Location, Location, Location (Part 2)

A little while back we looked at the 10 worst states for retirement living.  Now we’ll examine the 10 best states for retirement living.  The ranking, courtesy of Bankrate, considered several factors, including local weather, access to health care, cost of living, crime rate and tax burden. This year’s ranking also adds a broad standard-of-living measurement from the Gallup-Healthways Well-Being Index, a comprehensive survey gauging people’s satisfaction with their surroundings.

Surprisingly, popular retirement states like Arizona and Florida did not crack the top 10.  The following are Bankrate’s top 10 states for retirees to spend their golden years:

10. Virginia.  Virginia offers retirees relatively low taxes, low cost of living, low crime, and a moderate climate.

9. Iowa.  Iowa ranked well because of the availability of exceptional health care and a low cost of living.

8. Idaho.  Idaho landed near the top because of its low cost of living, low crime, and lots of sunshine.

7. Montana.  Montana finished in 7th place due to an abundance of sunshine, good health care, low taxes, and low crime.

6. Nebraska.  Nebraska offers residents a low cost of living, low crime, good health care, and plenty of sunshine.  (Good for the corn, too.)

5. Wyoming.  Wyoming made the top five due to the lowest taxes in the country, low crime, and abundant sunshine.

4. North Dakota.  North Dakota made the fourth spot due to its low cost of living, low crime, low taxes, good health care, and placing at the top of Gallup-Healthways’ Well-Being Index (a comprehensive measure of happiness).

3. Utah.  Utah ranked high in every measure, including the Well-Being Index.

2. Colorado.  Colorado took the proverbial silver medal with low cost of living, low crime, low taxes, and good health care.

1. South Dakota.  The top podium spot went to South Dakota (!), which did very well in almost every category, including good health care, extremely low taxes, low cost of living, and low crime.

You can read the entire article here.

New Once-Per-Year Rule On IRA Rollovers Looms

Beginning January 1, 2015, IRA owners will be limited to one IRA rollover per year under a new Internal Revenue Service rule. The IRS issued the rule in response to a recent US Tax Court decision which held that multiple rollovers between different IRAs owned by the same taxpayer violated the Internal Revenue Code. The new rule will be applied prospectively and will impact taxpayers owning more than one traditional IRA or Roth IRA.

Under the new IRS rule, an individual receiving an IRA distribution on or after January 1, 2015, cannot roll over any portion of the distribution into an IRA if the individual has received a distribution from any IRA (whether a traditional IRA or Roth IRA) in the preceding 1-year period that was rolled over into an IRA. The new aggregation rule, which takes into account all distributions and rollovers among an individual’s traditional and Roth IRAs, will apply to distributions from different IRAs only if each of the distributions occurs after 2014. This creates a special transitional safe harbor for those taxpayers who received a distribution from an IRA in 2014 and properly rolled it over into another IRA. Such a rollover will be disregarded for purposes of whether a 2015 distribution can be rolled over, provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution.  This gives IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

A conversion from a traditional IRA to a Roth IRA is not subject to the aggregation rule, and such a rollover is disregarded in applying the one rollover per year limitation to other rollovers. Note, however, that a rollover between an individual’s Roth IRAs would preclude a separate rollover within the 1-year period between the individual’s traditional IRAs, and vice versa.

The one-per-year rollover limitation does not apply to a rollover to or from a qualified plan [such as a 401(k) or 403(b)] (and such a rollover is disregarded in applying the one-per-year rollover limitation to other rollovers). More importantly, it does not apply to direct trustee-to-trustee transfers.

This rule will certainly encourage taxpayers to make direct trustee-to-trustee transfers when moving money between IRA accounts.  Trustee-to-trustee transfers expressly avoid the new rollover aggregation rule.

The rules governing distributions from IRAs and other retirement accounts are very complex, and very tricky. Even seemingly simple transactions involving an IRA or other retirement account can result in disastrous tax consequences. And the Internal Revenue Code is extremely unforgiving. Consult your CPA or other tax adviser, or give me a call. I can help.

Location, Location, Location – 10 Worst States for Retirement Living

Where does one spend their golden years?  A recent USA Today article identifies the 10 worst states for retirement living – at least according to a recent MoneyRates survey. The list was developed using data from 5 major categories, including: senior population; economic conditions [including taxes, cost of living, and unemployment (more seniors are working into their “retirement” years)]; crime; climate; and senior life expectancy. The 10 worst (and reasons why):

10. Alabama. Retirees face a shorter life expectancy and high crime rate.
9.   Michigan. Ranks below average in every category except senior population size.
8.   New York (tie). Low rate of property crime offset by poor climate and below average economic conditions.
8.   Maryland (tie). Offers retirees a high cost of living, high crime rate, and a small senior population.
8.   Georgia (tie). Good climate, but ranks below average in every other category.
5.   Nevada. 2nd worst violent crime rate in the country, plus a poor economy and shorter senior life expectancy.
4.   Illinois. Poor economic conditions and smaller than average senior population size.
3.   Tennessee. Ranks poorly because of high crime rate and shorter life expectancy.
2.   Louisiana. High crime rate, short senior life expectancy, and small senior population.
1.   Alaska. Brutal climate, high cost of living and a weak labor market. Ranks below average in every category.

Please read the entire article here.

Never Assume – Here’s Another Reason Why.

People can be surprisingly nonchalant when it comes to beneficiary designations on retirement accounts and life insurance policies. They assume even if they have missed a beneficiary designation or it is out-of-date, the remaining account balance will automatically go to their surviving spouse or children upon death.

However, a recent survey done by the National Investment Company Service Association (NICSA), reveals that there is little consistency among IRA providers as to how default IRA beneficiary designations are handled. According to the survey, the default beneficiary will vary widely depending on the provider. For example, 43% of accounts default to a surviving spouse, then the estate; 30% default to the account owner’s estate (not a spouse or children); and only 22% percent default automatically to a spouse, then the children, then the estate. To complicate matters, many people have multiple IRAs at more than one institution, which means the default beneficiary treatment of each account will vary.

A beneficiary designation on an IRA or other retirement account is critical because retirement accounts are automatically excluded from an account owner’s probate estate as long as the account has at least one person designated as the beneficiary who survives the account owner. If there is no then living beneficiary, the account is deemed to have no beneficiary and it must be paid to the deceased owner’s estate. This has two very bad effects: First, a probate estate has no life expectancy and, consequently, the account has to be liquidated, which can result in a significant income tax bill; Second, because the account must be paid to the owner’s estate, it becomes subject to the claims of the owner’s creditors – and the creditors enjoy a prior right to the funds ahead of surviving family members, even a spouse.

IRA providers will include default beneficiary designation clauses in their account agreements so that if the account owner fails to designate a beneficiary before death, or the designated beneficiary dies before the account owner, the balance in the account will still pass to a default beneficiary per the account agreement. But as the survey shows, you cannot assume who that beneficiary is, and there’s a nearly 1-in-3 chance the default beneficiary will be the owner’s estate.

I’ve seen too many cases where a retirement account or life insurance benefits passed to an unintended beneficiary, and it’s next to impossible to correct something like that after the owner’s death.

One of the homework assignments I give to all of my planning clients is to verify all of their beneficiary designations on each of their retirement accounts and life insurance policies. It is very common for clients to come back to my office having discovered that they missed a beneficiary designation or one or more were out-of-date. At least they have a chance to correct them.

So, don’t leave it to chance. Do your homework and make sure your beneficiary designations are up to date.

December 31 Deadline Approaches For Mandatory Distributions From IRAs.

The December 31 deadline for taking required minimum distributions (RMDs) from individual retirement accounts is approaching.  One either takes the mandatory RMD from their IRA by year end or suffers the 50% excess accumulations penalty (plus interest!) on any required withdrawals that aren’t taken.

Generally, an IRA owner who is at least age 70½ must take an RMD from an IRA by December 31, 2014, with one exception. If the IRA owner happened to reach age 70½ in 2014, he can delay taking the 2014 RMD until April 1, 2015. But remember, if the distribution is delayed to next year, the IRA owner will have to take two distributions in 2015. (For those with substantial taxable income, delaying the 2014 distribution may have a significant impact on their income taxes for 2015, so proper planning is a must.)

So, who has to take an RMD from an IRA before year end? Let’s take a look at some of the more common situations:

If the owner of a traditional IRA is at least age 70½ by December 31, he must take a distribution. (But, if he did reach age 70½ this year, he can delay taking this year’s RMD until April 1, 2015.) (Roth IRA owners do not have to take RMDs – a prime benefit of a Roth IRA.)

For a non-spouse beneficiary of a traditional IRA, an RMD must be taken by year end – regardless of her age – if the account owner died before 2014.

For the surviving spouse who is the sole beneficiary of a traditional IRA, an RMD must be taken in 2014 if the deceased account owner would have reached age 70½ this year. If the account owner died in 2014 and he was age 70½ or older, the spouse beneficiary will have to take an RMD in 2015, the year after the account owner’s death.

If a taxpayer is under age 59½ and has set up a §72(t) distribution plan (“Series of Substantially Equal Periodic Payments”) from her IRA, she must take her full distribution by year end.

If an IRA owner died after April 1, 2014, and he was at least age 70½ at the time of death, he will have an RMD for 2014. The RMD must be taken by the account beneficiary if a beneficiary was designated. If no beneficiary was designated, the RMD is payable to the IRA owner’s estate.

We have focused only on traditional IRA accounts in this post. Special rules apply with regard to RMDs from multiple IRA accounts, and RMDs from other types of retirement accounts such as 401(k) and 403(b) accounts, which simply cannot be addressed here in a single post.

The rules governing required minimum distributions from IRAs and other retirement accounts are many, complex, and tricky.  If you are not sure whether you must take an RMD from an IRA or other type of retirement account this year, or how much to take out if you do, please consult with your tax advisor, or give me a call. I can help.

2015 Retirement Plan Contribution Limits Released.

The US Treasury Department recently announced its inflation adjusted amounts for retirement account contributions for 2015. Among the details:

IRAs: The limit on annual contributions remains $5,500 (no change for the third year in a row).

401(k)s: For employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, the annual contribution limit is bumped up to $18,000 for 2015. The catch-up contribution limit for employees aged 50 and over who participate in such plans is increased from $5,500 to $6,000.

SIMPLE IRAs: The contribution limit on SIMPLE retirement accounts for 2015 is raised to $12,500, a $500 increase from 2014.

Defined Benefit (Pension) Plans: The limitation on the annual benefit remains unchanged at $210,000 for 2015.

Roth IRA Phase Outs: The 2015 adjusted gross income (AGI) phase-out range for those contributing to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, a modest increase from 2014. And for singles and heads of households, the income phase-out range is raised to $116,000 to $131,000.

For more information, please read: Ashlea Ebeling, IRS Announces 2015 Retirement Plan Contribution Limits for 401(k)s and More, Forbes, Oct. 23, 2014.