Not every product or service sells itself and those offering most products and services devote substantial effort and funding to ensure that the desired sales happen. In the financial industry, a firm’s offering of incentives to its sales employees to push particular products has (rightly) come under fire and increasing regulation to the point that many incentive programs have been terminated or at least significantly limited.

One reason for the change is that although the firm compensates those salespeople, the funds for that compensation ultimately come from the customers.

Most IRA owners have named one or more primary beneficiaries to the account in the event of the owner’s death. Oftentimes successor beneficiaries are also named to ensure the funds pass as desired where the primary beneficiary has died as well. The beneficiaries will be required to take distributions as specified in the tax code and pay the associated taxes, though they may also take additional distributions as desired. The distributed funds are not protected from the beneficiary’s creditors and a spendthrift may quickly exhaust the IRA.

As the pandemic with its related restrictions and uncertainties drags along, we are seeing more clients changing their near-term plans and goals.  Initially, many of us simply deferred activities, presumably for a few months while the pandemic (hopefully) ran its course. Now, with no clear end to the pandemic nor any return to something approaching normalcy in sight, people are making significant changes to their plans. These changes are wide ranging and appear to have affected different age groups in markedly different ways.

After all the hype and noise about Form CRS, which was first required to be issued this summer, it appears that the intended audience – investment clients – are generally uninterested in the new disclosures and not engaged in the process of asking questions of their advisers. Research shows that almost no-one who received the new form, among the tens of thousands of clients who did, raised any issue or question with their advisor regarding Form CRS and its use.

Not surprisingly, this logically fits in with the response of clients to required disclosures generally: adding a few new pages with a somewhat different approach to the pile does not engender interest in persons already overwhelmed with information and fine print (much of it irrelevant and/or confusing).

A feature of many 401(k) plans (as well as 403(b) and 457 plans) is the ability of the plan participant to take a loan from the plan to assist in meeting near term goals. This is particularly effective where there is no other desirable source of funds and the participant has stable employment. Such a loan can be a real benefit in times like the present where the pandemic has caused stress and change from what used to be normal.

The primary reason for considering this source of funding is the ability to avoid having the loan treated as a taxable distribution from the plan and so not subject to either regular income taxation or to the ten percent penalty assessed on early distributions for those younger than age 59½.

The question of what happens with one’s assets at death is a major aspect of planning for many of us. Necessarily, that planning must address the possibility of death being earlier or later than what normally might be expected and so directions should be in place to meet any eventuality. Of course, the beauty of the planning is that in most cases we can revisit the plan and update as circumstances change and time passes.

That brings us to those who have invested in qualified retirement plans and who have children who are presently minors.

In this rather unusual year, it is important that you do not forget to file your Federal Income Tax return this week. Many, many taxpayers took advantage of the IRS postponing the due date for the 2019 tax returns by 91 days to July 15, 2020. This step was taken in response to some of the confusion and uncertainties surrounding the pandemic and was meant to be a help to taxpayers but not an excuse from the obligation of filing and paying tax.

Of course, taxpayers may still request an extension to the filing of their returns until October 15, 2020, provided of course that the taxpayer pays the amount due by July 15, 2020.

In the context of financial planning, much attention is properly given to life insurance as well as to health, disability and long term care coverages for the clients we serve. The recent – and ongoing – pandemic and related issues have highlighted the need to understand and perhaps update coverage for business property damage or loss, premises liability, business interruption and event cancellations, as well as residential real and personal property coverages including loss of use.  This applies not only to ourselves and our businesses but to the wide variety of clients we advise.

A common technique for taxpayers with large IRAs and relatively lower income is to engage in conversion of traditional IRA funds to Roth IRAs. A conversion requires the taxpayer to declare as income the amount converted in the year the funds are removed from the taxable IRA and transferred to a Roth IRA. The obvious benefit to this technique is that under current law future appreciation in the Roth IRA is not subject to income taxation while distribution of principal from the Roth IRA is likewise not taxed.

In the last twenty or so years, several major life insurance companies, owned by their policy holders as a group, determined to change the format to become a shareholder owned business. This process is called a demutualization. Members receive either a cash payment or shares in the company in exchange for their voting and liquidation rights, while retaining their life insurance policies.  

The receipt of cash or shares will be considered taxable income to the extent the value received exceeds the former member’s cost basis in the property – rights – exchanged for the cash or shares.