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Life and Health Bulletin
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Understanding Roth IRA
Saving for retirement is important for your financial future. Consider a Roth IRA because it offers five benefits.
What is a Roth IRA?
A Roth IRA allows you to contribute up to $5,500 ($6,500 for consumers over the age of 50) per year. You receive no tax benefits when you contribute, but the contributions and earnings grow tax-free.
You may withdraw funds from your Roth IRA when you turn 59-1/2 years old and the account has been opened for five years. There are no required minimum distributions. When you do withdraw money, it's tax-free and penalty-free.
The 5 Benefits of the Roth IRA
Carefully consider five benefits of the Roth IRA as you plan your retirement strategy.
Gain tax-free income during retirement.
You will pay no taxes on your Roth IRA contributions and earnings. That's a huge advantage, especially if you'll be in a higher tax bracket when you begin taking distributions.
Receive investment flexibility.
Retirement funds such as certificates of deposit or traditional IRAs require you to wait for distributions. Your Roth IRA offers greater flexibility.
Withdraw funds from your Roth IRA for any purpose when you turn 59-1/2. There are no required distributions or penalties. Also, you may withdraw funds sooner than 59-1/2 years of age for these purposes.
First-time home purchase
Postsecondary education expenses
Unreimbursed medical expenses of over 10 percent of your adjusted gross income or 7.5 percent if you're over 65 years old
Health insurance premiums during unemployment
Contribute after age 70 1/2.
Traditional IRAs do not allow you to make contributions after you turn 70-1/2 years old. Instead, you must take distributions and pay taxes on those distributions.
A Roth IRA includes no age limits for contributions. As long as you continue to earn income, you can contribute to the account and watch the total and your future financial security grow.
Assist your heirs.
Every Roth IRA includes an account beneficiary. Select an heir or multiple heirs who then receive tax-free income. This benefit is particularly attractive if caring for heirs or leaving an inheritance is an important part of your financial plans.
Gain a back-door entry as a high earner.
There are income limits to Roth IRA contributions that inhibit high earners from opening this type of account. However, you can open a traditional IRA and then convert those funds into a Roth IRA. A tax professional helps you make this conversion.
A Roth IRA provides five key benefits. Consider them carefully as you choose the best retirement strategy for your needs.
HMS Insurance Associates, Inc.
Elderly Need to Be Aware of Schemes and Fraud
No one likes to believe that, in our society, there are predators who take advantage of individuals who are the least able to defend themselves. However, the sad truth is that across America every year, millions of seniors are hoodwinked by fraud, scams, and swindlers. These common scams can happen in the home or at the mall. They can be carried out in person, by mail, on the phone, or over the Internet.
In reviewing telemarketing fraud, the United States Congress has stated that telemarketing schemes have become a $40 billion per year “industry.” There are approximately 140,000 active telemarketing firms in the U.S., and Congress estimates that up to 10% of these might be fraudulent. Many of these fraudulent telemarketers prey on older Americans.
The American Prosecutors Research Institute indicates that senior citizens are more susceptible to telephone fraud than others because they possess more than half of all the financial assets in this country and their assets can be converted easily into large sums of cash. Secondly, older people are more likely to be at home to receive telemarketing calls. And finally, many older Americans are too polite to hang up. Amazingly, some senior citizens are subject to fraud because they are just too nice.
But there are steps you can take to protect yourself at home, on the phone, and online. On the Internet, beware of any “free” service or product. Don’t give out personal information unless you absolutely know who the provider is. Just because your friend knows them is not good enough. Furthermore, don’t use your credit card to make purchases on the Internet. No site, not even a bank site is 100% safe.
In your home, you control access and never, ever, let anyone inside whom you don’t know. If you make the decision to purchase something from a door-to-door salesperson, which is not recommended, pay by post-dated check or ask to pay upon delivery of your item. Never pay cash. And don’t use your credit card or give your credit card number. Even better, ask the salesperson to come back tomorrow after you’ve had a chance to think about it, and then investigate to confirm they are legitimate.
On the phone, get an answering machine or caller ID to screen your calls, and only pick up the receiver if it is someone you know and trust. If a salesperson gets through, don’t accept anything they claim is free; such as sweepstakes prizes, cruises, or high-yield investment returns. If it sounds too good to be true, most likely it is too good to be true. Never give your credit card, phone card, Social Security, or bank account number to anyone over the phone. In fact, it is illegal for telemarketers to ask for these numbers to verify a gift or prize.
If you feel suspicious of any person or company, trust your instincts and hang up, close the door, or turn off your computer. Call the police or the Better Business Bureau and report the questionable activity. Or contact the National Consumers League Fraud Information Center at www.fraud.org. With vigilance and good common sense, you can help yourself as well as other potential victims avoid this insidious crime.
Be safe. Be careful, and don’t become another victim.
HMS Insurance Associates, Inc.
Salary Continuation Plans
Salary continuation plans offer your company an invaluable resource for attracting and retaining key employees. Whether you work in Human Resources or are a key executive, understand salary continuation plans and how they work.
What is a Salary Continuation Plan?
Companies may offer salary continuation plans to key employees or executives as a supplement to their employee benefits package. In the event that the executive retires, becomes disabled, dies or otherwise separates from the company, the plan provides a salary to the employee or designated beneficiary.
How Does a Salary Continuation Plan Work?
After a company decides to offer salary continuation plans, they negotiate with the key executive to determine a specified benefit amount. That set amount can be contributed to the plan while the executive remains employed or paid annually during retirement.
Employees who participate in a salary continuation plan pay no out-of-pocket expenses. The plan also grows tax-free. However, the employee will be taxed on any benefits they receive.
Typically, the executive receives access to the plan when he or she retires, is disabled or otherwise separates from the company. If the executive dies, a designated beneficiary may receive the plan benefits.
The salary continuation plans may feature vested scheduling based on the employee's position, length of employment and other arrangements. For example, a director may receive 100 percent of the annual salary while junior executives receive a lower percentage or the executive may be required to remain with the company for a certain number of years to receive the full plan amount.
How are Salary Continuation Plans Funded?
Most salary continuation plans are funded with a whole life or universal life insurance policy. The company wholly funds and usually owns the policy, pays the premiums and controls the cash value of the policy, and the key executive is named as the policy's beneficiary. A life insurance agent sets up salary continuation plans and can make adjustments as needed.
Advantages of Salary Continuation Plans
Companies and employees gain several advantages with salary continuation plans. Weigh the advantages as you decide if this coverage is a wise choice for you.
Reward and retain key executives.
Use vesting schedules to “tie up” key executives.
Recover costs easily.
Plans are flexible, easy to understand and relatively simple to implement.
Enjoy a supplemental source of retirement income in addition to your 401(k) plan benefits.
Increase the value of your executive benefits package.
Negotiate the benefit amount.
Salary continuation plans benefit companies and key executives. Discuss the details with your insurance agent as you take advantage of this important benefit.
HMS Insurance Associates, Inc.
How Trusts Can Protect Your Assets
Most people do not look forward to planning the distribution of assets upon their death. However, it is a task that all of us must face. And, that’s where trusts enter the estate-planning arena. A trust is simply an arrangement whereby one person holds legal title to an asset and manages it for the benefit of another. In one form or another, it may be used in personal financial planning.
One of the most remarkable characteristics of a trust is the ability of the trust to bridge the gap between life and death. Essentially, the person establishing the trust is able to rule from the grave, not forever, but to the extent the law allows. Usually, a trust can be designed to last for many generations.
Trusts can also be set up for an individual’s own benefit, not necessarily for tax purposes, but for many other reasons. He might want investment management, or a desire to invest in a new business venture with strong potential but with a high risk. He could then use the trust to ensure an income in the event of failure. He might elect to set up a family trust with the primary purpose of observing its operation and eliminating any deficiencies that might appear in actual operation. Though he might feel that presently he is able to manage his affairs, he is not certain about the future.
In this instance, a “standby trust” could prove to be useful. On the other hand, trusts can be established for the benefit of others, such as children, a spouse, grandchildren, or even parents. Additionally, an individual might want to provide for what might be regarded as missing elements in the abilities, experience, or training of beneficiaries.
This is especially a consideration when minors, or others deemed legally incompetent, are the intended recipients. But trusts may be set up for the benefit of competent, responsible adults too-for the same reasons the person establishing the trust might want to set up a trust for himself. These reasons include freedom from management burdens, expert administration, mobility, and other practical reasons, the most important being cash savings.
Although avoiding probate might be a consideration, the estate and gift tax savings made possible by the use of trusts might be even more important in many cases. Use of the trust device can often permit a donor to transfer assets for the benefit of a beneficiary, while shielding such assets from the reach of creditors. The laws of most states permit the creation of so-called “spendthrift trusts.” Use of such trusts might allow the individual establishing the trust to place both trust principal and income out of the reach of the beneficiary’s creditors.
Usually these laws prevent the beneficiary from assigning any part of the interest in the income or principal of the trust since most creditors look to property that could be assigned by the beneficiary. Their attempts to reach assets can be thwarted or at least made more difficult. The person establishing the trust is generally permitted to make free use of his own assets, even if the result is to prevent a beneficiary from dealing with the trust’s assets at will.
Careful consideration should be taken before trusts are established. In addition, be certain to seek the advice of a qualified legal professional before establishing trusts.
HMS Insurance Associates, Inc.
Copyright 2017. All rights reserved.