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