Retirement Account Tax Alert!

life insurance and annuity

The IRS announced beginning as early as January 1, 2015, taxpayers can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs they own. IRS Publication 590, Individual Retirement Arrangements (IRAs), will be updated to reflect this new interpretation when it officially becomes effective.

If a taxpayer takes a distribution from their traditional IRA, they generally have 60 days to deposit the funds back into the same or another traditional IRA without declaring the distribution as gross income. This is commonly known as a rollover. The current “waiting period between rollovers” rule applies to a single IRA account; however, the new rule will apply on a taxpayer basis, regardless of the number of IRA accounts held by the taxpayer.

Taxability of rollovers is the responsibility of the taxpayer. Trustees and custodians cannot track when the 60-day window begins and have no way to determine if the taxpayer completed another rollover during the 12-month period.  Therefore, detailed taxpayer documentation of any rollover is the key to avoiding penalties and taxes.

 

*Under current rollover rules, the 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.

The IRS has not yet made it clear if the “12-month period” mentioned in the IRS announcement will be measured in the same way.

Understanding the difference between a Rollover and a Direct Transfer.

Rollover:  A rollover of a retirement account occurs when the owner of the account takes constructive receipt of qualified money – usually in the form of a check issued by the custodian and made payable to the owner of the retirement account.  The retirement account owner has a 60-day window to place these funds into a new qualified retirement account in order to avoid a taxable event.

Direct Transfer:  A direct transfer is similar to the rollover with an important difference. In a direct transfer, the owner of the retirement account instructs the current custodian to transfer the funds directly to a new custodian of the retirement account owner’s choosing.  Direct transfers allow for an easy-to-track accounting of the money transfer.  As a result, the IRS allows multiple direct transfers to be made in any 12-month period.

 

While this report is not tax advice, it’s worth understanding the difference between a direct transfer and a rollover contribution for your retirement account. Retain the power to choose when and where to place your retirement account.

Whenever possible, you may find it beneficial to move your retirement account using the direct transfer approach rather than a rollover.  This preserves your ability to transfer your retirement account in the future without restriction from the Internal Revenue Service. For more information, the announcement can be found at: http://www.irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule

 

*No Limit on Transfers: The IRS does not impose restrictions on the number of direct trustee-to-trustee transfers that may be executed in any particular time period. A direct transfer from one custodian/trustee to another is not a rollover and does not violate the one-rollover-per-year rule.

Eliminate market volatility while continuing to grow your assets.

According to the Investment Company Institute, American’s have invested trillions of dollars in publicly traded stocks. Of course, stocks rise and fall on a daily basis.  In many cases, publicly traded stocks move up and down in the same direction at the same time.  This is known as systemic risk.  In other words, the system itself is influenced by forces that change the value of every stock in the system.

In these instances, diversification between different stocks provides little protection from changes in value.  Investment advisors may not inform you of your other options simply because they do not work with those other options and cannot generate revenue from those options.  The fact is many people grow their hard-earned retirement accounts without exposure to the systemic risk described above. Some individuals select bank products, others real estate and still others choose insurance products, such as annuities, as their savings vehicle of choice.

Perhaps true diversification draws from many different disciplines rather than putting all your resources in one investment class or type such as stocks.

Improve on the return provided by banks without increasing your risk profile.

Today, insurance companies offer fixed annuities similar to bank products with terms as short as three years.  These products consistently provide more competitive returns compared to typical bank products and allow for partial penalty free withdrawals each year.  Additionally, growth inside of these annuities grows on a tax deferred basis.  I will provide direction. Like any financial product, annuities may be subject to penalties for early withdrawal.  Insurance companies call these surrender charges.  Prior to purchasing an annuity, you should meet with a qualified insurance professional to discuss the benefits and potential costs of placing your resources in an annuity.  Similar to bank products, annuities are guaranteed and backed by the financial strength of the financial institution. In the case of annuities, the guarantee is offered by the insurance company rather than a bank.

Create a lifetime income stream guaranteed to never run out no matter how long you live.

Due to healthy living choices and medical technology advances, Americans are living longer than ever before and, therefore, spending more time in retirement.  For many, this means their retirement dollars may need to last a bit longer than originally anticipated.  Fortunately, insurance company actuaries have designed lifetime income riders that, when combined with an annuity, can create a guaranteed income check no matter how long you live.

Not all income riders are created equal.  Before choosing a lifetime income benefit, be sure to evaluate the cost and understand how much the income will be and when it would be most advantageous to begin.

Generate substantial sums of tax-free cash to pay for unexpected medical expenses as you age.

Innovative life insurance policies now include cash benefits if you become medically impaired.  These funds are generally considered tax-free and can be a useful resource right when you need it most. Think of it as life insurance for the living!

Reduce your overall tax exposure.

Many people have funded their qualified retirement accounts to take advantage of tax-deferral over long periods of time.  Did you know you can also begin tax-deferring on money that is not within your retirement account?  That’s right, you can actually park your funds and begin reducing tax exposure on current earnings and you can do so without the annual contribution limits normally imposed on retirement accounts.  There are a variety of fixed annuities designed to accomplish this goal and much more.

Take the next step…

Good planning begins with a thorough evaluation of your current situation. Consider meeting with us to evaluate your risk tolerance, tax status, and your personal goals and objectives and any family situations that may affect your financial decisions. Our meetings are done without cost and remain completely confidential.

Social Security FAQ

Life Insurance and annuity Marketing Organzation

Social Security FAQ: What You Need to Know

1- When Am I Eligible To Receive Benefits?

Depending on what year you were born, retirement benefits may begin as early as age 62 for partial benefits and as late as age 67.

  • If you were born before 1938, your age for full eligibility is 65.
  • If you were born after 1960, your age for full eligibility is 67.
  • People born between 1938 and 1942 reach full eligibility age on graduating scale two months per year.
  • People born between 1943 and 1954 become eligible for full benefits at age 66.
  • Those born between 1955 and 1960 become eligible based on a graduating scale increasing two months per year, finishing with an eligibility age of 67 for those born in 1960 or later.

2- How Is My Eligibility Determined?

Social Security eligibility is based on “credits” that you earn from working. You usually need to have earned 40 credits in order to qualify. As of 2011 you earn one credit for every $1,120 in earned income per year, up to a maximum of four credits.

 

3- How Much Will My Monthly Benefit Be?

Your Social Security benefit is calculated by averaging the earnings from your 35 highest income years. The average monthly payment is $1,082. As of January 2012, the average monthly benefit was increased by 3.6%, which works out to an additional $467 per year or an average benefit payment of $1,549 per month. It depends on your unique situation. You can calculate your Social Security benefit at www.ssa.gov.

 

4- Must I Quit Working to Receive Social Security?

You can continue to work without negatively impacting your Social Security benefits once you reach your full retirement age. Prior to full retirement age you are permitted to earn up to $14,160. $1 is withheld from your benefits for every $2 in earnings over the limit. You may earn up to $37,680 in the year you reach your full retirement age, then $1 is withheld for every $3 in earnings over the limit until the month you reach your full retirement age.

5- How Does Social Security Work For Married Couples?

If you both have worked long enough to qualify for Social Security, you both qualify for full benefits. If your spouse’s earnings record qualifies them for a benefit from Social Security that is less than half of your benefit, their benefit will be increased to a rate equal to half of your amount.

 

6- What If My Spouse Dies?

Provided the surviving spouse has reached their full retirement age, they are entitled to 100% of the deceased’s basic benefit amount. Prorated survivor benefits are paid to surviving spouses who have not yet reached full retirement age. The survivor will receive the higher benefit amount if the surviving spouse was receiving Social Security benefits and the deceased’s benefits were greater.

 

7- Is Social Security In Trouble?

Social Security is a “pay-as-you-go” system, so money paid in by current taxpaying workers is spent to pay benefits to current retirees. As the ratio of current workers to current retirees drops, fewer people will be paying into the system while more will be receiving benefits. People are also living much longer than when Social Security began in the 1930s, stretching out the payments which millions of Americans will be receiving. While some fear the end of Social Security, it is generally agreed that the U.S. government will not allow the Social Security program fail. That, however, does not mean that the program will be able to continue in its current state. Legislators have increased the eligibility age for receipt of

full benefits from 65 to 67 for people born in 1960 or later. Reductions in benefits, additional increases in the age of eligibility, or both, will likely to be needed in order to get the program back on solid ground. Another possible, although unpopular, course of action is raising taxes to fund the system.

When Should You Apply for Social Security Benefits?

When to apply for Social Security benefits is one of the most important issues you will face during your retirement. Most people simply apply for Social Security whenever they decide to retire, instead of taking into consideration what age will give them the maximum lifetime benefit. But can they afford to wait? It depends. Navigating Social Security can be a complicated process so it’s critical to take the time to evaluate your specific situation with a financial professional whom you trust.

Should I Take My Social Security Benefits Now or Delay?

Every individual’s situation is different. The best timing depends on your financial situation, including a thorough evaluation of critical income needs versus luxury income needs. You may be able to delay taking benefits, or need them sooner, depending on whether you or your spouse is working. Understanding how spousal benefits work, and using strategies to maximize your benefits can save you thousands of dollars over a long period of time. At age 66 you will receive full retirement age (FRA) benefits, but you are eligible to receive 75% of your full benefits if you apply at 62. Also, if you delay the onset of benefits past age 66 you can delay until age 70 and actually earn 132% of your FRA benefits. The longer the primary earner delays, the more the monthly income will increase. Theoretically, if you begin receiving Social Security early, you will receive a smaller monthly benefit for a longer time, and if you delay, you will receive a larger monthly benefit for a shorter time. There are “break-even calculators” which can be use to figure out how long you would have to live to make delaying worthwhile. Consult your financial professional to assist in this process. Calculating spousal benefits can be more complicated. Married couples have to consider how the retired worker benefit, spousal benefit, and survivor benefit will affect benefits and life time maximums. More information is available.

What You Don’t Know Could Cost You Thousands in Lost Benefits…

After having paid taxes on your hard-earned income over dozens of years, did you know that you may face even more taxes on your Social Security benefits?

Prepare yourself: up to 85% of your Social Security benefits could be taxable.1 However, with proper retirement planning, you can reduce or eliminate your Social Security tax liability, saving you a significant amount of money in your retirement.

How to Avoid the Social Security Tax Trap

Avoiding taxation of your benefits can only be accomplished in a couple ways.

  • First, you can reduce your overall taxable income
  • Second, you can use tax-deferred savings options, such as annuities.

Discuss with your financial professional. When properly structured, tax deferred annuities can increase your income while reducing taxes on your Social Security benefits. Income distributions are subject to regular income tax, and any income taken before age 59 ½ are subject to a 10% federal tax penalty.

To learn more, Please call 855-740-3140

 

Source: (Athene Annuity)

Are Insurance Companies Really Safe?

read our article about insurance companies

Recently, we have all witnessed a dramatic change in the attitudes people have about their money. Investors have begun seeking ways to properly eliminate risk and preserve long-term, guaranteed growth. When people seek safety and protection, they often consider utilizing the services and guarantees of America’s insurance industry. For many years, people have considered annuities to be a safe haven for their life savings. The following is a brief outline that reveals some of the reasons annuities and insurance companies are so safe.

Regulation

The US insurance industry is truly one of the tightest regulatory environments in the world.
Each state has a Department of Insurance (DOI) regulating insurance activity in their respective state. For example, if you live in Oklahoma, your DOI is keeping an eye on the operation and solvency of each insurance company that does business in Oklahoma. It is important to keep in mind that the same holds true if that same insurance company is approved to do business in another state. In other words, your DOI is not the only one watching over the insurer. Every state the insurer does business in has another DOI looking over their shoulder as well. This creates a truly remarkable level of oversight to catch potential problems well before they can get out of hand. The following is a short list of the key areas under
constant supervision.

Capital & Surplus Requirements

Insurers use capital and surplus as a buffer to finance growth and pay for emergencies and other business commitments. Each state specifies a minimum dollar amount for required capital and surplus that each insurer must maintain.

Risk Based Capital Ratio (RBC)

This sophisticated formula allows regulators to evaluate whether the insurer maintains sufficient capital in relation to the relative risk within the insurers operations. Each year, the RBC levels for each company are reported to the National Association of Insurance Commissioners (NAIC) and the state where the insurance company is domiciled. These ratios are then compared to the standards set by the NAIC for monitoring. The NAIC prescribes action based on 6 categories within the levels of performance for the RBC Ratio.

Solvency

Annual Statements are filed with every state where the insurance company is licensed to do business and a copy sent to the NAIC. This allows for a thorough annual review of overall solvency within the company.

Other Ratios and Formulas

The Insurance Regulatory Information System (IRIS) is a system that has been developed to monitor financial conditions and prevent insolvency within an insurer. There are a total of 12 financial tests performed within the IRIS. The Financial Analysis and Solvency Tracking (FAST) system was created for additional analysis of larger insurers. The FAST system is applied to review the insurance company’s financial status every three years. The FAST system reviews both current financial records along with a review of the company’s 5-year history.

Guaranty Associations

As an additional safety net, each state has established a life and health guaranty association, which operates under the supervision of the state insurance commissioner. Insurers are required to participate in a state’s guaranty association in order to do business in the state. The association is responsible for funding obligations to policyholders should an insurance company be unable to meet the financial obligation. The members of the association are assessed fees to pay for obligations to customers. Guaranty funds have specific limitations on the amount they cover. These amounts vary from state to state. State laws ordinarily prohibit an insurer from using the existence of the guaranty association for the purpose of the sale of insurance and annuities.

Other Insurance Companies

In order to keep a safe distance from financial challenges, insurance companies work together to create an additional level of safety for policyholders. Many insurers actively pursue reinsurance through other insurance carriers. This further spreads the risk against the potential for a catastrophic financial dilemma to have a substantial impact on any individual company.

Specialization

Today, many insurance companies specialize in a particular line of business. While this may skew their risk into specific types of areas, it can also provide another level of security. For instance, an insurer that focuses almost exclusively in the annuity business is not exposed by large natural disasters or unforeseen health circumstances. A well-managed annuity company can provide tremendous levels of safety and confidence by properly managing the funds in their care through a conservative portfolio of government issued and investment grade bonds.

Time

Insurance companies are built to last. In Europe for example, you can find insurers that are literally hundreds of years old. This tradition of conservative asset management and well tested formulas for performance put insurance companies in a class by themselves.

Size

Insurance companies today are measured in terms of the billions of dollars that they have under their care. This financial clout allows companies to weather the storms of time and keep the promises they have made to their policyholders.

Ratings Services

Insurance companies are among the most closely monitored business entities in the United States. Most active insurers are scrutinized by ratings services such as Weiss, Standard & Poors, Fitch, and the premier insurance rating company, A.M. Best. Companies like A.M. Best do more than simply make sure the company is meeting the minimum standards for regulatory clearance. Most ratings services are measuring the amount that the insurance company actually EXCEEDS the minimum requirements.
This additional monitoring level cannot be overstated. Nobody thinks twice when a consumer asks, “What is that insurance company rated?” In fact, most agents don’t wait for the question to be asked. They often offer the current company ratings to the client because it is assumed that they expect to receive this type of information. Why? Because the insurance industry is safe and measurable to a high degree. Now think carefully; when was the last time you asked, “What is my bank rated?” or how about, “I wonder what the credit rating of my local stock broker is?”

Taxation

The items discussed above are indicative of a truly safe environment for an individual’s long-term money. However, there is a risk that is often overlooked; the erosive nature of the personal income tax. Every American that earns interest in non-qualified CDs, checking accounts, money market accounts, bonds and other interest bearing vehicles must pay Uncle Sam a percentage of what was earned whether they used this money or not. Insurance products like annuities allow people to determine when, if ever in their lifetime, they are going to pay income taxes on their earned interest. This advantage can dramatically increase the amount of money people have available when they need it most.

Summary

Are insurance companies really safe? Absolutely! Insurance companies that follow the prescribed formulas, practices and traditions mentioned above can achieve a level of financial security for customers that other financial service entities can only dream of. Give us a call to evaluate if your current portfolio passes the safety test!

Help us Delay the DOL Fiduciary Rule

dfs marketing is a life and annuity marketing organization

NOW is the time for you to contact your Member of Congress and request they co-sponsor and vote in favor of the “Protecting American Families’ Retirement Advice” Act. This act will delay the implementation of the Department of LaborFiduciary Rule.

Last month, during our visit to Washington D.C., our team requested Congress help us delay the implementation of the Department of Labor (DOL) Rule. Congress has listened, and a new bill is circulating. When passed, the bill will delay the DOLFiduciary Rule for 24 months.

This is an important step in developing a workable solution regarding how, when, and where Americans receive investment advice on their retirement accounts. It also allows us to continue working through other avenues to develop a winning approach for independent agents to continue thriving as they provide safe solutions to many retirement challenges. Below are the resources you will need to contact your Member of Congress.

To see this short DOL delay bill CLICK HERE.

To find your Member of Congress CLICK HERE.

Sample Message to Congress Below:

DEAR _________,

I am requesting your support to co-sponsor and vote in favor of the “Protecting American Families’ Retirement Advice” Act. This act will delay the implementation of the Department of Labor’s controversial fiduciary rule and will allow our industry adequate time to comply and adapt to this far-reaching rule which affects trillions of dollars in retirement accounts and tens of thousands of jobs in the fixed insurance industry. I am in favor of giving best interest advice, but the rule was poorly written and actually eliminates entire distribution channels which have served consumers with safe retirement options for many decades. Please join me. I respectfully ask you to co-sponsor and vote for this bill so we can continue to work with Congress to develop a workable solution and better protect consumers with a law from our elected Representatives rather than an administrative order. You can view the bill at the following URL. Thank you for your time.

http://joewilson.house.gov/sites/joewilson.house.gov/files/Fiduciary%20Bill.pdf