Who’s Getting Your Money?

It’s estimated that about $24 trillion is saved in various types of retirement accounts, but where is that money eventually going?  In most cases, the beneficiary designations will determine who receives the funds.  But what happens when the designations are out-of-date?

  • In the case of 401(k) accounts, federal law requires that the surviving spouse receive the account, even if someone else is named the beneficiary, unless the spouse has signed a waiver of his or her rights prior to the account owner’s death.  This can be important where a couple with children from prior marriages are heading down the aisle, even if the couple has signed a prenuptial agreement.

  • If the named beneficiary of an IRA or 401(k) account has died, the secondary beneficiary would take the funds.  If there is no secondary beneficiary, the account would be distributed to the estate, which may result in income taxes being owed immediately.

  • Even an ex-spouse may be entitled to the account if he or she is still listed as the beneficiary.

If you’ve forgotten who you named as beneficiary on your accounts or if your family situation has changed, now would be a good time to revisit those designation forms.  Simply ask the IRA custodian or your employer for the papers necessary to make the changes.  You might also want to check with your financial adviser about the most tax-efficient ways of passing the accounts to family members.  Keep in mind that you can name charity as a beneficiary, completely bypassing the income tax that other beneficiaries will owe.  It’s even possible to provide lifetime income to family members from assets passing to charity.

Surviving the Roller Coaster Ride

One day the market is up, the next it’s down.  There are rules that can help you sleep at night, regardless of market fluctuations.

Diversify – Don’t keep all your money in one place or even in one type of investment.  Put some money into longer term, higher yielding vehicles.  Keep a portion liquid.

Consider risks – Generally, the higher the interest rate offered, the greater the risk of losing your investment.  That doesn’t mean you should avoid all risk and invest only in insured deposits, but assess your total financial picture.  Don’t ever invest more than you can afford to lose.  Retirees should generally invest more conservatively than those with many years until retirement.

Mind the market, not taxes – Income taxes are undoubtedly an important factor in your investment decision-making, but don’t let them be the tail that wags the dog.  First and foremost, consider what investment strategies and timing are best for your financial picture, then ask your tax adviser what effect taxes will have on your planning.

Value Averaging: An Alternative to Dollar Cost Averaging

Many people are familiar with the dollar cost averaging approach to the stock market in which they invest a set sum of money each month.  Some months they might buy shares when prices are high and in other months they may buy when the price is low, but over a period of time, the average price paid for the shares will be less than if all the shares were purchased when the price was high.  There is another approach that also may work: value averaging.

With value averaging, you determine how much you want your portfolio to grow each month.  You then add funds based on the difference between how much the value of the fund has fluctuated and your goal.  Suppose you want your portfolio to grow by $500 each month.  If the value one month has increased $300, you would add $200 that month and put the $300 difference in a bank.  If the value has declined over the previous month, you would put in the full $500 plus enough to cover the month’s loss, using funds “saved” from months when you didn’t have to invest the full $500.

Value averaging lets you invest less when shares are high (and the increased value of your fund is closer to your goal) and more when shares are low (and the value has dropped from the previous month).

What Lessons Can You Learn from Your Tax Return?

Before putting away your copy of the income tax return you just filed, review it to see if you can take advantage of opportunities for 2015.

Save receipts – Keep receipts for deductible expenses.  Not only will this remind you of items you might forget by early 2016, but you’ll have the substantiation you may need for your deductions.  For example, a canceled check or bank receipt may be sufficient to substantiate your charitable gifts up to $250, but if you give more, you’ll need to keep the written substantiation you receive from the charity.

Convert nondeductible interest – If you had nondeductible interest from credit cards or other personal loans, you might be able to convert that to a deduction by paying off the loans with funds from a home equity line of credit.

Watch investment activity – Before selling stocks at a gain, retirees should consider the tax on Social Security benefits.  Once provisional income exceeds $34,000 for singles or $44,000 for married couples, up to 85% of Social Security benefits are subject to income tax.  Or you can contribute appreciated securities to charity in place of your usual cash gifts and avoid capital gains tax entirely - and get a deduction, too.

Be aggressive with retirement savings – Contribute early to your qualified retirement plans, particularly if your employer matches all or a portion of your contributions.

Review your withholding – Make sure you pay in enough through withholding and timely estimated payments to avoid a penalty.  But remember, a large refund when you file means you’ve given the IRS an interest-free loan.  Ask your tax adviser about the right amount to pay in over the coming year.


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The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.