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401(k)s and IRAs Compared

A recent wjbf.com post, “Advantages and disadvantages to a 401k and an IRA,” explains some of the possible advantages and disadvantages of a 401(k) and an IRA.

As of June 9, there are several new regulations from the Department of Labor concerning IRAs and qualified plans. Let’s look at the advantages and disadvantages of qualified plans and IRAs.

Compare-643305_640401(k): A 401(k) can potentially be less expensive than other investment vehicles, due to the number of participants. Many also have a loan provision for access to your principal, if you need it in an emergency. If you retire early, qualified plans may have an age 55 withdrawal privilege that gets you around the 10% withdrawal excise tax provision. However, if you’re still working, you may be able to push back your required minimum distribution (RMD) if you’re over age 70 and still participating in the plan. You’ll also have creditor protection in the typical qualified plans. Those are some of the general positives.

One of the disadvantages of a typical qualified plan are choice limitations. A typical plan will have 10 or 15 options. That’s it for choices. The loan provision can also be a negative, if you terminate—the loan becomes distributable and becomes a taxable event (unless you can pay it back). You’d also be subject to the IRS rules concerning distributions. A 401(k) plan itself can have more rules around distributions that might make it even more difficult to distribute. Managed portfolios will be plan-specific with little customization to individual participants.

IRA: A major advantage of an IRA is the number of options. There are thousands of different investment options for a customized strategy and better tax efficiency. There is also more flexibility in beneficiary designations and distributions, stretch IRAs and distributions to potential beneficiaries.

The potential disadvantage of an IRA is somewhat higher costs. There’s no loan provision in IRAs (an IRS rule), and the age 55 early distribution rules don’t apply in an IRA. The notable difference from the qualified plan to individual IRA is service and complex planning.

If you want to learn more about estate planning and/or elder law, join us for our any one of our upcoming FREE workshops!  Just click here to reserve your seat now!

Reference: wjbf.com (June 26, 2017) “Advantages and disadvantages to a 401k and an IRA”

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Lottery Scams are on the Rise

At first, you might think your prayers have been answered.

A recent woodtv.com article, “88-year-old nearly scammed by fake lottery, warns others,” tells the story of an elderly couple who love their home. Unfortunately, they are running out of money and may need to move. That’s why it was such a godsend when a letter came in the mail telling Betty that she’d won $4.5 million in a Madrid-based lottery.

Money-256319_640“It was stamped by the government, approved by the government,” Betty said. “I just figured, all these stamps, it’s got to be real.”

The letter from Portugal arrived weeks after she’d mailed a different ball-related game of chance, a Pick Quick card that had come in a Publishers Clearing House mailing. She thought the letter was notification that her Pick Quick card was a winner.

But this was different. The letter from “The Mega Lottery Picker 2017” explained that she’d have to give 5% of her winnings to a “promotions company” and they offered to wire the money to her bank account. How convenient, Betty thought.

Fortunately, before calling the lottery company with her banking information, she first called an attorney who she was already scheduled to meet the next day to talk about the couple’s finances. Betty thought there was no need to meet because she was now rich. But the paralegal she spoke with at the law firm was suspicious and asked Betty not to call the “lottery.”

After investigating, the law firm saw that it was a scam, much to Betty’s disbelief.

This scam isn’t uncommon. For example, the federal government is now prosecuting several Jamaicans in a telemarketing lottery scheme that allegedly bilked around 100 Americans out of more than $5.7 million. Many of the victims were elderly. There’s no evidence the letter Betty received is linked to the Jamaican scam.

The Federal Trade Commission offers the following tips to recognize a scam and to avoid being scammed.

  • There’s a fee to pay;
  • You must wire the company money;
  • You’re required to deposit a check sent to you;
  • They say they’re from the government;
  • It’s a bulk mail notice;
  • They call you, even though your number is on the Do Not Call Registry;
  • You get a text message about a prize; and
  • A review online shows complaints.

If you have any questions about estate planning and/or elder law for ourself or your family, we can help.  Just click here and give us a little information and we'll get back to you!

Reference: woodtv.com (June 30, 2017) “88-year-old nearly scammed by fake lottery, warns others”

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Create a Lasting Legacy in Your Community

In addition to making a meaningful gift to a charity, you can create a lasting legacy in your community, says Hawaiian Business in its recent entry, “5 Steps to a Lasting Legacy.” Here are some ideas to consider when creating your lasting legacy.

  1. Team-386673_640 (1)Consider the Charitable Organizations or Causes That You Feel are Important. Think about how you’d like to make your community better for future generations. A legacy gift will benefit a specific nonprofit or cause.
  2. Find out if you satisfy the Requirements. The charity may have some rules about its legacy giving. For example, the Hawaii Community Foundation requires that you be age 60 or older and able to donate $20,000 or more. That gift can consist of cash, funds earning low interest, or appreciated assets (securities and real property). For those younger than 60, they suggest a deferred annuity in which the payment is triggered at 60 or older, to allow you to coordinate your payment with your retirement.
  3. Work with an Expert. Talk with an experienced estate planning attorney about how a charitable gift annuity would benefit you and meet your objectives.
  4. Tailor the Agreement to Meet Your Goals. In many instances, a gift, such as an annuity, is simple to create. It’s a contract between you and the charity. The charity may offer to work with you and your attorney to customize an annuity that is based on your personal situation and charitable investments. One key decision is how to use the remaining balance upon the death of annuitant(s) designated by the original donor. Decide if the remaining balance is to be used for broad charitable purposes or to support a specific cause.
  5. Enjoy It. You’ll get an immediate charitable tax deduction for a portion of the gift and a fixed annual payment for the rest of your life. Some of the annuity payments may be tax free, and there are no capital gains taxes owed on appreciated property used to start a charitable gift annuity. The reportable capital gains (if any) are spread out over the annuity payments.

If you have questions about anything related to estate planning or elder law, feel free to click here and give us a little information.  We're happy to get back to you and schedule a complementary consultation.

Reference: Hawaiian Business (June 2047) “5 Steps to a Lasting Legacy”

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Easy Ways to Leave a Gift to a Charity

The Jewish News says, in its recent article, “Keeping it (charitable estate planning) simple,” that the most common way to leave money to a charity is with a “bequest.” The assets of a bequest are those you promise to give away, after you pass away. This requires you to create or adjust your will. However, there are other ways of leaving money to your favorite organizations.

Gifts-570821_640We have all heard of making a “pledge” for a fundraiser. It’s a promise to be paid soon thereafter. You can also make a pledge that is payable-on-death. It’s simply a bill that comes due, when your estate is being settled. You have the ability to revoke the pledge when you’re alive. However, at your death, it must be paid by the executor of your estate.

Another way to leave money to a charity without changing your will, is to name a charity as a beneficiary of any financial asset, like an insurance policy, an IRA or a donor advised fund. All you need to do is complete a form that says what should happen when you die. You should retain a copy so that your executor will know where to direct the asset.

Charitable gifts paid directly from your IRA, can give you some terrific tax savings—both during your life and upon your death. Ask your IRA manager to arrange for a charitable beneficiary of your IRA to maximize the tax savings. You can also make charitable IRA distributions from your Required Minimum Distributions (RMDs) to your charities, to save the taxes now. However, make sure that the money goes directly from your account to the charity.

A charitable gift annuity is similar to a special bank account that pays you or a designated beneficiary annual guaranteed lifetime income. The rates are based on your age and are typically higher than you can earn with investments. This money is given to your designated charity as a gift, with the residual remaining with the charity when you die.

If you have questions about charitable giving, contact us.  We're here to help you to decide which methods are appropriate for you.  Call today at (717)308-5412 or click here and give us just a little information and we'll contact you!

Reference: Jewish News (June 21, 2017) “Keeping it (charitable estate planning) simple”

 

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