Should I take my Social Security benefits now or spend my retirement savings and apply and suspend?

Posted on April 12, 2016 by James Lange in Little Black Book of Social Security Secrets, Retirement Planning, Social Security and tagged apply and suspend, file and suspend, Social Security, Social Security Benefits, when to take Social Security.

In my last post, I promised that I would answer some of the questions we have received in response to The Little Black Book of Social Security Secrets. So let’s have a look at some of the problems our readers are wrestling with.

Several readers have written and said that they are in a situation similar to this one:

My employer has just told us that the company has filed for bankruptcy and will be closing its doors later this year. I don’t know if I will be able to get another job at my age and, even if I do, I’m not sure I will be able to make as much money as I am making now. My spouse doesn’t work outside of the house. I was thinking about signing up for my Social Security benefits once the company closes, but then I read your book. I do have some savings in retirement plans (both traditional and Roth), and an investment account. When is the best time for me to apply for Social Security if I can’t find another job? Should I spend my savings now and apply for Social Security later, or should I save my money and apply now?

The loss of a job, especially at this point in your life, can be traumatic. Before we review the options that you have, let’s go through a quick refresher on two of the points covered in The Little Black Book of Social Security Secrets.

When Should You Take Social Security?

How does the age at which you actually collect Social Security affect the amount you receive? If you are now 62, your Full Retirement Age (FRA) is 66. If you wait until your FRA to collect your benefits, you will receive your Primary Insurance Amount (PIA). If you collect at 62, your monthly check will be permanently reduced, by 25 percent of your PIA. If you wait until you are 70 to collect, your check amount will be permanently increased by Delayed Retirement Credits (DRCs) of 8 percent per year (up to a maximum of 32 percent), plus Cost of Living Adjustments (COLAs).

When Should Your Spouse Take Social Security?

This next part is critical to understanding why you may have more options than you realize. If you file for your own benefit, even if you suspend them, your spouse will be permitted to file for spousal benefits based on your record as soon as she is eligible. When she files, though, is as important as when you file. If your spouse waits until her FRA (for most readers, this is 66), she’ll receive the highest spousal benefit possible – which is 50 percent of your own PIA. She is allowed to file as soon as she turns 62 but, if she does, she will only receive 35 percent of your PIA. In this case, we’re going to assume that your spouse is not entitled to a benefit based on her own earnings record. I have some examples for two-income households coming up in a later post.

The answer to the above question posed by my readers, therefore, will depend on how old both of you are. If you were or will be 66 by April 29, 20165, you should consider applying for and then suspending your own benefits by April 29, 2016. If your spouse is at least 66, that will make it possible for her to file for a spousal benefit that will be 50 percent of your own PIA. (She can file at 62, but her benefit will be reduced.) The spousal benefit will give your family some income from Social Security every month, while at the same time allowing your own benefit to grow by those DRCs and COLAs. Maybe you can’t get another job that pays as well as the one you have right now, but you might be able to get one that you enjoy a lot more – like working on a golf course – because your spouse now has a source of income that can make up the difference.

So what happens when you do get that pink slip? As tempting as it might be to just throw in the towel, you should continue working in some capacity if you are able to do so. A job will provide you with some income and, if you are able to secure spousal benefits by using the apply and suspend technique by the deadline, you just might have enough income to meet your expenses while still allowing your own benefits to grow. Are you too young to apply for and suspend your benefits by April 29, 2016? For most people, it is still preferable to delay claiming Social Security benefits for as long as possible. Many of my readers have some money in retirement plans (both traditional and Roth), and also some money in non-retirement accounts. How does the spending affect their decisions about Social Security? Which account should they spend first?

Should I Spend My 401(k) Money First?

For most people, it is better to spend your non-retirement accounts before your retirement accounts. The graph that follows is from my book, Retire Secure! It shows that, the longer you can leave your money in a tax-deferred (or tax-free) account, the longer it will last.

Should I take my Social Security benefits now or spend my retirement savings and apply and suspend?

When Should You Take Social Security benefits? Retirement questions answered from The Little Black Book of Social Security Secrets by James Lange CPA/ Attorney.

Once your investment account is liquidated, the question becomes complicated. You should spend your traditional and Roth IRAs strategically, depending on your own personal tax situation. What the heck does that mean? I wish there was a one-size-fits-all answer, but there isn’t. However, Chapter 4 of my book, Retire Secure!, does contain an extensive analysis of this topic, and includes specific examples that may provide you with some additional insight. If you’d like to learn more about why it’s so important to spend the right money first, you can get a copy of the book from this website.

If you don’t want to read the book, here are some general points to consider. You’ll be required to take withdrawals from your traditional IRA when you turn 70 ½, and those withdrawals will be taxable. Income generated from non-qualified investment accounts is taxable. If you have enough taxable income from other sources, a portion of your Social Security will also be taxable. Most retirees don’t plan for unavoidable changes in their tax situations, and their failure to do so can be very expensive. What we strive to do in our practice is find the spending and tax management strategies that makes your money last as long as possible. Ultimately, the solution is different for each client.

Readers, thank you for the question and please keep them coming! I love hearing from you! And check back soon to read about some more real-life challenges that people like you are dealing with!

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Are you confused about how the Apply and Suspend strategies can benefit you? Please do not ask your local Social Security office for advice, because they can only present your options about government benefits! The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning. To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

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Confused about when you should apply and suspend Social Security? You’re not alone.

Posted on April 8, 2016 by James Lange in Little Black Book of Social Security Secrets, Retirement Planning, Social Security and tagged apply and suspend, file and suspend, Social Security, Social Security Benefits, social security new laws.

What should I be doing about Social Security? Should I apply and suspend Social Security? Should I be collecting?

I want to thank everyone for the overwhelming response to my new book, The Little Black Book of Social Security Secrets. We’ve received an unprecedented number of phone calls and emails from readers who have read it, and who now realize that the choices that they make about Social Security can have an enormous impact on their retirement years. Many of you want to know if you’re making the right decision about when to collect Social Security, and have written with the specifics of your situation. Unfortunately, I just cannot answer all of your questions personally. But what I will try to do on this blog is address some of the major issues that seem to be of the most concern to my readers. Before I do that, though, I want to give you a general reminder.

Reasons you should not apply and suspend Social Security

If you are or will be least 66 years old by April 29, 2016, then you really should consider filing for and suspending your benefits on or before April 29, 2016. There are two situations where it might not be beneficial, and they don’t apply to a lot of people. But here they are. If you are contributing to a Health Savings Account (HSA), you need to know that filing for Social Security (even if you suspend your benefits immediately) will trigger your automatic enrollment in Medicare Part A. Once you are enrolled in Medicare, you can’t contribute to an HSA. The tax benefits of contributing to an HSA can be nice, but, unless your employer is currently making the contributions on your behalf, those benefits are generally eclipsed by the cash benefits of Social Security. If this applies to you, then you might want to talk to your Human Resources department to see if you might be eligible for alternative compensation.

The second reason you might not want to file for and suspend your benefits would be if there is a chance that you might want to later file a restricted application for spousal benefits. You can’t do both. So if you file and suspend, you will not be allowed to file a restricted application! We’ve actually had a lot of questions on this topic, and I do plan to give some detailed examples of how the restricted application works in just a few days.

What to expect if you do apply and suspend Social Security

But let’s assume that you are not contributing to an HSA, and you’re not planning on filing a restricted application. What happens if you file for your benefits and suspend them by April 29, 2016? Since you will not be receiving a check from Social Security, there are no income tax consequences that might surprise you next April. If you change your mind later and want to start receiving your checks, you can do so – and your check amount will be permanently higher than if you filed but did not suspend. Once you have filed, your spouse can apply for spousal benefits and collect them even while your own are suspended.

New hope for those who thought they were too young to apply and suspend Social Security

Were you born in May, June, July or August of 1950, and are cursing the fact that you’re just a little too young to take advantage of the file and suspend technique? Here’s an idea for you. After the book was published, we realized that there was a nuance not addressed in the legislation eliminating the file and suspend technique, which might enable more people to get in under the wire than we originally thought. This is because the Social Security Administration allows you to apply for benefits up to four months before you actually want to start collecting them. Does this mean that you might be able to take advantage of the file and suspend technique too? Unfortunately, no one knows for sure. If you fall into this category, I would suggest that you apply for benefits before you turn FRA – and by April 29, 2016 – and ask that they be suspended. At worst, they will tell you that the suspension didn’t occur until after you turned FRA – that is, after the deadline. And who knows, they just might say that your application falls under the old rules! The one thing I know for certain is that, if you wait until after April 29, 2016 to apply, the advantage for suspending will be lost. Under the new rules, your spouse will not be able to collect a spousal benefit unless you are collecting your own benefit.

I will start to publish some case studies soon based on questions that our readers have asked after reading The Little Black Book of Social Security Secrets. Stop back soon to see how real people like you are dealing with this important issue, and the best courses of action they have available to them. Remember, the decisions you make can provide your surviving spouse with a significantly higher guaranteed income, for the remainder of his or her life.

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Should you use the Claim Now, Claim More Later Strategy for your Social Security?

Posted on March 29, 2016 by James Lange in Little Black Book of Social Security Secrets, Retirement Planning, Social Security and tagged apply and suspend, claim now claim more later, file and suspend, restricted application, Social Security, Social Security Benefits, social security strategies.

The Little Black Book of Social Security Secrets, James Lange

The Apply and Suspend strategy will be eliminated on April 29, 2016, so you must act now to take advantage of it. For those of you who cannot use the Apply and Suspend technique, there is another way that you may be able to maximize your benefits, though, which involves filing a Restricted Application (also known as Claim Now, Claim More Later). The great news is that you can take advantage of this strategy until December 31, 2019, assuming that you were at least 62 years old as of December 31, 2015.

If both you and your spouse have worked over the years, and if both of you have applied for benefits, Social Security will look at your earnings histories before they pay a benefit to either of you. If it is more advantageous for you to receive a benefit based on your own earnings record, that’s the benefit that they’ll pay you. If it is more advantageous for you to receive a spousal benefit, which is 50 percent of what your spouse gets, they’ll increase your benefit to equal that amount.

Under the old rules, there was nothing that prevented someone for applying for benefits, but restricting their application to their spousal benefit. Why bother? There is a very important reason. If you tell Social Security that you are specifically applying for just your spousal benefit, your own benefit will be increased by Delayed Retirement Credits that equal 8 percent every year. When you turn 70, you are not eligible to earn any more Delayed Retirement Credits, but you can then tell Social Security that you want to switch to your own benefit – which presumably at that point will be higher than your spousal benefit.

This strategy can allow eligible claimants to collect up to $60,000 in additional Social Security benefits. In order to make it work, though, all of the pieces have to fall exactly in the place. At Full Retirement Age, which is 66 for our purposes here, the spouse who wants to take advantage of it must file for benefits and specify that he is restricting his application to spousal benefits only. He can then collect spousal benefits until he reaches age 70.

Let’s look at an example. Mike and Mary are both 66, and since they were born between 1943 and 1954, are Full Retirement Age for Social Security purposes. Mike’s Primary Insurance Amount (PIA) is $2,000 and Mary’s is $800 and, both can file for these benefits now since they are 66. But what happens if Mary is the only one who files for her own benefit at age 66? Mike can then file for benefits, but restricts his application to just his spousal benefits. He collects $400 (half of Mary’s PIA) and, between them, they receive $1,200 from Social Security every month. When he turns 70, Mike can switch and collect his own benefit. By then, his own benefit has grown by 8 percent plus cost of living adjustments every year. Instead of receiving $2,000 every month, he will receive $2,920. Better yet, Mary can also switch and receive a spousal benefit that is half of Mike’s PIA – or $1,000. By taking advantage of this technique, Mike and Mary have increased their Social Security income significantly – and they receive it for the rest of their lives.

In order for this to work, the person who is filing the Restricted Application must be 66 or older. You cannot collect spousal benefits using this technique if you are younger than 66. Keep in mind, too, that this strategy will be eliminated in 2020. As long as you were born before 12/31/1953, you will be allowed to file a Restricted Application as soon as you turn 66. If you were born after 12/31/1953, you can’t take advantage of this option.

Are you confused about how the Claim Now, Claim More Later or the Apply and Suspend strategies can benefit you? Please do not ask your local Social Security office for advice, because they can only present your options about government benefits! The decisions that you make about this affect far more than just your Social Security benefits, and could have unintended complications and/or repercussions if they are not made considering the big picture.

Getting your Social Security decision right is important, but it is even more important that you have the right strategies for all of your planning. To find out if your entire financial house is in order, fill out this pre-qualification form by clicking here to see if you qualify for a free consultation. Western PA residents only please.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

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Time is Running Out to Maximize Your Social Security Benefits

Posted on March 1, 2016 by James Lange in Little Black Book of Social Security Secrets, Social Security and tagged apply and suspend, bipartisan budget act, file and suspend, maximize Social Security benefits, restricted application, Retirement Planning, Social Security, Social Security Benefits, social security benefits for couples, social security spousal benefits.

There were two married couples, the Rushers and the Planners, with identical earnings records and investments. The Rushers didn’t read this book and during retirement, they ran out of money. Bad news. The Planners, however, took the time to read this short little book, implemented the recommended strategies, and when the Rushers were barely scraping by, they still had $2,013,881.

If you want to be a Planner and not a Rusher, please go to www.paytaxeslater.com/ss and sign up to receive your free digital copy of The Little Black Book of Social Security Secrets on the day it comes out.

Eligible married couples must act by April 29, 2016 to take advantage of the two strategies that will allow them to maximize their income from Social Security.

Why?

Because a certain provision buried in the fine print of the Bipartisan Budget Act of 2015 eliminates the two strategies: Apply and Suspend and Restricted Applications for Benefits.

If you are married and will be at least 66 by April 29, 2016, you should read this book to learn whether it would benefit you to apply for and suspend your benefits by the deadline.

Apply and Suspend works this way. You file an application for benefits at age 66 (or later) and then suspend them – meaning that you will not receive monthly checks. There’s good reason to consider doing this. For each year that your benefit remains suspended, it grows by 8 percent (up to a maximum of 32 percent), plus cost of living adjustments. When you finally begin collecting checks at age 70, they’re significantly higher than they would have been if you had begun collecting them at age 66 – and they stay that way for the rest of your life. If you change your mind and want to start receiving your checks after you’ve suspended them, you can do so at any time.

Better yet, your spouse will be eligible to apply for spousal benefits—which can be as high as 50 percent of your benefit at age 66—as soon as she is age 62. This will give your family some income from Social Security during the years that your own benefit is suspended. (If her own benefit is higher, then a different strategy should be used).

But you must Apply and Suspend by the deadline, April 29, 2016, to be grandfathered under the old rules. If you do not apply for and suspend your own benefits by April 29, 2016, your spouse will not be allowed to collect a spousal benefit unless you are also collecting your own benefit.

The second strategy, called a Restricted Application for Benefits, allows you to file for benefits and specify that you only want to receive whatever spousal benefit to which you might be entitled. Depending on your age, it could mean a monthly check as high as 50 percent of your spouse’s benefit, while your own benefit continues to grow by 8 percent, plus cost of living adjustments, every year. When you turn 70, you can then switch to your own benefit if it is higher than your spousal benefit.

If you were at least 62 years old as of December 31, 2015, you will be able to file a Restricted Application for Benefits. In order to file a restricted application, you must wait until your Full Retirement Age – which is 66 for those who will be able to take advantage of the strategy before it is eliminated.

Clearly, maximizing Social Security benefits is to your advantage. What many people do not realize is just how important it can be to the surviving spouse. If you are the higher earner and you make the right choices, your spouse will be eligible to receive a survivor’s benefit which, at maximum, will be as high as your own benefit amount. But, two of the strategies that you can use to maximize your benefits are being eliminated.

Don’t delay. Go to www.paytaxeslater.com/ss to get your free digital copy of The Little Black Book of Social Security Secrets, and then talk to a professional about your options before it’s too late.

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New Social Security Rule Will Hurt Women by Eliminating Benefits Options

Posted on December 16, 2015 by James Lange in Beneficiary Designations, Estate Planning, Lange’s Cascading Beneficiary Plan, Retire Secure!, Retirement Planning, Social Security, The Lange Money Hour, Video Resources and tagged beneficiary designation, Social Security.

James Lange, CPA/Attorney, Advises Married Couples Ages 62-70 to Apply and Suspend NOW. After April 29, 2016, it will be too late!

In early November, President Obama signed the Bipartisan Budget Act of 2015 into law and the repercussions are devastating to the married women of our country.

Pittsburgh – December 16, 2015 – Married women, statistically the widows of the future, will pay a high price due to the changes that the Bipartisan Budget Act of 2015 has made to Social Security. Pittsburgh attorney and CPA James Lange takes action by releasing audio and video presentations as well as transcripts and a report that will help couples ages 62-70 navigate this new rule and protect their benefits while they still can!

SOCIAL SECURITY SURVIVOR BENEFITS ARE CRITICAL TO WOMEN

The financial well-being of widows is often dependent upon the choices that are made while their spouses are still alive. Spousal and survivor Social Security benefit choices can mean the difference between living comfortably in retirement and falling under the poverty line for women whose spouses leave them behind. Widows are commonly younger than their deceased husbands and the Social Security benefits they have earned, especially in the Boomer generation, are commonly less than that of their deceased husbands. This means that a widow will depend on collecting survivor benefits, often for many years, based on the benefits to which their deceased spouses were entitled.

“One of the best things a husband can do to protect his wife in widowhood is to maximize his own Social Security benefits. One technique that we use with our clients is apply & suspend.” James Lange of Pittsburgh-based, Lange Financial Group, LLC comments. “The law prior to the Bipartisan Act allowed the husband to apply for, and then suspend collection of his benefits, while allowing his wife to collect a spousal benefit. It was a win-win for our clients!”

This technique was used strategically to maximize the husband’s and wife’s long-term benefits. That, unfortunately, is coming to an end, with the exception of certain couples who take the appropriate action between now and April 29, 2016. For many couples, the income stream from spousal benefits in the previously allowed apply and suspend technique made it possible (or at least more palatable) for the husband to wait until age 70 to collect Social Security, thus maximizing their benefits.

“This new law cuts off that income stream, making it if not impossible, at least more difficult, for husbands to choose to delay collection of their benefits.” Lange warns, “Unfortunately, it is the widows of these husbands who cannot maximize their Social Security benefits who will be left in reduced circumstances for the rest of their lives.”

JIM LANGE’S ADVICE

DO NOT WAIT. Congress has eliminated one of the best Social Security maximization strategies. Fortunately, some recipients may be grandfathered already and others could be grandfathered if they act between now and April 29, 2016. Others will have to make do with the new laws. In either case, now is the time to review your options. We have posted a one hour audio with a written transcript explaining the old law, the new law and the transition rules. Readers can go to www.paytaxeslater.com to access this audio and transcript.

ABOUT JAMES LANGE

James Lange, CPA/Attorney is a nationally-known Roth IRA and retirement plan distribution expert. He’s also the best-selling author of three editions of Retire Secure! and The Roth Revolution: Pay Taxes Once and Never Again. He hosts a bi-weekly financial radio show, The Lange Money Hour, where he has welcomed numerous guests over the years including top experts in the fields of Social Security, IRAs, and investments.

With over 30 years of experience, Jim and his team have drafted over 2,000 wills and trusts with a focus on flexibility and meeting the unique needs of each client.

Jim’s recommendations have appeared 35 times in The Wall Street Journal, 23 times in the Pittsburgh Post-Gazette, The New York Times, Newsweek, Money magazine, Smart Money and Reader’s Digest. His articles have appeared in The Journal of Retirement Planning, Financial Planning, The Tax Adviser (AICPA), and other top publications. Most recently he has had two peer-reviewed articles published on Social Security maximization in the prestigious Trusts & Estates magazine.

To learn more, or sign up for their newsletter, visit www.paytaxeslater.com.

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Keeping Up with Your Kids and Grandchildren

Posted on July 20, 2015 by James Lange in Beneficiary Designations and tagged family, grandchildren, James Lange, The Lange Financial Group.

An excerpt for the Lange Financial Group Newsletter:

Social media is a great way to keep in touch with family. I feel connected to a number of relatives and friends who live in different cities because I spend a few minutes on Facebook. In fact, recently I was able to tell my brother how his own daughter was doing because of something she posted on Facebook and he doesn’t use Facebook.

If you have young grandchildren, there’s a good chance photos are posted regularly. This way, you can see current photos of the little ones, and you don’t have to feel like you’re pestering your kids to send you physical copies. Of course, social media has its limits. Because sites are more public, probably too public, don’t expect to engage in detailed or private family matters over this medium.

Schedule a weekly phone or video call: Arranging a weekly call doesn’t have to be a struggle. A simple 15 minute call is time enough to catch up regularly. The more you and your kids do it, the easier and more routine it will become. However, if you’re more interested in receiving information, let your kids do the talking. Try to schedule a time that is mutually available for everyone, so the call is a treat and not a chore.

Share a monthly meal: For kids who are closer to home, make time once a month to eat a meal together. This is an easy way to get all your kids under one roof again. Just because your kids are grown up doesn’t mean they won’t enjoy a home-cooked meal every now and then.

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Donations to Charity: Is There Still a Tax Benefit if I Donate?

Posted on July 15, 2015 by James Lange in Income Tax, Retire Secure!, Retirement Planning, Tax Law and tagged charitable donations, charity, Income Tax, Income Tax Returns, James Lange, Retire Secure! A Guide to Getting the Most out of What You've Got.

Imagine 100 years in to the future: Two people are playing a word association game. One player gives the clue, “Bill Gates.” Today, you’d probably say, “The founder of Microsoft,” right? Well, I’m going to go out on a limb and suggest that, 100 years from now, Microsoft’s importance will have faded because of ever-evolving technology and many people will not recognize the company name, much less know who its founder was. However, I’m confident that Bill Gates will still be a household name. Why? It is because Bill and his wife Melinda have donated, and continue to donate, the vast majority of their immense wealth to charity. The impact of their generosity is astonishing. Thanks to their largesse, it is possible – maybe even likely – that diseases such as malaria will be eradicated within our lifetimes. Certainly, their philanthropy will save millions of lives, and improve the lives of virtually everyone on the planet. My own charitable gifting is nowhere near the scale of Bill and Melinda’s, but, even so, I can see how my donations benefit others. And it makes me happy to think that I can make someone else’s life better, even in my own small way.

The American Taxpayer Relief Act of 2012 reinstated a phase-out of itemized deductions for high income taxpayers. For those individuals, it meant that they were unable to receive the full benefit of their charitable contributions on their tax returns, and they were very unhappy. A few taxpayers didn’t care. I have a client who donates an unusually significant amount of her annual income to charity every year, and who steadfastly refused to give me a list of the donations so that I could deduct them on her tax return. She felt that it was morally wrong for her to receive any benefit from them. It was an admirable position, to be sure, but then I pointed out that the government does not do a very good job of dealing with social problems in this country. I told her that I believe that the reason charities don’t have to pay taxes is because they do a much more efficient job of distributing money and services to the needy than our government does. Under those circumstances, it seemed wasteful to me to not deduct the donations. She listened to me, and the following year presented me with hundreds of donation receipts, which I deducted on her return. She received a significant tax refund, which she promptly used to donate even more to charity!

If donating to charity is important to you, you may find it worthwhile to review the ideas discussed in Chapter 18. Many readers will be surprised to learn that there are strategies available that can give them far more bang for their charitable buck than they may have thought possible. Charitable gifting does not necessarily have to come at the expense of family members either, and in some instances it may even benefit them! Your distant dreams of establishing a scholarship fund, building a bicycle trail, or providing ongoing medical care to people in need are more achievable than you may realize. The secret is to take advantage of all of the gifting strategies that are available to you.

See you soon!

Jim

A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Thank you.

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Life Insurance: Is It Right for Your Estate Plan?

Posted on May 21, 2015 by James Lange in Beneficiary Designations, Estate Planning, Estate Tax, IRAs, Life Insurance, Retirement Planning and tagged Estate Planning, Estate Tax, Insurance, IRA, James Lange, Life Insurance, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement Planning.

Insurance salesmen are often maligned and are frequently the butt of some pretty bad jokes. At the risk of being categorized with those poor men and women, I’ll tell you that I don’t hesitate to recommend life insurance to many of my own clients after evaluating their estate planning needs. Why? Because when it is appropriate and structured properly, life insurance has a number of benefits that make it an excellent and possibly the best wealth transfer strategy.

If you read the earlier chapters, you learned that legislative changes since 2009 mean that federal estate tax is an issue for far fewer taxpayers than in the past. The IRS wasn’t feeling guilty about charging estate tax on your assets, they just gave more people a reason to worry about a completely different problem called federal income tax. Chapter 12 of Retire Secure! delves into some techniques that show how life insurance can be used to help minimize the damage to the estate caused by income taxes at death. It also discusses how life insurance can be used to provide liquidity for a number of estate settlement needs, and also how it can be used to benefit the estate if there is a disabled beneficiary. While life insurance can be extremely beneficial it is important to remember that in situations where taxes and other estate needs aren’t a concern, the cost of the life insurance – especially for a senior citizen – might not be worth it.

In earlier chapters, there are several references to the possibility that Congress may eliminate the benefits of the Stretch IRA. Chapter 12 introduces some new ideas regarding the inclusion of a Charitable Remainder Unitrust (CRUT) in certain estate plans. How do you think your children would react if you named a charitable trust as the sole beneficiary of your retirement plan? They might react very favorably when they find out that, in the long run, they could end up with a lot more money.

This is a very complicated estate planning technique that is not appropriate for everyone. Under the right set of circumstances, though, life insurance can be a very effective addition to an estate plan – especially if the owner of the IRA has always supported charities. Would you like to endow a chair at your local university or symphony orchestra, or perhaps provide financial support for your favorite hospital or religious organization long after your death? Read Chapter 12 to learn the basics of this strategy, and how life insurance can play a key role.

Stop back soon for an update on some really big news about the possible death of the Stretch IRA.

Jim

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

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Ways to Cut Taxes for the Next Generation – Consider Gifting Money to Children

Posted on May 14, 2015 by James Lange in Beneficiary Designations, Estate Planning, Retire Secure!, Retirement Planning, Tax Law and tagged Gifting Money to Children, James Lange, Pittsburgh, Retire Secure Book, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement, Tax Planning, Taxes, Western Pennsylvania.

gifting money to children lange financial group In January of 2015, President Obama proposed eliminating the tax-free benefits of Section 529 college savings plans. Under his proposal, savings would grow tax-deferred, but withdrawals would be taxed as income to the beneficiary (usually the student). His belief was that taxpayers who save in 529 plans are families who can better afford the cost of college than everyone else. In reality, it is estimated that close to ten percent of 529 accounts are owned by households having income below $50,000, and over 70 percent are owned by households with income below $150,000. What isn’t surprising, though, is that the tax revenue realized by this action would have been significant, because as of the end of the 4^th quarter of 2014, the assets held in 529 and other college savings plans reached almost a quarter of a trillion dollars. How many students would have been forced to apply for loans if they had been required to pay tax on withdrawals from their college savings plans? Fortunately, the House of Representatives thought differently than the President and, in February of 2015, they passed HR 529. This bill not only maintains the tax-free status of 529 plans, but also makes them more flexible and easier to use. Hopefully the Senate will follow the House’s lead and pass a companion bill with similar provisions.

Do you have college savings plans established for your children or grandchildren and, if so, were you aware of this attack on their tax-free status?

Gifting money to children

Contributing to college savings plans for children and grandchildren is a form of gifting, which is a topic that I discuss in detail in Chapter 11 of Retire Secure!. Gifting money to children is an excellent way to minimize taxes at your death, and, depending on the amount gifted, can also provide the recipient with tax-free income. Unfortunately, strategies that reduce taxes frequently come under fire and it is critical that you stay on top of the rules. Also discussed in this chapter are the perils of gifting to relatives in an attempt to avoid seizure of your to pay for nursing home care. It’s a bad idea – don’t even think about it – but it is still beneficial to understand the laws on this subject.

Many couples are not aware that the American Taxpayer Relief Act of 2012 introduced a concept called portability that makes estate taxes less of a concern for many individuals than in the past. If you have not had your estate plan reviewed since 2012, you should read Chapter 11 to learn about the potential pitfalls of what I call “The Cruelest Trap of All”. Since the passage of this act, many estate plans are outdated and could cause the surviving spouse to be disinherited at the first spouse’s death.

Gifting money to children strategies, and the tax implications of gifting, should be a critical part of every estate plan. Changes in legislation that were not anticipated at the time the plan was established, though, can make your plan ineffective and in some cases disastrous. As much has changed in this area; please read Chapter 11 thoroughly to see how you might be affected.

Stop back soon!

Jim

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Retirement and Estate Planning Case Study: Plan with the Big Picture in Mind

Posted on May 7, 2015 by James Lange in Estate Planning, Retire Secure!, Retirement Planning and tagged Estate Planning, James Lange, Retire Secure Book, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement, Retirement Planning.

Knowing that many people aren’t as enthusiastic as I am about topics like taxes, interest rates and so on, I tried to make Retire Secure! as reader friendly as possible. Even so, I know there are still folks out there who find it difficult to apply the concepts outlined in the book to their own personal situations. It’s for those people that I wrote Chapter 10, a Retirement and Estate Planning Case Study on Eddie & Emily. It is a real life retirement story loosely based on an actual client who came to me with some concerns.

Chapter 10 is written from this couple’s point of view. It walks the reader through the thought process that these clients went through as they entered retirement, and how we helped them achieve peace of mind about their concerns. Every client’s situation is different, so it would wrong to imply that one course of action is always better than another. Since we helped them plan with the big picture in mind, though, they were confident that the decisions that they made were the best possible for themselves and their children.

Stop back soon for a peek at Chapter 11. It’s a lot more technical than Chapter 10, but contains important information on the best ways to transfer wealth to your heirs.

See you soon!

Jim

If you’d like to be reminded as to when the book is coming out please fill out the form below.

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