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Retirement Seen Through Your Eyes

Marc Aarons — Tue, 30 May 2023 17:24:39 +0000

Retirement Seen Through Your Eyes

Presented by Marc Aarons

How do you picture your future? Some see retirement as a time to start a new career. Others see it as a time to travel. Still others plan to spend more time with family and friends. With that in mind, here are some things to consider.

What do you absolutely need to accomplish? If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to pursuing them.

What would revitalize you? Some people retire with no particular goals at all. After weeks or months of respite, ambition may return. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow … and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones.

Who should you share your time with? Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family.” Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family.

How much do you anticipate spending? We can’t control all retirement expenses, but we can manage some of them. The thought of downsizing your home may have crossed your mind. One benefit of downsizing is that it can potentially lead to no mortgage or a more manageable mortgage payment.

Could you leave a legacy? Many of us would like to give our kids or grandkids a good start in life, but leaving an inheritance can be trickier than many realize. Tax laws are constantly changing, and the strategies that worked years ago may have more limited benefits today.

Keep in mind this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax or legal professional before modifying any part of your overall estate strategy.

How are you preparing for retirement? This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing strategy in light of recent changes in your life, conferring with a financial professional experienced in retirement approaches may offer some guidance.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanager.com

www.ocmoneymanagers.com

MMI Disclosure: The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

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Could Custodial IRAs Help Young Adults Buy Homes?

Marc Aarons — Wed, 15 Sep 2021 14:43:41 +0000

Some parents and grandparents have that possibility in mind.

Provided by Marc Aarons

Individual Retirement Arrangements (IRAs) are for retirement saving, right? Absolutely. Is that their only purpose? Not necessarily.

Imagine using an IRA not only to save, but to facilitate a home purchase. This would obviously be a tall order for an adult, given current home values, yearly IRA contribution limits, and the priority of amassing retirement savings. How about for a child, though? Could an IRA help them out?

This thought has led some families to open custodial Roth IRAs. You can start a Roth IRA on behalf of a child, as long as that child has “earned income” (that is, income from either a W-2 job or some kind of self-employment). The IRA belongs to the child, but until the child becomes an adult, you (or some other adult) act as the IRA’s custodian.^1,2

The annual contribution limit on that Roth IRA is $6,000 (this limit may be adjusted up in future years due to inflation). Say your kid has made $4,000 from freelance web design, or serving up lattes at the local coffeehouse … or working at your business. All $4,000 could go into that IRA. That might not be the case, but whatever the amount, it may benefit from potential compounding over the next several years.³

You might want to consider this possible use for a Roth IRA.

What about taxes that come with taking the money out? After-tax dollars go into Roth IRAs, and if the account is at least five years old, up to $10,000 of the account balance (including earnings) may be withdrawn without being taxed, as long as the withdrawn amount is used for a home purchase and the IRA owner has not bought a home in the past two years. In doing this, you can even avoid the 10% tax penalty that normally comes when you take assets out of a Roth IRA before age 59½.^1,4

Plans may change, though. When a child turns 18 (or 21, in some states), a custodial IRA started on his or her behalf is no longer custodial. He or she is now the legal owner of that IRA. At that time, will the idea of using those IRA funds to buy real estate in the future seem worthwhile? Maybe, maybe not.⁵

That young adult may just elect to keep contributing to the Roth IRA and use it as a retirement savings account. Or maybe the IRA is suddenly drained to enable the purchase of a new truck, or to fund a year abroad, or to pay for college. Choices will emerge, and parents and grandparents must be mindful of them. There is also the fact that when you withdraw assets from a tax-advantaged account, you are reducing not only the account balance, but also the account’s potential degree of compounding for the future. These factors must be considered if you embrace this idea.

Remember that a Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 1⁄2 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. Also, tax rules are constantly changing, and there is no guarantee that the tax treatment of Roth (or traditional) IRAs will remain the same.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

^{NerdWallet, June 11, 2021}
^{Forbes, July 25, 2021}
^{Internal Revenue Service, August 20, 2021}
^{U.S. News, June 16, 2021}
^{Business Insider, December 21, 2020}

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Ways to Fund Special Needs Trusts

Marc Aarons — Wed, 07 Jul 2021 14:00:32 +0000

A look at the different choices & strategies.

Provided by Marc Aarons

If you have a child with special needs, a trust may be a financial priority. There are many crucial goods and services that Medicaid and Supplemental Security Income might not pay for, and a special needs trust may be used to address those financial challenges. Most importantly, a special needs trust may help provide for your disabled child in case you’re no longer able to care for them.

Remember, using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

In preparing for a special needs trust, one of the most pressing questions is: when it comes to funding the trust, what are the choices?

There are four basic ways to build up a third-party special needs trust. One method is simply to pour in personal assets, perhaps from immediate or extended family members. Another possibility is to fund the trust with life insurance. Proceeds from a settlement or lawsuit can also serve as the core of the trust assets. Lastly, an inheritance can provide the financial footing to start and fund this kind of trust.

Families choosing the personal asset route may put a few thousand dollars of cash or other assets into the trust to start, with the intention that the initial investment will be augmented by later contributions from grandparents, siblings, or other relatives. Those subsequent contributions can be willed to the trust, or the trust may be named as a beneficiary of a retirement or investment account.^1,2,3

When life insurance is used, the trustor makes the trust the beneficiary of the policy. When the trustor dies, the policy’s death benefit is left to the trust.^1,2,4

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

A lump-sum settlement or inheritance can be invested while within the trust. With a worthy trustee in place, there is less likelihood of mismanagement, and funds may come out of the trust to support the beneficiary in a measured way that does not risk threatening government benefits.

Care must be taken not only in the setup of a special needs trust, but in the management of it as well. This should be a team effort. The family members involved should seek out legal and financial professionals who are well versed in this field, and the resulting trust should be a product of close collaboration.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^Citations

^{WSJ.com, June 3, 2021}
^{SpecialNeedsAnswers.com April 12, 2021}
^{SpecialNeedsAnswers.com July 3, 2019}

^{4. SpecialNeedsAnswers.com October 2, 2019}

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FAFSA Simplification Act

Marc Aarons — Wed, 16 Jun 2021 20:43:21 +0000

Learn about how legislative changes can help you finance your loved one’s education.

Provided by Marc Aarons

As a parent or grandparent, you know firsthand the challenges of funding a child’s education. The Free Application for Federal Student Aid (FAFSA) Act was passed at the end of 2020 and has changed some of the qualifications for students to receive financial aid.

These changes will affect those applying for financial aid for the 2023-2024 school year. You’ll notice these changes on October 1, 2022, which is when the FAFSA opens for the 2023-2024 school year.

529 plans from grandparents are no longer counted as cash against financial aid. One of the most confusing parts of the FAFSA process was how to account for cash funding. While the FAFSA doesn’t require 529 accounts owned by grandparents to be disclosed, families are required to disclose cash support that the student receives. This cash support may then include money from a 529 account. If students received money from these accounts, the student was still expected to disclose these disbursements as cash, and very often, financial aid needs and options were reduced.¹

Parent-owned 529 plans are automatically factored into the FAFSA when a dependent files, and are only evaluated for up to 5.64% available for college use (no more than any other non-qualified asset).

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. State tax treatment of 529 plans is only one factor to consider prior to committing to a savings plan. Also, consider the fees and expenses associated with the particular plan. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary. State tax laws may be different from federal tax laws. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.

A simplified questionnaire. The FAFSA has been greatly reduced in size, from 108 demographic, educational, and identification questions to a maximum of 36 questions. Part of the restructuring was aimed at clearing up confusion as to who is and is not a dependent student, and what type of assets need to be included.^2,3

Student Aid Indicator (SAI) calculation changes. Part of the questionnaire changes were due to changes made to the calculations for financial aid. The Student Aid Indicator (SAI) is the math behind the scenes that determines what types of funding and how much a student is eligible for. Keep in mind that these calculations are still complicated, but that overall, eligibility for financial aid has been broadened.⁴

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

^{ColumbiaThreadneedleUS.com, May 7, 2021}
^{Help.Senate.gov, 2021}
^{NerdWallet.com, January 25, 2021}
^{AACRAO.org, April 16, 2021}

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How COVID-19 Caused a “She-Cession”

Marc Aarons — Wed, 19 May 2021 15:44:23 +0000

Several women-dominated industries were hit hardest by the pandemic.

Provided by Marc Aarons

Since the 1980s, unemployment rates have trended higher amongst men than women during a recession. In previous periods of economic downturn, this made sense. Male-dominated industries, like construction and finance, were typically some of the most impacted by a recession.¹

But with the onset of COVID-19, we’ve seen a shift in what workforces are the most impacted. The unemployment rate among women more than quadrupled from 4.4% in March 2020 to 16.1% in April 2020. That’s a 2.5% higher rate of unemployment in women than men.¹

There are a few reasons why this past year’s economic downturn is being called a “she-cession.”

Several women-dominated industries, including hospitality and leisure and entry-level food positions, were hit hardest by the pandemic. And when schools, nurseries, and daycares shut down, parents scrambled to cover. This increased need for full-time childcare meant many working mothers adjusted their professional roles to accommodate.

While the government offered several short-term assistance options to help those affected by the pandemic, there are long-term, compounding financial hardships that should be addressed by a professional. If you’ve experienced financial strain due to the long-lasting effects of COVID-19, do not hesitate to reach out. I’m here to help get your financial goals back on track.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^Citations

^{Federal Reserve Bank of St. Louis, 2020}

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Managing Money as a Couple

Marc Aarons — Mon, 02 Nov 2020 20:30:35 +0000

What are the keys to prepare to grow wealthy together?

Provided by Marc Aarons

When you marry or simply share a household with someone, your financial life changes—and your approach to managing your money may change as well. The good news is that it is usually not so difficult.

At some point, you will have to ask yourselves some money questions—questions that pertain not only to your shared finances but also to your individual finances. Waiting too long to ask (or answer) those questions might carry a price. In the 2019 TD Bank Love & Money survey of consumers who said they were in relationships, 40% of younger couples described having weekly arguments about their finances.¹

First off, how will you set priorities? One of your first priorities should be simply setting aside money that may help you build an emergency fund. But there are other questions to ask. Should you open joint accounts? Should you jointly title assets?

How much will you spend & save? Budgeting can help you arrive at your answer. A simple budget, an elaborate budget, or any attempt at a budget can prove more informative than none at all. A thorough, line-item budget may seem a little over the top, but what you learn from it may be truly eye-opening.

How often will you check up on your financial progress? When finances affect two people rather than one, credit card statements and bank balances become more important. Checking in on these details once a month (or at least once a quarter) can keep you both informed, so that neither one of you have misconceptions about household finances or assets. Arguments can start when money misunderstandings are upended by reality.

What degree of independence do you want to maintain? Do you want to keep some money separate? Some spouses need individual financial “space” of their own. There is nothing wrong with this approach.

Can you be businesslike about your finances? Spouses who are inattentive or nonchalant about financial matters may encounter more financial trouble than they anticipate. So, watch where your money goes, and think about ways to pay yourselves first rather than your creditors. Set shared short-term, medium-term, and long-term objectives, and strive to attain them.

Communication is key to all this. Watching your progress together may well have benefits beyond the financial, so a regular conversation should be a goal.¹

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^Citations

^{newscenter.td.com, October 2, 2019}

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Year-End Estate Strategies

Marc Aarons — Wed, 30 Sep 2020 17:58:53 +0000

What you need to know to get ready for the end of the year.

Provided by Marc Aarons

With one year ending and a new one on the cusp of starting, many people will consider their resolutions—not their estate strategy. But the end of the year is a great time to sit down and review your preparations, especially when you’re spending more time with your loved ones;

even more important if you have a complicated estate that may need to get managed after you’re gone.

Call a family meeting. Many people don’t let their family know their wishes or who is appointed to handle the estate. While two-thirds of Americans say that the pandemic has brought them closer to their family, only 28% of those 65 and older have started discussing their estate strategy with their families.^1,2

You may be able to get ahead of any potential family issues down the line by discussing your wishes, what needs to be handled by your estate, and reviewing what you have in place. No one wants to think about their family members passing away, but an awkward conversation now may mitigate future problems.

Get organized. Ensure that your documents are up to date and remain aligned with your wishes. Two things to consider are a financial power of attorney and a power of attorney for your healthcare needs. Both can play a role should you become too ill to make decisions.^2,3

Also, consider adding “Transfer on Death” or “Pay on Death” to ensure that your spouse or surviving relatives can have access to your accounts.^2,3

Be flexible. Tax law changes adjust and change over time. For example, the SECURE Act, which went into effect at the end of 2019, did away with “stretch IRAs.” The change forced some to consider a new approach to that portion of their estate. Your estate strategy should be flexible enough to adjust to whatever happens.⁴

As you talk about your estate with your family and set your preparations in motion, the end of the year is a great time to connect with your financial professional, tax attorney, and estate attorney.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^Citations

^{News.BloombergTax.com, August 21, 2020}
^{NYTimes.com, September 6, 2020}
^{Kiplinger.com, June 16, 2020}
^{CNBC.com, June 30, 2020}

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