NAPFA Conference

Last year, I joined the National Association of Personal Financial Advisors (NAPFA).  It is the country’s leading professional association of fee only financial advisors.  It requires substantial continuing education as well as adherence to a Code of Ethics and a yearly attestation to a Fiduciary Oath. It has been a tremendous resource for our entire Firm.  When they announced their National Conference was going to be in our backyard (Bellevue), I didn’t think I could pass it up.

The first day was dedicated to investor behavior.  We had professors from Kansas state and the University of Georgia run a workshop on how our behavior can get in the way of making good money decisions.  It was no surprise to me that they listed money as the number one stressor in America since 2007.  Felt good to know that the number one way to cope with that stress is to create a plan and number two is to implement it.

I had a great educational session on College planning and the benefits of deeply integrating tax planning with your investment management.  While neither of these topics are new by any means, it is always beneficial to sharpen the mental saw and stay on top of new developments.  There was also an excellent session on cyber-security.  We are planning on adapting it to a classroom session we intend to offer to clients and post on our website.

My favorite key note speaker was Vivek Wadhwa.  His talk centered on how America is re-inventing itself through innovation.  He spent time talking about the concept of exponential growth.  It is hard to think of things getting twice as good at the same time that they get half as expensive, but the examples are numerous – from computer memory to cell phones.  A very exciting look at the future with implications in the investment world as well as the economy in general.

I also like to take these opportunities to deepen my peer group.  By sharing ideas, we not only have the ability to have better outcomes for our clients, but we also have the ability to help advance the whole industry.   I was certainly not disappointed.  It is refreshing to see so many folks committed and truly passionate about offering fiduciary financial advice.  People committed to not just disclosing conflicts of interest, but doing everything they can to avoid them.  I had some great conversations on different tools and techniques to keep Leonard Rickey Investment Advisors at the forefront of the financial planning community.

For more information about criteria for NAPFA membership, please visit NAPFA.org

Where Your Durable Power of Attorney Won’t Work

You’ve seen a qualified attorney and drafted up a Durable Power of Attorney so your loved ones can act on your behalf if you become incapacitated or disabled. You think everything’s set. But is it? A DPOA is a widely recognized and useful legal document, but it may not work in every situation.

Social Security Administration:

The SSA does not recognize DPOAs. Instead, it has its own classification called “Representative Payees”, who are responsible for managing and spending the beneficiaries Social Security payments.

Needing to become a representative payee may seem daunting but the process is relatively simple. You must be interviewed face-to-face at a nearby Social Security office and then complete a form. To learn more, visit www.SocialSecurity.gov/payee/index.htm  or call 800-772-1213.

Internal Revenue Service

The IRS will accept a durable power of attorney when the document authorizes the named decision-maker to handle tax matters. But, the authorized agent will be required to execute IRS Form 2848 and file an affidavit before being recognized by the IRS. Luckily, the affidavit needs to be only a couple of sentences. To learn more, see IRS Publication 947, which you can get online at http://www.irs.gov/pub/irs-pdf/p947.pdf or call 800.829.1040.

Banks and Financial Institutions:

While your bank should accept a DPOA, many have rules about how recently the DPOA needs to have been drafted. For example, many will not accept a DPOA that is more than 2 years old. You may need to call each bank or financial institution to get their exact requirements.

 

Please Note: The information being provided is strictly as a courtesy.  When you link to any of the web sites provided here, we make no representation as to the completeness or accuracy of information provided at these web sites.  Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site.  When you access one of these web sites you assume total responsibility and risk for your use of the web sites your are linking to.  The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investments may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   Investment Advice offered through Leonard Rickey Investment Advisors, PLLC (LRIA), a Registered Investment Advisor. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LRIA is not an affiliate of and makes no representation with respect to such entity. Past performance is no guarantee of future results.

Income in Retirement – Can it affect your Social Security Benefits?

These days, returning to work after retiring is a common trend. Whether you’re looking for an additional income stream to ease your finances into full retirement, or maybe you’re wanting to purse that dream career. Whatever your reason for re-entering the workforce, your Social Security, health insurance, and tax situation may be affected. Here’s some guidance on frequently asked questions:

Will my Social Security benefits be reduced if I return to work?

It depends on your age. For benefit purposes, the Social Security Administration (SSA) defines your full retirement age (FRA) between 66 and 67 for people born in 1943 or later. If you haven’t reached this FRA milestone yet, your benefits could be reduced. Consider this example:

*If you go back to work before reaching your FRA, every $2 you earn above the annual limit (currently $15,720 in 2015) will reduce your social security benefit by $1.

EXAMPLE: You are 63 and currently receive $14,000 per year in social security benefits. You return to work and earn $30,000 in salary. Because you are $14,280 over the annual limit, your benefit will be reduced by $7,140.

*If you go back to work the year you reach your FRA, benefits will be reduced by $1 for every $3 you earn above a higher annual limit (currently $41,880 in 2015) but only counting earnings before the month you reach your FRA.

EXAMPLE: You work all year and reach FRA in June. From January to May 31st you earn $30,000. Because your earnings are under the limit, your benefits for the year are unaffected

EXAMPLE: You work all year and reach FRA in June. From January to May 31st you earn $60,000. This places you $18,120 over the limit, which will reduce your benefit by $6,040.

*Starting the month you hit FRA, your benefits will not be reduced no matter how much you earn

Can I pay back Social Security benefits I’ve already received and restart them later at a higher amount?

If you’re returning to work after a period of retirement, you may have already started receiving benefits at an early rate. The option to pay back the benefits you’ve received in order to get a higher benefit down the road is only available in the first year.

For example, if you elected to receive early benefits at age 62 and are now 63, you could stop receiving your benefits, pay back the one year’s worth of benefits you received, and then wait until you are older to restart your benefits at a higher level. There are no fees to do this and you do not have pay any interest on the benefits you already received.

Whether it makes sense to take advantage of this strategy will depend on a number of factors including your age and tax situation so you may want to enlist the help of a CPA or other professional to help you crunch the numbers.

Will I still need to take required minimum distributions from my IRA or 401(K) if I go back to work?

Returning to work does not change the rules for taking your required minimum distributions (RMDs) on Traditional IRAs starting at age 70 ½.

Rules for 401(k)s and other qualified employer plans, however, are different. If you work past age 70 ½ and do not own more than 5% of the business you work for, you may be able to postpone RMDs from your current employer’s plan until no later than April 1st of the year after you retire. You should check with your plan administrator for specifics.

Will my Social Security benefits be taxable if I return to work?

Returning to work may make your Social Security benefits taxable depending on your modified adjusted gross income (MAGI). As this amount increases, a greater percentage of your benefits become subject to income tax, up to a maximum of 85%. Currently, your benefits will begin to be taxable if your MAGI is above $32,000 for married filing jointly individuals and $25,000 for single filers.

What financial issues should I consider if I return to work?

Ultimately, returning to work is a very personal decision. Going back to work may bring more income, but it may also involve new expenses such as work attire, childcare, transportation, etc. Before you dive in, it’s wise to crunch the numbers and do some “what-if” planning. Don’t hesitate to reach out to us to help deal with any questions you may have.

 

The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investments may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   Investment Advice offered through Leonard Rickey Investment Advisors, PLLC (LRIA), a Registered Investment Advisor. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LRIA is not an affiliate of and makes no representation with respect to such entity. Past performance is no guarantee of future results.

Don’t Destroy Your Rollover

When a person has company stock inside of their retirement plan that has significant appreciation, they need to understand the effect of Net Unrealized Appreciation. Simply put, Net Unrealized Appreciation, or NUA, is the difference between the basis, or what you paid for it, and the market value of those shares held in a tax deferred account. Net Unrealized Appreciation is really important because the gain inside of a tax deferred retirement plan like a 401k is not subject to ordinary income tax so when you leave your employer you need to think very carefully before rolling over the account. It may be better just to transfer those shares out in the form of certificates to an after tax account. That gain will not be taxed until those shares are sold. And if you hold those shares long enough they could be taxed at capital gains rates which are usually going to result in significantly lower taxes. There are additional considerations and pitfalls that you should consider before pursuing this strategy so we really recommend that you speak with a qualified advisor and tax preparer as soon as possible.