Financial Planning

What Should I Know about Beneficiary Designations?

Published on: February 28, 2020 | By McCulloch & Miller, PLLC

Many people have tens of thousands–even hundreds of thousands–of dollars in their IRAs. If you have an asset that large, shouldn’t you devote more effort to planning for its ultimate disposition?

A designated beneficiary is named on a life insurance policy or some type of investment account as the individual(s) who will receive those assets, in the event of the account holder’s death. The beneficiary designation doesn’t replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent doesn’t have a will, the beneficiary may see a long delay in the probate court.

If you’ve done your estate planning, most likely you’ve spent a fair amount of time on the creation of your will. You’ve discussed the terms with an established estate planning attorney and reviewed the document before signing it.

You Could Be Hit with Penalty for an Early IRA Withdrawal

Published on: February 20, 2020 | By McCulloch & Miller, PLLC

Most financial experts would agree that it is rarely, if ever, a good idea to take an early withdrawal from a traditional IRA or Roth IRA. This is due in part to the high cost of penalties that can hit an account holder for an early withdrawal (not to mention losing out on years of potential earnings).

Early distributions from IRAs—before you reach 59½—typically are hit with a 10% tax penalty, and you may owe income tax on it. The IRS uses the penalty to discourage IRA account holders from dipping into their savings before retirement. However, the penalty only applies if you withdraw taxable funds, says Investopedia, in its new article entitled “Early Withdrawal Penalties for Traditional and Roth IRAs.”

If you withdraw funds that aren’t subject to income tax, there’s no penalty for distributions taken at any time. The issue of whether the funds are taxable depends on the type of IRA. Early distributions from traditional IRAs are the most likely to incur significant penalties. That’s because you make contributions to this type of account with pretax dollars. These are subtracted from your taxable income for the year, which will decrease the amount of income tax you'll owe. As a result, since you get an upfront tax break when you contribute to a traditional IRA, you have to pay taxes on your withdrawals in retirement.

What’s the Best Thing to Do with an Inherited Investment?

Published on: February 11, 2020 | By McCulloch & Miller, PLLC

“Receiving an inheritance can be a double-edged sword. On the one hand, it's overwhelming, thanks to the intense emotions associated with losing a loved one combined with the confusion about what to do with the newly acquired assets. On the other, an inheritance can re-invigorate your finances and create new opportunities for you and your family.”

Wealth Advisor’s recent article entitled “How to Handle Inherited Investments” provides us with some of the top inheritance considerations:

Consider Cash. Besides cash, the most common inheritances are securities, real estate and art. These assets usually go up in value, but another big benefit is their favorable tax treatment. The heirs won’t pay capital gains on unsold investments that went up in value during the lifetime of the deceased (estate taxes would apply). Those taxes would only apply to the gains that happened after they took possession. There’s a good reason to hang onto these investments. These types of property carry some risks, so you may consider putting some of your inherited investments into cash, cash equivalents, or life insurance with a guaranteed payout to avoid exposure to undue risk.

Blended Family Finances Require Extra Special Care

Published on: January 29, 2020 | By McCulloch & Miller, PLLC

Blended families are almost the new normal in America. A Pew Research Center analysis shows that as many as 40% of all new marriages include at least one person who had been married before. For another comparison, in 1960, 13% of all married adults had been married before, compared to 23% today.

In a blended family, one or both spouses have at least one child from a previous marriage or relationship. Financial and legal challenges are more complicated, as are the family dynamics between parents, step-parents, siblings and step-siblings.

CNBC’s recent article, “4 ways to help blended families navigate finances,” reports that a staggering 63% of women who remarry come into blended families, with 50% of those involving stepchildren who live with the new couple, according to the National Center for Family & Marriage Research.

Mistakes to Avoid when Planning Estates

Published on: January 17, 2020 | By McCulloch & Miller, PLLC

“Five of the most common mistakes are easy to avoid with the right information and support, as well as a little creativity.”

Because estate planning has plenty of legal jargon, it can make some people think twice about planning their estates, especially people who believe that they have too little property to bother with this important task.

Comstock’s Magazine’s recent article entitled “Five Mistakes to Avoid When Planning Your Estate” warns that without planning, even small estates under a certain dollar amount (which can pass without probate, according the probate laws in some states) may cause headaches for heirs and family members. Here are some big mistakes you can avoid with the help of an experienced Houston estate planning attorney:

What Don’t I Know about My Roth IRA?

Published on: January 15, 2020 | By McCulloch & Miller, PLLC

New research from TD Ameritrade finds that many individuals are confused when it comes to Roth IRAs — accounts that are funded with post-tax money. Consequently, many people are leaving cash on the table, when it comes to maximizing this savings strategy.

CNBC’s recent article entitled “Not knowing these Roth IRA truths can cost you” explains the biggest things that investors typically don’t know about Roth IRAs. They include not knowing how to decide between a Roth IRA and Traditional IRA, along with the fact that you can contribute to a 401(k) and a Roth IRA.

You’re allowed to contribute to a 401(k) and a Roth IRA. Many workers get their retirement savings education from their employer. Those employer-provided plans are usually 401(k) plans, and you generally want to contribute enough to that account to get the employer match. However, what 60% of investors incorrectly think is that you can only contribute to a Roth once you reach your 401(k) maximum, according to TD Ameritrade’s research. It’s okay (and smart) to be contributing to both a Roth IRA and a 401(k) at the same time. You don’t have to hit the 401(k) max to contribute to a Roth IRA.

I’m Between 55 and 64, How Do I Boost My Retirement Savings?

Published on: January 2, 2020 | By McCulloch & Miller, PLLC

“If you're between 55 and 64, you still have time to boost your retirement savings. Whether you plan to retire early, late, or never ever, having an adequate amount of money saved can make all the difference, both financially and psychologically. Your focus should be on building out—or catching up, if necessary.”

It’s never too soon to begin saving. However, the last decade prior to retirement can be crucial. By then you’ll probably have a pretty good idea of when (or if) you want to retire and, even more important, still have some time to make changes, if need be.

If you discover that you need to put more money away, Investopedia’s article “Top Retirement Savings Tips for 55-to-64-Year-Olds” gives you several time-honored retirement savings tips to consider.

What to do with a Sudden Windfall

Published on: December 30, 2019 | By McCulloch & Miller, PLLC

It’s a problem that most people wish they had: a sudden influx of money, sometimes a lot of money. It can be overwhelming, and the most important thing to do is—nothing, at first.

The first thing to do when you are newly flush with money, is take a few deep breaths. Then take a long, clear look at your financial status, advises WMUR.com’s recent article, “Handling unexpected wealth.”

Depending on how much you have received, you could be in a very different place financially. You should take an in-depth look at your net worth and cash flow.

Planning for Medical Expenses During Retirement

Published on: November 18, 2019 | By McCulloch & Miller, PLLC

The unknown about spending in retirement is not just whether it will be higher or lower, but when during the course of retirement, you’ll be spending more or less. If you downsize, housing costs will decrease, but if you travel more, recreational spending will rise.

According to a recent article from Investopedia, “How to Plan for Medical Expenses in Retirement,” healthcare is likely to be the biggest expense in retirement. A survey from Fidelity Investments found that a 65-year-old newly retired couple should budget about $285,000 for medical expenses in retirement. It is better to have the money set aside than to be surprised by the cost. That number also does not include long-term care. Depending on where you live, those costs can range from $18,720 for adult day care services to $100,375 for a private room in a nursing home.

Despite saving and preparing for retirement their entire lives, many retirees aren't mentally or financially prepared for these types of expenses. A survey by HSA Bank found that 67% of adults 65 and older thought that they’d need less than $100,000 for healthcare. However, Fidelity calculated that males 65 and older will need $133,000—and females, $147,000—to pay for healthcare in retirement.

Is There a Way to Avoid Paying Taxes on a Jointly-Owned Home?

Published on: October 21, 2019 | By McCulloch & Miller, PLLC

There are many inheritance scenarios, where people hope that a simple solution will save them time and money. Unfortunately, that’s not always the way estate or tax laws work.

A woman received joint ownership of her father’s house about a decade ago. Her father is still living there, and so is her sister. The woman doesn’t pay for any of the expenses; she and her father take care of their own costs. The sisters plan on selling the home, after their father passes. The woman wonders if she can simply give her sister her half of the home and avoid paying any taxes.

This situation is expanded upon in recent nj.com article, “My sister and I own my father’s home. How can I avoid taxes?” The article notes that a sibling may give her half of a home owned in joint ownership to a sibling, but there may still be some tax consequences.