New IRS Changes for Retirement Plans in 2019

Growth in 2019

 

The IRS announced last month in November cost-of-living adjustments to limits on contributions to retirement plans for 2019. There hasn’t been an increase in some plan types since 2013, which is why now is a great time to take advantage of maximizing retirement contributions. According to a 2017 FINRA study,  10% of American retirement savers are contributing the maximum allowed. Are you?

Here’s the breakdown of the 2019 IRS changes for retirement plans:

  • 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan will rise to $19,000 next year, up from $18,500 in 2018.
  • IRA contributions (Pre-Tax, Roth, or a combo) rose to $6,000 from $5,500, the limit that has been in place since 2013.
  • Catch-up contribution limits if you’re 50 or older in 2019 remains unchanged at $6,000 for workplace plans and $1,000 for IRAs.
  • SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019, based on the amount they can contribute as an employer, as a percentage of their salary. The compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.
  • SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000.
  • Defined Benefit Plans goes up from $220,000 in 2018 to $225,000 in 2019. 
  • Deductible IRA Phase-Outs for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019.
  • Roth IRA Phase-Outs for taxpayers making Roth IRA contributions is $193,000 to $203,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $122,000 to $137,000.

If you aren’t contributing the maximum into these types of retirement accounts, you can increase what you’re contributing overall. If you have questions about these increases or want meet regarding your overall saving and investing, now is the time to plan for 2019.

 

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*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Qualified Longevity Annuity Contracts: Making Your Money Last

Qualified Longevity Annuity Contracts

 

Among the primary concerns people have as they approach retirement is, “How long will I live and will my money last?” In addition to traditional retirement savings such as employer-sponsored retirement plans, there’s now another type of retirement account that guarantees you won’t go broke during retirement. Qualified Longevity Annuity Contracts (QLACs) allow you to invest 25% or $130,000 (whichever is less) from your IRA or 401k into this type of annuity. QLACs are different from more traditional types of annuities.

Currently, 3% of large U.S. companies offer QLACs as part of their 401k plans. These companies see QLACs as a good option for retirees to access money after their pre-tax assets are depleted because of the guaranteed income stream they provide and the ‘late in life’ required minimum distribution (RMD) requirement.

Some retirement planners refer to QLACs as a ‘personal pension plan’ because when the annuitant starts distributions, they are guaranteed the payments for the rest of their life. QLACs are used as part of a retirement portfolio strategy because of these unique features:

  • Payments can begin anytime between ages 70 ½ and 85 (The RMD age is 85).
  • QLACs can be funded from a qualified retirement plan, Traditional IRA or Roth IRA, or with after-tax dollars.
  • Originally designed by the Internal Revenue Service, the QLAC must meet certain requirements for it to be a QLAC.
  • QLACs are not issued by every insurance company and not every annuity can be used as a QLAC.
  • QLACs can be ‘layered’ and funded during an individual’s working years for use in retirement.
  • Since QLACs are issued by an insurance company, buyers must be aware of the financial stability of the issuer. For this reason, buying QLACs from multiple companies should be considered if part of a retirement strategy.
  • Distributions are taxed at an individual’s regular tax rate.
  • Most QLACs offer an inflation rider, which increases payments as the cost-of-living (COLA) is adjusted by the IRS at the same time Social Security payments are increased.

QLACs are a way to guarantee an income stream in retirement that you can’t outlive. If you’re interested in finding out more or which companies issue annuities that meet the IRS’s QLAC requirements, contact me for additional information.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Safeguarding Your Personal Information Online and Offline

Safeguard Your Information

Here in the U.S., our personal information is exposed daily at frequencies and levels we’ve not experienced before. It doesn’t take a data breach from a technology company to expose us, we are doing it to ourselves without being aware. Each time we use technology (Facebook, Instagram, online exposure) our personal information is gathered by companies and used to market to us or sold to other interested parties for the same purpose.

Earlier this year the State of California passed legislation to limit what technology companies gather from internet users, but only when they have the user’s consent. Although this has more to do with online activities such as social media, shopping or opting in to receive something ‘free,’ people need to realize their exposure to risk when they participate online.

Europe has personal privacy data laws it strictly enforces, but the U.S. currently doesn’t have federal laws to protect an individual’s personal information from being exposed by their own internet activity. What can you do to protect yourself both online and offline?

  1. Don’t provide information about yourself on your social media profiles. This includes contact information, your birthdate, where you went to school, or who your relatives and children are, for example. Keep your profiles secured and not public. Unfortunately, the only true way to eliminate your social media profile information from being compromised is to not have a profile or participate in social media.
  2. Don’t provide information for ‘free downloads’ from websites, unless you know or do business with the company asking you to provide your information. The information they request is usually your email address for delivery of the free information.
  3. Routinely change your online passwords and keep them in a secure place (if you write them down). Eliminate online security issues by typing website addresses into your browser each time and don’t use the same password for multiple accounts.
  4. Destroy your personal documents yourself or have a business destroy the documents in front of you. If you leave your documents in the hands of someone else, you have no guarantee your information won’t be shared.
  5. Keep your financial information in one place, preferably locked up and secured. Keep only year-end information, original policies and contracts along with updates. Keeping a ‘paper trail’ exposes your information and isn’t necessary since financial companies you do business with can provide you with the information you may need.

We don’t always think about protecting our personal identifying information or our important documents until something happens. One of our greatest losses can be prevented by thinking through how we can protect our personal information.  Everything from life insurance policies, birth certificates, social security cards, passports, home and car titles, and even photos should be protected in addition to what is virtually available about us on the internet. 

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Do You Understand Your Employee Benefits?

Employee Benefits

As we approach the end of 2018, many employers are scheduling their benefits meeting requiring you to select yours before the end of the year. Not all benefit options are the same and understand each is crucial to making an informed decision. Ask your HR department or the advisor or agent representing the benefit what you don’t understand or ask them to provide you additional information prior to the benefits selection deadline. Many insurance and health benefits don’t allow you to change them once selected. However, employer-sponsored retirement plans allow you to select different funds, rebalance and change payroll contributions at any time per federal law.

Retirement Plan Options & Employer Match

You may have multiple choices of providers or funds available for you to choose from. Not all employer retirement plan providers provide assistance on fund selection or on-going advice. We can help you with the following:

  • Determining how the retirement plan fund options fit your risk profile
  • Including your company retirement plan assets in your financial plan
  • Monitoring the fund options and offer guidance on rebalancing
  • Rolling over your former employers plan into an IRA

Employer-Sponsored Life Insurance

Life insurance is the most inexpensive way to add protection to your family and your assets if you die. Employer life insurance plans ‘group’ you with other employees to reduce the cost of the insurance. Many times there is a need for additional life insurance outside of their employer plan since the death benefit is usually limited and based on your income.

Questions to ask:

  • Is this life insurance portable if I leave?
  • Will I still be insured after age 65 (some plans drop you after this age) if I’m still employed?
  • Can I add more insurance or am I committed to a certain death benefit amount?
  • Can I insure other members of my family?

Note that death can cause the early liquidation of assets if there isn’t adequate life insurance.

Employer-Sponsored Disability Insurance

Not being able to work due to injury can quickly deplete financial assets. Disability insurance replaces lost income from a short-term injury or disability or a permanent disability. Social Security Disability benefits won’t replace 100% of your income. Purchasing additional disability insurance coverage is a good idea if you’re in your prime earning years. Ask, so you understand:

  • Is disability insurance is underwritten based on my profession, age, and my possible risk of injury at work?
  • If I take Social Security Disability Benefits if I’m injured, is my Social Security Retirement Benefit reduced or eliminated in retirement?

Employer-Sponsored Health Insurance Solutions

Your company may provide you with health insurance choices that you are unable to modify. Ask your insurance provider:

  • Are there additional coverage choices for vision, dental, wellness, or indemnity insurance coverage based on my job role?
  • Can I customize a health insurance plan based on my specific needs?
  • Can I insure additional family members?

Part of asset protection is having insurance coverage in place so that you don’t have to prematurely liquidate personal savings, investment accounts or retirement accounts.

We are here to assist you in any way we can with the information you’re being provided regarding your employee benefits. Contact us today for a simple, no-cost conversation.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Your ‘To-Do’ List: Schedule a Fall Financial Review

Fall Financial Review

Scheduling a fall financial review is especially important this year due to the Tax and Jobs Act and impending market changes. We’ve been enjoying an overall robust stock market and seeing some recent volatility, which makes now a prime time to meet. Fall tends to be when people start thinking about next year and what they want to accomplish financially by reviewing the following:

Your Financial Plan

People with a written financial plan are more likely to follow it when they work with their advisor and monitor the plan’s recommendations throughout the year. If you don’t have one, it’s time to have one done now. Having a financial plan puts you in a better position to start on your plan immediately at the beginning of 2019. 

How the Tax and Jobs Act May Impact Your Investments

Along with your tax professional, I may suggest extra contributions to your pre-tax accounts before the end of this year or converting pre-tax investments to after-tax investments. With the income ranges for tax bracket changed for 2018, you still have time to make some strategic changes before the end of the year if you are on the upside of a higher tax bracket.  In addition, receiving a bonus at the end of the year can impact this if you’re trying to keep your taxable income lower and stay in the same tax bracket.

Planning for Next Year

Starting the New Year strong with a financial plan in place after a fall review puts you in a better position to start your plan immediately at the beginning of next year.  People with a written financial plan are more likely to follow the plan when they work with their advisor and can monitor recommendations throughout the year.

Reviewing This Year’s Investment Performance

Reviewing fund and stock performance over 2018 helps us assess what changes are necessary for next year in your portfolio.  At some time the bull market will come to an end, which is why planning for underperformance is critical. If your investments didn’t perform to your expectations it’s time we evaluate your portfolio.

Contact Us for a Portfolio Review

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

5 Questions Answered: Social Security Retirement Benefits

Social Security Benefits Q+A

  1. How is my social security calculated? Social Security is calculated using your 35 highest paid earnings years and then averaged using the benefits calculation formula.  You must have worked full time for at least 10 years to qualify for any social security retirement benefit.  Currently, full retirement benefits age is between age 66 and 67 (October 2018). More adjustments by the Social Security Administration for the full benefit payment age are anticipated affecting calculations for those born after 1967.  To see what your payment may be based on your age visit:  https://www.ssa.gov/benefits/retirement/
  2. Will Social Security Be There For Me? Social Security will pay promised benefits through 2033.  After that, it will pay about 75% of benefits.  Options to raise taxes to cover this shortage or to decrease benefits after 2035 are being discussed. American workers currently employed pay for those currently receiving benefits; benefits paid into Social Security are not ‘banked’ for an individual’s future use. 
  3. What is Social Security? A Retirement Plan? Social Security is considered insurance and was proposed by President Roosevelt and Congress and signed into law in 1935.  It was never intended to be enough to completely fund retirement for individuals but meant to supplement an individual’s retirement investments and savings.
  4. How do I file for Social Security Retirement Benefits? You can file by visiting an office, by calling (800) SSA-1213, or online at www.ssa.gov. You can file up to 4 months before you want payments to begin.
  5. Can My family receive benefits upon my death for certain situations? If you die your surviving spouse can be paid up to 100% of your payment if they are at least Full Retirement Age or receive a reduced amount as early as age 60.  An individual can be paid 75% of your benefits at any age if they are caring for your child under age 16.  Your unmarried child can be paid 75% of your benefits if they are under 18, under 19 and in high school or at any age if they were permanently disabled before age 22.  Your parent over age 62 can be paid your benefits if they were dependent upon you.

The continuation of Social Security Retirement benefits after 2033 continues to be a hot topic as the U.S. population ages and younger generations continue to decline in population. Fewer Social Security taxes paid into the Social Security system will continue to impact future payments. Individuals reaching full retirement age after 2035 may want to consider contributing more to their after-tax and pre-tax retirement accounts or purchasing a fixed annuity as a replacement for decreased or lost Social Security Retirement benefits. 

Learn More about Annuities…

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

The Great Wealth Transfer

Wealth Transfer

Over the next twenty years, there will be a wealth transfer that exceeds $30 trillion as the Baby Boomer generation passes the remainder of their wealth to the Millennials and subsequent generations.  The Baby Boomers (born 1946-1964) are considered the wealthiest generation, currently controlling 70% of all the disposable income in the United States.  Its imperative families develop a plan to transfer assets since the transfer of wealth is inevitable.  For most families, the transferring wealth was acquired during this lifetime and not inherited from the previous generation.  

When starting to plan for wealth transfer pre-retirees should prepare for their retirement first, healthcare costs second, and the remaining transferring assets last.  Although some individuals choose not to involve their family members that will become the beneficiaries of their assets, including qualified tax and legal professionals are important.  But don’t write off including your heirs in all aspects of wealth transfer planning if you’d like more than just one generation to benefit

Preparing your heirs to take over your estate eventually passing their remaining assets on to their beneficiaries is equally important.  Heirs that are unprepared in managing money, investments or seeking financial guidance from qualified professionals seldom have enough inheritance left over for their heirs.  Some families choose to ‘train’ heirs by teaching how to wisely invest so they can give some away through philanthropy.  Without financial education, frequent investment decision making and a purpose to preserve the inherited wealth, many estate transfers rarely survive.  The complexities of wealth preservation are not taught in school or other institutions and can only demonstrate through modeling, professional guidance, and the generation’s intention to pass their wealth forward.

If the generation set to inherit from the Baby Boomers does a good job preserving what they inherit, it’s possible it could easily provide financial benefits to others for the next thirty to forty years.  And that’s worth planning.

As financial advisors, we spend a lot of time preparing for building wealth, but not passing it on to subsequent generations.  If you would like guidance on The Great Wealth Transfer to your beneficiaries, we welcome a meeting with all of you.

Contact us today!

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Tariffs and Trade Wars: The Impact into Q3

Trade War

After months of verbal threats between the EU, China and the US, tariffs, and counter-tariffs started in July 2018, leaving American consumers and investors wondering how much of an impact it will have on them. Already three months into the trade war, consumers are not swaying from buying imports despite the increasing costs. In July, the US Trade Deficit increased to $50.1 billion, a 9.6 percent increase from the previous month while imports increased .9% to a record $261.2 billion, proving that Americans’ demand for imports remains strong. August’s data is expected to be out the first week of October and indications are it will be higher than the July’s. It’s notable that the EU and China exported the most goods into the US of any of the trade partners during this time.

What will the impact be as the tariffs continue? Increased costs of goods (including food, clothing and other necessities) may cause households to have the less discretionary cash to spend on other items considered non-essential, such as electronics, entertainment, automobiles or even events. If costs continue to rise, Americans may eventually choose to not spend on goods produced in the United States either.

The counter-tariffs imposed to hurt foreign buyers will impact American companies, farmers and workers, and eventually overall company profits as countries impose their tariffs on US goods. Many retirement savings accounts invest in US-based companies which may see decreased earnings and share values as tariffs apply to their products. Eventually, this could reflect in the account values of American investors. Retaliation has started from other countries by the US being left out of new trade agreements as the current administration considers pulling out of the World Trade Organization.

Despite the tariffs and trade war, it is positive that the American economy has remained strong throughout the latest quarter. Because we are in the early stages of the trade war economists are unable to predict how prices and portfolios will fare in the future.  The trade war landscape is changing day-by-day which is why now may be a good time to review your portfolio if you have concerns.

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Happy Retirement, LIBOR

LIBOR in London

 

There’s a number that is going away soon that has an impact on your life; it’s called LIBOR.  LIBOR (London Interbank Offered Rate) is used to determine the interest rates banks charge each other for overnight, one-month, three-month, six-month, and one-year loans. LIBOR is a substantial number because it decides, in part, the interest rate you will pay for loans, credit cards, and even your mortgage or refinance. Banks add their markup (another percentage) to LIBOR to calculate what to charge consumers. LIBOR has been the benchmark for banks throughout the world since 1969, but will be phased out worldwide by the end of 2021.

LIBOR seemed to work well until the financial crisis when inaccurate bank reporting to LIBOR made way for rate manipulation. Unlike a stock price which calculates on the buying and selling of the public, LIBOR compiles information from a bank’s observation or reporting of their daily rate, which is voluntary. By making up false information during the financial crisis, some banks profited illegally. For this reason, regulators worldwide are phasing out LIBOR.

In the United States, LIBOR is being replaced by SOFR (Secured Overnight Financing Rate), which is already approved for rate calculation. SOFR has compiled information back to 2014 and began publishing earlier this summer. SOFR uses the Federal Reserve’s fed funds rate and the yield on the ten-year Treasury note and others, using real data on the previous day’s trading on our currency.

Currently, traders in the United States have already started to see the LIBOR-SOFR rate as we transition toward LIBOR’s retirement.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Why it ‘Pays to Be Nice’ When Divorcing

Divorce is a common occurrence in the US, with 50% of all first marriages ending in divorce. According to the American Psychological Society, that is even higher for those marrying a second time. Marriages end for many reasons from infidelity, stress, personality changes, and financial. They are not only devastating to the children and extended family but devastating to your assets and ability to accumulate future assets. Divorce requires assets to be divided, attorneys to receive payments (on-going sometimes), and the divorcing couple soon finds themselves having to live on less to make ends meet. Studies find that the divorced spouses need more than a 30% increase in their income to maintain the same standard of living they had before divorcing.

When emotions come into play, divorces often turn into battles to take assets, leaving a financial battle scar on the other spouse. Divorce doesn’t have to be this way. Uncontested divorces cost hundreds of dollars, whereas divorces taking months or even years can end up costing thousands of dollars- usually paid from the settlement of assets. The cost of ending a marriage, having to live on less, decreased income (for those paying alimony or child support) from becoming a single-earner household can make divorce almost as destructive to your retirement savings as the Great Recession was. Aside from the above reasons, retirement assets are usually divided to ‘equalize’ the retirement savings of each spouse. 

When marriages are going well, couples participate together in financial planning, developing personal budgets, and savings and spending plans. The same should happen when anticipating a divorce, during divorce proceedings, and after the marriage ends. Financial advisors are in a position to discuss with both spouses (at the same meeting if amicable) the effects of fighting over assets, a plan to maintain retirement savings going forward, and keep the couple on track to retire as planned. If solutions can happen without fighting between attorneys, the couple stands to win by ‘playing nice,’ saving what they worked so hard to achieve before the marriage fell apart. The impending divorce now becomes ‘business,’ but understanding what you want and why can have positive financial outcomes for both parties.

Financial advisors can’t provide legal advice when it comes to divorce but can provide financial guidance regarding the liquidating of assets, effects on retirement accounts and future retirement savings, budgeting for a single-earner household, and other economic questions you may have. During this time joint investment accounts, personal investment accounts, and all financial records must be disclosed to the other party. Our office will remain impartial as we view each client as vital while we continue advising both of you.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

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