Spending Strategies for Retirees

Posted on September 28, 2012 by James Lange in Tax Law.

Which Assets Should I Spend First?

As a retiree, you may be fortunate enough to find that your Social Security, pension, minimum required distributions from your IRA, and dividends and interest on your after-tax investments provide enough funds for your living expenses. However for many that is not the case. You may be required to either tap into your after-tax funds or make taxable withdrawals from your IRA or retirement accounts to make ends meet.

In general it’s preferable to spend principal from your after-tax investments rather than taking taxable distributions from your IRA and/or retirement plan. Leaving money in the tax-deferred environment for a long as possible confers advantages that almost always outweigh concerns over paying capital gains on your after-tax assets.

The optimal spending order is first your after-tax dollars, then your IRA dollars and then your Roth IRA dollars.

( Taken in large part from Section 4 of Retire Secure! by James Lange)

Never a Better Time for a Roth IRA Conversion

Posted on September 25, 2012 by James Lange in Estate Planning, Income Tax, Roth IRA, Roth IRA Conversions.

According to the September/October edition of Private Wealth Magazine there has never been a better time to make a Roth IRA conversion.

“”Roth IRA conversions never looked so good as they do now,” says Jones. Not only will 2012 conversions be taxed at rates no higher than 35%, today’s slow economy may lead to a legitimately low valuation of illiquid IRA assets – and a relatively low tax bill. “IRAs must be valued each year, “says Slott. “If a client is reporting a low value because of the week economy, less tax will be due on a Roth IRA conversion. ”

Paying the tax from non- IRA investment assets can trim a client’s taxable holdings, reduce future taxable investment income, and therefore reduce exposure to schedule tax hikes as well as to the coming 3.8% Medicare surtax. after five years and after age 59 1/2,all Roth IRA withdrawals will be tax-free. in essence, a Roth IRA conversion this year can move mega – IRA money from surtax straits into tax-free territory.”

Taken from : (Korn, Donald. Private Wealth Magazine, Sept./Oct. 2012. p. 54)

(The quotes in this selection are from Ed Slott, “America’s IRA Expert” and Michael J. Jones of Thomson Jones LLP, a tax consulting firm in Monterey,California)

The Affordable Health Care Act and It’s Impact on Your Retirement…

Posted on September 24, 2012 by James Lange in Estate Planning, IRAs, Medicare, Roth IRA, Roth IRA Conversions.

Now that the Affordable Health Care Act is deemed constitutional, the Medicare surtax that is scheduled to take effect on January 1, 2013 is likely. Tax rates on certain passive income will rise to 43.4% from the current rate of 35%, and there is scheduled increases in the capital gains rates for both lower and upper income tax bracket taxpayers. With taxes almost inevitably increasing, the appropriate response to buy your partner, Uncle Sam, out of your IRA at today’s lower tax rates.

As many of you know, for a long time I have advocated that making conversion of at least a portion of your IRA to a Roth IRA is a good idea for most taxpayers. Now, with the recent Supreme Court decision that the tax and locations of the Affordable Health Care Act, the benefits of the conversion become even more advantageous and more certain, particularly for upper income taxpayers. The benefits are making Roth IRA conversions can be measured in hundreds of thousands of dollars, even millions if you can stretch the life of the Roth IRA over multiple generations.

If you are interested in a detailed technical analysis of the Medicare surtax or the benefits of Roth IRA conversion, please call and ask our Client Service Coordinator Alice for more information. We would be happy to provide you with an explanation or set up a meeting with one of our professionals.

Are you self-employed?

Posted on September 21, 2012 by James Lange in Income Tax, Tax Law.

IRS lawyers confirm that self-employeds can deduct Medicare premiums. Premiums paid for all parts of Medicare are included in the deduction for health insurance on the front page of the 1040 form. This easing also applies to partners, provided the partnership paid the premiums or reimbursed the partner, and the amounts are reported as guaranteed payments that are taxed as income. The premiums must be included as taxable wages on the shareholders W-2 form.

Medicare premiums paid by a spouse qualifies well, the Service says filers who didn’t take the deduction in prior years can file for refund.

(Kiplinger’s Tax Letter, September 2012)

(Kiplinger’s (Kiplinger’s (Kiplinger’s Fantasy Kiplinger’s Parentheses Lingers

The Lange Money Hour with Roy Williams

Posted on September 19, 2012 by James Lange in The Lange Money Hour.

Host Jim Lange welcomes Roy Williams tonight on The Lange Money Hour. Where Smart Money Talks!

Join us this evening at 7:05 pm on KQV 1410 AM
Also streams live at www.kqv.com

What’s the best way to prepare your children and grandchildren to be good stewards of the assets they’ll receive someday? Will you reduce their motivation by giving or leaving them too much money too soon?

On tonight’s edition of The Lange Money Hour CPA Jim Lange welcomes Roy Williams, an expert in estate planning and post-transition research.

Roy is co-founder of the Institute for Preparing Heirs, which coaches high net worth families through the process of transferring wealth to the next generation. He’s written three books on the subject, most recently Philanthropy Heirs & Values, and has been quoted in numerous national and international publications on the subject. Interestingly, Roy also played briefly for the San Francisco 49ers as a defensive tackle, until a serious injury prematurely ended his football career. He’s joining us by phone from San Clemente, California,

Listeners, since our show is live Jim and Roy are available to answer your questions. To join the conversation, just call the KQV studios at 412-333-9385. You can also email your questions to jim@paytaxeslater.com. Please put Lange Money Hour in the subject line.

Encore Presentations now air EVERY SUNDAY at 9:05 a.m.

If you can’t tune in tonight, KQV will rebroadcast the show this Sunday morning, September 23rd, at 9:05, and it will also be available soon at www.retiresecure.com, along with the full library of Lange Money Hour presentations.

Life Insurance Awareness Month

Posted on September 17, 2012 by James Lange in Estate Planning, Estate Tax, Life Insurance.

Life insurance isn’t a big part of what we do here at Lange Financial, but it is an important part. As September is Life Insurance Awareness Month, we want to share some important life insurance facts with you all.

Did you know that depending on the size of your estate, your heirs could be hit with a large estate tax payment after you die. The proceeds of a life insurance policy are payable immediately, allowing heirs to take care of estate taxes, funeral costs, and other debts without having to hastily liquidate other assets. And life insurance proceeds are generally income tax free and can be arranged to avoid probate. Finally, if your insurance program is properly structured, the proceeds from your life insurance policy won’t add to your estate tax liability.

Think it over. If you are one of the 35 million American households that are uninsured, you might want to consider what a life insurance policy could mean for your heirs.

The Lange Money Hour with Jim Lange and Special Guest Roy Williams

Posted on September 14, 2012 by James Lange in The Lange Money Hour.

Join us Wednesday, September 19th at 7:05 pm on KQV 1410 AM!

On the next edition of The Lange Money Hour CPA Jim Lange welcomes Roy Williams, an expert in estate planning and post-transition research.

Roy is co-founder of the Institute for Preparing Heirs, which coaches high net worth families through the process of transferring wealth to the next generation. He’s written three books on the subject, most recently Philanthropy Heirs & Values, and has been quoted in numerous national and international publications on the subject. Interestingly, Roy also played briefly for the San Francisco 49ers as a defensive tackle, until a serious injury prematurely ended his football career. He’ll be joining us by phone from San Clemente, California.

Our show is live! Jim and Roy are available to answer your questions. To join the conversation, just call the KQV studios at 412-333-9385. You can also email your questions to jim@paytaxeslater.com. Please put Lange Money Hour in the subject line.

P.S. The show also streams live at www.kqv.com!

Don’t go through the hassle of revisions!

Posted on September 11, 2012 by James Lange in Beneficiary Designations, Video Resources.

From watches to pianos- find out the best way to transfer your “stuff” to beneficiaries and avoid probate!

3 Myths About Social Security

Posted on June 20, 2011 by James Lange in 401(k), 403(b), Economy, Social Security and tagged Social, Social Security.

Myth #1: By the time I retire, Social Security will be broke.

If you believe this, you are not alone. More and more Americans have become convinced that the Social Security system won’t be there when they need it. In an AARP survey released last year, only 35 percent of adults said they were very or somewhat confident about Social Security’s future.

It’s true that Social Security’s finances need work, because over the long term there will not be enough money to fully cover promised benefits. But radical changes aren’t needed. In 2010 a number of different proposals were put forward that, taken in combination, would put the program back on firm financial ground for the future, including changes such as raising the amount of wages subject to the payroll tax (now capped at $106,800) and benefit changes based on longer life expectancy.

Myth #2: The Social Security Trust Fund Assets are Worthless.

Any surplus payroll taxes not used for current benefits are used to purchase special-issue, interest-paying Treasury bonds. In other words, the surplus in the Social Security trust fund has been loaned to the federal government for its general use — the reserve of $2.6 trillion is not a heap of cash sitting in a vault. These bonds are backed by the full faith and credit of the federal government, just as they are for other Treasury bondholders. However, Treasury will soon need to pay back these bonds. This will put pressure on the federal budget, according to Social Security’s board of trustees. Even without any changes, Social Security can continue paying full benefits through 2037. After that, the revenue from payroll taxes will still cover about 75 percent of promised benefits.

Myth #3: I Could Invest Better on My Own.

Maybe you could, and maybe you couldn’t. But the point of Social Security isn’t to maximize the return on the payroll taxes you’ve contributed. Social Security is designed to be the one guaranteed part of your retirement income that can’t be outlived or lost in the stock market. It’s a secure base of income throughout your working life and retirement. And for many, it’s a lifeline. Social Security provides the majority of income for at least half of Americans over age 65; it is 90 percent or more of income for 43 percent of singles and 22 percent of married couples. You can, and should, invest in a retirement fund like a 401(k) or an individual retirement account. Maybe you’ll enjoy strong returns and avoid the market turmoil we have seen during the past decade. If not, you’ll still have Social Security to fall back on.