Insights

1. Q. Should I convert an IRA to a Roth IRA?

A. The rule of thumb is the longer the converted assets remain in the Roth IRA before withdrawal, the greater the advantage. Generally, because of significant tax advantages, a Roth IRA is more desirable than an IRA. The challenge is when and how to execute the conversion from the IRA to the Roth with minimum taxes due.

2. Q. Why should I set my IRA as a stretch?

A. Because of the current rules, an IRA distribution is taxed as ordinary income. This means withdrawals will be taxed according to your level of income. The taxes also apply to beneficiaries. In addition they are forced to withdraw from the account. If no stretch is done, the withdrawal requirement will be set based on the age of the oldest beneficiary. This would most likely cause the IRA account to erode.
The IRS now allows the withdrawal percentage to adjust according to
age. The younger the age, the less is required to withdraw from the account. To accomplish this each beneficiary receives a separate account. The result is the younger beneficiaries forced withdrawals will be less than for the older beneficiaries.
This would mean the IRA will last longer and possibly last for generations to come.

3. Q. What type of retirement plans are best suited for small businesses?

A. Simple and 401K plans are popular types of plans among small businesses. What determines the suitability of a plan is what contribution levels are desired, age of the participants, stability of the business,
income levels and to what degree the owner wants to increase or reduce his/her contributions.
Generally Defined Benefit plans are most suitable if the owner wants maximum level of contribution and obtain highest benefits for him/herself. Defined Contribution plans are suitable if more limited contribution levels are desired combined with maximum flexibility. IRA and Simple plans are suitable if the owner wishes to get started with a plan that requires minimum amount of paperwork and setup fees.
Often these plans can be customized and used in combinations. Certain limits and restrictions apply. Also read section 412 (i) fully insured plans.

4. Q. What is the purpose of reviewing “old” life insurance policies?

A. There are several purposes for reviewing “old” policies. The main purpose is to make sure the policy is still doing what it was intended to do. For example, older policies often have higher mortality charges. Also
older policies were calculated with higher interest rate assumptions.
Given that interest rates and mortality charges have fallen, it may be
necessary to adjust the old policy to keep up with these changes.
The end result of a reviewed policy could be either, depending on the purpose for which is was bought, increase the death benefit for the same amount of premium, lower the death benefit to ensure the policy does not lapse or “cash out” the old policy for a new policy with better protection and lower mortality charges.
Please note, new surrender and contestable period applies when the latter option is used.

5. Q. Why should I avoid probate?

A. Altough probate generally is viewed as something bad, the purpose of probate is to ensure that debt and taxes are being paid. It also ensures that the assets go where they were intended to go according to the will. The negative side of probate are the costs involved, 3-6% of the assets, and the time frame in which is takes to complete. There are several different ways to avoid probate. The most common ways is either to set up trusts or/and invest in financial instruments that avoid the probate process. Many times simply reviewing, and when necessary retitle the assets of the estate would be enough to avoid the probate process.

6. Q. How would I be able to afford Long Term Care coverage?

A. Normally somebody would buy a LTC policy at an early age to “lock in” lower premium payments. Unfortunately Insurance companies can no longer quarantee the lower payments will last. Therefore in recent years another option has gained popularity. This option is to pay for future LTC costs through a one time single payment. In certain cases, while you are not using the LTC benefit, the single payment would work similar to a saving account, earn interest and is fully liquid. It would also pay a death benefit in case death would precede sickness, and if your health deteriorates pay a life time benefit to cover long term care expenses.
Another option is Medicaid planning, which means disposing assets so the recipient would qualify for government assistance. Due to recent changes, this option has very limited availability.

7. Q. My CPA takes care of my taxes, what is it that you do differently?

A. A CPA prepares tax returns based on historical data. Based on historical data a CPA will look for ways to maximize tax deductions.
We would look at the tax return to find out what was done. We then recommend what could be done to further reduce taxes. This is possible by structuring income and investments prior of filing the next tax return. This is also called tax planning.
Tax planning would include IRA distribution strategies or/and how to substantially reduce taxes when selling highly appreciated property. Also how to eliminate taxes on money that are not being used for spending, such as CD’s, moneymarkets etc. and significantly reduce taxes on money that are being used for spending by utilizing our taxguard program. Please note, all methods and strategies we recommend fully comply with IRS rules and regulations.