most other types of annuities, before purchase they require that you be issued a prospectus, since part of your money will actually be invested in the stock market. This means that there is market risk involved with variable annuities—you can either make money on the amount invested in what’s called “sub-accounts,” or you can lose it depending on market performance.

Variable annuities are usually purchased with the expectation that at some point the contract owner will annuitize or begin taking periodic payments. But depending on contract terms, your annuity payments may fluctuate based on stock market performance, and it’s possible that some variable annuity policies can lose principal due to stock market losses.

Fixed Indexed Annuities

Fixed indexed annuities (FIAs) were first designed in 1995. The biggest difference between FIAs and variable annuities is that fixed indexed annuities are not actually invested in the stock market so they are not subject to market risk. Instead, a selected index (such as the S&P 500) is used as a benchmark for policy credits at periodic intervals, such as annually.

Many FIA contracts offer a minimum amount which gets credited, and nearly all FIA contracts will not credit less than 0%, which means even that if the benchmark index loses money, your FIA contract value will not go down. With fixed indexed annuities, after you have owned the policy for a specified number of years (called the “surrender period”) your principal is guaranteed* and credits, therefore any policy gains, are locked in.

In other words, with fixed indexed annuity contracts, you have the potential to participate in market gains but are protected from market downturns. And most FIAs offer the option of lifetime income no matter how long you live either as part of the main annuity contract, or available as a rider for an additional charge.

Other Things to Know About Annuities

*The guarantees provided by annuities rely on the claims-paying ability and financial strength of the issuing insurance company.

Some annuities can be purchased on a deferred basis, and some on an immediate basis, and you can use pre-tax or after-tax funds. It’s important to get professional help to understand the implications for your particular situation.

Annuities must be considered carefully based on your particular situation because they are not liquid. Almost all annuities are subject to early withdrawal penalties. Make sure you understand the contract terms and the type of annuity you are purchasing. Your financial advisor and tax and legal professionals can help you compare and analyze policies.

Are You Prepared for Retirement?

With people living much longer and pensions quickly becoming a thing of the past, annuities can help provide income throughout retirement and help quell the fear of running out of money. If you are considering the purchase of an annuity, it’s important to speak with a financial professional who understands them, and can explain the fine print of an annuity contract.

 

Contact us to explore your options! You can reach The Financial Education Group by setting up an appointment with us here.

 

This article is provided for general information purposes only and is accurate to the best of our knowledge. This article is not to be relied on or considered as investment or tax advice.

 

Sources:

https://www.limra.com/en/newsroom/news-releases/2024/limra-first-quarter-u.s.-annuity-sales-mark-14th-consecutive-quarter-of-growth/

https://insurancenewsnet.com/oarticle/consumer-knowledge-gap-persists-despite-booming-annuity-sales

https://www.usatoday.com/story/money/2024/04/30/annuities-are-good-retirement-investment/73437135007/

https://www.nber.org/system/files/working_papers/w6001/w6001.pdf

2024-06-12
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Chris Longworth Featured In The Wall Street Journal Article About Boosting Your College Financial Aid

By In the Press

Chris Longworth Featured In The Wall Street Journal Article About Boosting Your College Financial Aid

 

Faced with the gargantuan cost of higher education, Americans often have to choose between securing their children’s future or their own. A new rule change makes it slightly easier to do both.


Chris Longworth weighed in:

“Parents who put college savings ahead of retirement savings may end up having to play catch up once their kids graduate college, financial advisers say. By that point, they are closer to retirement age and may end up having to save even more money each year to meet their goals, stay in the workforce longer or adhere to a stricter budget once they retire…

Read the original article here: https://www.wsj.com/personal-finance/financial-aid-401k-retirement-fafsa-8104c0bc

2024-05-31
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