WITH IRASBoost Your Retirement Savings

Volume 21, Issue 12

P e r s o n a l F i n a n c i a l R e v i e w

W hether retirement is around the corner or decades away, there are more options than ever to help you plan for it. Let’s look at Individual Retirement Accounts (IRAs) and 401(k) plans, which offer tax benefits that can help you save for your future.

Traditional IRAsTraditional IRAs are one of the most popular retirement savings vehicles. In 2015, you can contrib-ute up to $5,500 to your traditional IRA. (Note: The limit applies to the total of all IRAs that a person may hold in a given tax year.) If you are age 50 or older, you can make additional “catch-up” contributions of up to $1,000. Earnings have the potential for tax-deferred growth,

and contributions may be tax de-ductible, depending on your income and participation in an employer-sponsored retirement plan.

Because IRAs are intended to help you save for retirement, rules gov-ern when you can begin accessing funds. Distributions before the age of 59½ may be subject to a 10% Federal income tax penalty, in addi-tion to the income tax that will be due. However, there are exceptions to the 10% penalty, such as with-drawals to pay for qualified higher education expenses or to fund up to $10,000 of your first home.

Roth IRAsRoth IRAs operate differently from traditional IRAs. Contributions are

not tax deductible, but earnings have the potential for tax-deferred growth and qualified distributions are tax free. You are eligible to make a full contribution ($5,500 in 2015, or $6,500 for those age 50 and older) to a Roth IRA if your modified adjusted gross income (MAGI) does not exceed $116,000 for single filers or $183,000 for joint filers in 2015 (contributions phase out for single filers with modified AGIs between $116,000 and $131,000, and for joint fil-ers with modified AGIs between $183,000 and $193,000).

As with traditional IRAs, a 10% Federal income tax penalty may

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MORE MANAGEABLEMaking Life's Transitions

S ome life transitions, such as a career change or marriage, are planned, but a job loss or divorce can be sudden and unex-pected. One common thread that accompanies all transitions, how-ever, is the concern about whether there will be enough money to maintain your lifestyle. The timing involved with the unpredictability of certain life events is often the main cause of anxiety over person-al finances.

One way of dealing with this prob-lem is to determine your financial staying power at the outset. This ex-ercise allows you to project how far your financial resources will carry you. Knowing how much time you have before additional resources will be needed can free you of more stress and anxiety and allow you to concentrate on accomplishing your goal in transition.

The process begins by examining how much it costs to maintain your

current lifestyle. To do this, you need to review your check book or online account and credit card receipts to find out where your money has been going. Don’t forget to include those cash expenditures and frequent ATM stops that you make on a daily or weekly basis.

Once you have an idea of your average monthly expenses, you can compare them to the financial re-sources you have committed to the transition. This may include cash

FINANCIAL RESOLUTIONSNew Year's

F or many people, the New Year is a time for personal reflec-tion, a time to consider commit-ments and resolutions for the coming year. This year, why not resolve to make your finances a priority? With proper planning and appropriate guidance, you can begin to build financial stability and prepare for the uncertainties of tomorrow.

Consider the following steps:

1. Get Organized. Gather all your important financial documents—life insurance policies, homeown-ers insurance, wills, trusts, and other pertinent financial records—and organize them so you can ac-cess them quickly and easily.

2. Schedule a Legal Consulta-tion. Arrange a time to meet with your attorney to review or write your will and establish any necessary trusts. Prior to your meeting, discuss with your spouse or other loved ones how to handle

property dispositions and guardian appointments.

3. Keep Debt in Check. Pay off high interest debt first, especially if the interest is not tax deductible. Do your best to avoid the minimum payment trap. By making only the minimum monthly payment, the interest that accumulates over time can make even “bargain” purchases costly in the long run.

4. Review Insurance Coverage. Review your life insurance poli-cies to ensure that your beneficiary designations are appropriate to your current situation and that all arrangements are up-to-date. Also, consider repaying any loans you may have against your insurance policies. This can help to reestablish an emergency fund for the future.

5. Apply for Scholarships. If your children plan to attend college next year and require financial aid, re-member that financial aid forms are due early in the year. The earlier you

apply, the better your chances may be for obtaining aid.

6. Prepare a Tax Strategy. Be-gin to gather your tax information and arrange a time to meet with your accountant, if necessary. It is important to file your income taxes on time and to be aware of any tax changes that may affect your return.

7. Write It All Down. Once you’ve met with your financial, insurance, and tax professionals, write down a few realistic goals that you think are achievable. Make the commit-ment now to plan your finances accordingly. This is your first step to building a solid financial future.

The New Year offers us a fresh be-ginning. This year, resolve to make your finances a priority. With proper planning and appropriate guid-ance, you can begin to work toward financial independence and prepare for life’s uncertainties. 20/20

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ESTATE PLANNING SUCCESSSteps to Help Ensure

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MORE MANAGEABLE

or many people, more time and attention are devoted to build-ing their estate than to planning for its ultimate disposition. Under-standably, enjoying the fruits of your labor is often more interesting than planning for what might hap-pen when you are no longer here.

However, the Internal Revenue Service (IRS) is interested in your estate, and a lack of estate planning could, at the very least, create stress for your heirs and, more important-ly, increase your estate tax liabil-ity. With this in mind, here are six estate conservation strategies that can help you avoid some unneces-sary pitfalls:

1) Keep detailed records. After you die, your heirs will need to sort out your financial affairs. You can help them by maintaining detailed records and letting them know where to find your will, insurance

policies, bank statements, and other important documents.

2) Keep your will up to date. A will is the most basic legal estate planning document, through which you can specify how your property is to be distributed at your death. In addition, you can appoint an executor, who will coordinate the process of probate, the preparing and filing of final income and estate tax returns, and the distribution of assets. Without a will (intestate), the state will determine the distri-bution of assets according to state inheritance laws.

3) Plan beyond your will. A will arranges your estate after your death. However, incapacity dur-ing your lifetime may affect your ability to make financial and health care decisions. A durable power of attorney designates someone to make financial decisions on your

behalf, even in the event of incapac-ity. A living will states your wishes for the use of life-sustaining mea-sures under specified conditions. A health care proxy (also known as a medical power of attorney) designates someone to make im-portant health care decisions on your behalf. A complete estate plan encompasses both lifetime and post-mortem planning.

4) Take advantage of the ap-plicable exclusion amount. In 2015, each taxpayer may transfer up to $5.43 million (the estate tax applicable exclusion amount) in assets to non-spousal heirs without estate taxation. Your entire estate can pass to your spouse tax free under the unlimited marital deduc-tion. As a result of the enactment of the American Taxpayer Relief Act of 2012, if one spouse dies and does not use the full exemption amount,

on hand; any reliable cash inflows, such as a spouse’s salary; invest-ment or rental income; alimony or child support; a severance package or unemployment compensation, if applicable; and any investment assets you can liquidate in the event of a shortfall.

After recording your current ex-penses, you are ready to project a modified spending plan. You can curb your current spending by iden-tifying areas where you can cut out unnecessary items without seriously compromising your lifestyle. These modifications may include seeking

out less expensive alternatives for some of your current habits.

Now that you have modified your spending plan, it’s time to create a “bare bones” budget. This will further reduce your cash outflow to pay for only necessary expenses, such as housing, food, transporta-tion, etc.

At this point in the process, you have the information you need to decide how you will allocate your resources. You may choose to customize your plan, allowing you to continue funding your current

lifestyle for a number of months, switch to a modified spending plan if you need more time, and imple-ment your bare bones budget if an unexpected obstacle prevents you from your transition objective within the planned time frame.

Although life changes can be chal-lenging, you can minimize the fi-nancial pressures by planning how you will allocate your resources during the time of transition. By determining how much it will cost you to get from point A to point B, you can tweak your plan to make it financially feasible. 20/20

continued from page twoMAKING LIFE'S TRANSITIONS MORE MANAGEABLE

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The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is im-portant to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with pro-fessional tax and financial advice. The publisher is not engaged in rendering legal, accounting, or financial advice. Neither the information pre-sented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This news- letter is written and published by Liberty Pub- lishing, Inc., Beverly, MA, COPYRIGHT 2015.

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continued from page oneBOOST YOUR RETIREMENT SAVINGS WITH IRAS

apply to distributions taken from your Roth IRA before the age of 59½, unless a qualified exception applies. Furthermore, before tax-free distributions can be received from a Roth IRA, the account must be five years old. You may convert an existing traditional IRA to a Roth IRA. The distribution from your traditional IRA will be taxed in the year of conversion, but you won’t be penalized for the early withdrawal, provided you keep the converted funds in the Roth IRA for at least five years.

401(k) PlansThe 401(k) is a retirement plan offered by thousands of employers to facilitate retirement savings for their employees. As a participating employee, you can contribute the lesser of $18,000 in 2015 or a per-centage of salary as defined by the

plan. Those age 50 and older can contribute an additional $6,000. In some cases, your employer may match your contributions up to a certain percentage. This increases your principal at no cost to you.

Contributions to a 401(k) are pre-tax, which means you don’t pay taxes until you withdraw money from the plan. This may be attrac-tive for those who expect to be in a lower tax bracket during retirement than during their working years. In addition, your contributions have the potential to grow on a tax-de-ferred basis. As with IRAs, non-qualified withdrawals from a 401(k) before the age of 59½ are subject to a 10% Federal income tax penalty, unless a qualified exception applies.

Some employers may also offer a Roth 401(k) option, which allows workers to make Roth IRA-type

contributions to their 401(k) plan without the income restrictions and lower contribution limits that ap-ply to Roth IRAs. The contribution limits are the same as for tradi-tional 401(k)s, but salary deferrals to Roth 401(k)s are not tax deduct-ible. Qualified distributions are tax free. Under the Small Business Jobs Act of 2010, participants in 401(k) plans are now permitted to roll over funds into Roth accounts within their plans. Any eligible funds transferred from traditional to Roth 401(k) accounts are taxed in the year of conversion. It is also important to keep in mind that any employer matching contributions must be made to the traditional side of a 401(k) account, not a Roth.

These are just some of the retire-ment savings options available. Remember, early planning puts time on your side. 20/20

continued from page threeSTEPS TO HELP ENSURE ESTATE PLANNING SUCCESS

the remainder can be used by the surviving spouse. With this “porta-bility” option, spouses do not have to split assets between them, or be concerned about who holds the title on various assets.

5) Use the annual gift tax ex-clusion. In 2015, an individual can give away up to $14,000 per year ($28,000 in the case of joint gifts made by a married couple) to an unlimited number of recipients tax free. For individuals with large estates, a regular gifting strategy using this annual exclusion may be an attractive way to transfer appre-ciating assets, which would other-wise have the potential to increase estate taxes if left in the estate.

6) Consider life insurance. Life insurance is often used as a fund-ing method for estate taxes. How-ever, proceeds of life insurance policies are includable in your gross estate for purposes of calculating estate taxes. Consider using an irrevocable life insurance trust (ILIT), which removes the insur-ance from your estate and therefore potential estate tax exposure.

By preparing in advance, your wishes for property distribution can be executed upon your death. Be sure to consult with your qualified tax, legal, and financial profession-als to help ensure your strategies are consistent with your overall objectives. 20/20