Focus - Year-End Reminders
is a busy month for many individuals as they try to get
certain transactions and tasks completed before the end
of the year. Unfortunately, retirement-plan related transactions
are often overlooked resulting in missed opportunities,
and in some cases excise tax being owed to the IRS. Update
your calendar and set reminders so as to avoid such excise
tax problems and take advantage of available opportunities
Required Minimum Distribution Amounts
who are at least age 70 ½ this year must withdraw required
minimum distribution (RMD) amounts from their traditional
IRAs and employer sponsored plans by December 31. For any
individual taking a first RMD amount as a result of
attaining age 70 ½ this year or as a result of retiring
from an employer that offers a 403(b), 457(b), 401(k) or
other qualified plan, the deadline is extended to April
1 of the next year.
who inherited retirement accounts before the beginning of
this year and are required to make withdrawals under the
life-expectancy method must
withdraw their RMD for this year by December 31.
to meet the withdrawal deadline will result in an excess
accumulation penalty of 50% of the RMD shortfall being owed
to the IRS. To prevent this from occurring, individuals
should contact their IRA custodians and plan administrators
to make arrangements to have the amounts withdrawn from
the retirement accounts by the applicable deadline.
individuals who want to convert their non-Roth IRAs and
qualified plan accounts to Roth IRAs must do so by
December 31. While a Roth conversion is a two step process
which involves (step-1) the
distribution of the assets from the non-Roth IRA or qualified
plan and (step
rollover as a Roth
deposit to the Roth IRA, only the first step is required
to be completed by December 31. Therefore, if the conversion
is being done from an account at one firm to an account
at another firm, the individual needs only to make sure
that the assets leave the delivering account by December
Roth conversion can be done as a direct conversion meaning
it is done directly between two accounts at the same financial
institution, or made payable to the receiving financial
institution for the benefit of the Roth IRA. It can also
be done as an indirect conversion where the assets are paid
to the individual and deposited to the Roth IRA within 60-days
of receipt. A word of caution though - if the assets are
distributed from a qualified plan-such as a 401(k) plan,
a 403(b) account or a 457(b) account and are paid to the
individual instead of being processed directly to the Roth
IRA, the payer will be required to withhold at least 20%
for federal tax (that 20% is treated as a distribution to
the individual). As a result, the individual will need to
make up for the withheld amount out of pocket in order to
convert the entire withdrawal amount, or convert only the
net amount received. It is therefore better to have the
Roth conversion done as a direct conversion as it results
in a 100% conversion and it requires no out of pocket make-up
for withheld amounts.
Don't Do a Reconversion before the eligibility date
you completed a Roth conversion earlier this year and recharacterized
any portion of the
the recharacterized amount cannot be reconverted until the
later of (1) January 1 of the year following the year in
which the conversion was done or (2) 30-days after the recharacterization
was completed. If you break this rule, the reconversion
will be invalid.
Separate Accounting for Inherited Accounts
there are multiple beneficiaries who inherited a retirement
account last year and the life-expectancy method is used
to determine distribution amounts, then separate accounts
must be established for each beneficiary by December 31
of this year. If this is not done, then the life expectancy
of the oldest beneficiary is used. This can create a disadvantage
for younger beneficiaries, as they would be required to
withdraw larger amounts than if they were able to use their
own life expectancies.
SEPP (72(t)) Amounts
who are taking distributions under a substantially equal
periodic payment (SEPP or 72(t)) program will need to ensure
that the required amount is distributed by the end of the
year. Unlike an RMD where the individual can withdraw more
than the RMD amount if desired, the SEPP distribution must
be no more and no less than the calculated amount.
Missing the deadline could mean that the entire SEPP program
is disqualified, resulting in retroactive penalties being
assessed on all distributions made prior to age 59 ½. In
addition, the individual may owe interest on the penalty
financial institutions establish deadlines by which these
requests must be received in order to guarantee that they
will be processed by the end of the year. In some cases,
these deadlines are as early as December 1. As such, individuals
should submit requests as early as possible and follow-up
to ensure that their requests are processed. Follow-ups
should be conducted no less than 1 week before year-end,
so as to allow some time for processing any requests that
may have been overlooked.
information on required minimum distributions from IRAs,
Roth conversions and separate accounting is available in
IRS Publication 590, available at www.irs.gov.
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of the Month
liquidated the assets in my IRA and withdrew the entire
balance in cash. I plan to use the cash to buy gold and
rollover the gold to my IRA within 60-days of the date that
I received the cash. My financial advisor does not think
that this can be done, but I have been told otherwise. What
is the correct answer?
financial advisor is correct. When doing an IRA to IRA rollover, the
same property distributed from one IRA is exactly what has
to be rolled over. Therefore, if you receive cash and rollover
gold, the rollover will be deemed an ineligible rollover.
As a result of the ineligible rollover, you will owe taxes
on any taxable portion of the distribution, and you will
be required to remove the rollover from your IRA as a return-of-excess
contribution. Should you fail to remove the ineligible rollover
by your tax filing deadline, including extensions, you will
owe the IRS a 6% excise tax for every year it remains in
the future, if you want to hold gold in your IRA, contact
your IRA custodian and have them purchase the gold within
the IRA - just
like you would if you wanted to buy mutual funds or stocks
in your IRA. .
Rulings and Other Updates
Rulings and Other Updates
IRS has announced the 2009 limits for retirement
plans. The following chart includes some
of these new limits.
catch-up contributions |
deferral to 401(k) and 403(b) plans |
contributions to 401(k) and 403(b) plans |
contributions to 457(b) plans |
deferral to SIMPLE IRAs |
deferral to SIMPLE 401(k)s |
contributions to SIMPLE IRAs |
contributions to SIMPLE 401(k)s |
contributions to an individual's account
under an employer sponsored plan |
compensation that can be used to compute
contributions to employer plans |
Charitable Distribution Extended
1424-The Emergency Economic Stabilization Act
of 2008 (EESA-2008), which was signed into law
on October 3, 2008, includes a provision to extend
the qualified charitable distribution (QCD) provision.
The QCD provision allows owners and beneficiaries
of traditional IRAs, Roth IRAs and certain SEPs
and SIMPLE IRAs to make tax free withdrawals that
can satisfy RMD requirements, if the amount is
paid directly from the IRA to an eligible charity.
The limit remains at $100,000 per person, per
Retirement Planning Tip:
your retirement over paying for college
is tempting to finance a child's education now
and worry about retirement later. But as many
baby boomers are now finding out, there is no
financial aid for retirement. Whereas college
students can get grants, if eligible, and student
loans which can be repaid when they leave college,
providing for retirement is solely the retiree's
responsibility. Consequently, if
the amounts they have saved in their retirement
nest egg, combined with
pension and social security income is insufficient
to cover their living expenses, retirees find
themselves facing some very serious financial
and other burdens in their retirement years. For
parents who can afford to pay for college and
save for retirement, this may not be an issue.
However for those who can't afford to do both,
it might be necessary, after serious consideration, to
make some difficult choices.
from Ed Slott's IRA Advisor Newsletter - November 2008 Issue
November 2008 issue of Ed Slott's IRA Advisor is
now available online. The areas covered include the following:
Market Turmoil into IRA Tax Breaks
The so-called Bailout Bill, known as the Emergency Economic
Stabilization Act (EESA) of 2008 contains some little-noticed
tax provisions, including the retroactive extension
of the IRA charitable rollover.
The market decline presents many other year-end planning
strategies that can be implemented to benefit your clients.
We highlight several of these including Roth IRA conversions
and recharacterizations, net unrealized appreciation (NUA),
required minimum distributions, 72(t) planning moves and
estate tax relief.
Take advantage of these opportunities to "bail out" your
clients, NOW, before year-end, when they need help the
IRA Rollovers are Back!
on Giving IRA Funds to Charity
the QCD Requirements
Decline Brings New Charitable Planning Challenges
of the Qualified Charitable Distribution Rules
Market Turmoil into IRA Tax Breaks
Roth IRA Strategies
Recharacterizations and Reconversions
Opportunities When Stock Values Decline
Stock Losses to Offset NUA Gains
RMD Relief for Lower IRA Values
Adjustment for Lower Values
Valuation Estate Tax Break
sure to review the November issue and post your questions
on our message board at http://www.irahelp.com/phpBB/index.php?area=,
where some of the leading experts in the retirement field
gather to discuss technical issues.
you do not already subscribe to Ed Slott's IRA Advisor Newsletter,
you may do so by clicking here and
providing the required information, or by calling 800-663-1340.
Each issue is 8 full pages of must-have tax information.
Individuals who subscribe to the online version of the Ed
Slott's IRA Advisor Newsletter, receive access to back issues
at no additional cost.
an "A" List Practice in a "D" List Economy
the current market and economy, fortunes will be made and
lost. We have dealt with upheavals larger than this in our
history, and during those times, some people failed, while
others - particularly those who were prepared and who prepared
their families - thrived!
the midst of all of the chaos, a rare opportunity exists
for you to prosper by retaining your "A" clients and receiving
introductions from them. In part, that is because
in markets like these, clients want action. They want
to do something - anything.
Some are selling. Smart investors are finding great
buys (i.e., Warren Buffett). And others are firing
their advisors to feel better. Studies conclude that
you will retain your "A" clients - and receive introductions
from them - if you build deeper client relationships that
go beyond the numbers. Deeper client relationships = client
loyalty, and they foster both more business
and more introductions
from those clients.
you are the advisor that helps them through this difficult
time, their loyalty to you will increase.
know how important it is to differentiate yourself from
our competition. Right now, no one is going to differentiate
themselves based on market performance. But you can
differentiate yourself based on client relationships and
helping your clients prepare and protect their families.
associate Perry Cochell and I have confirmed the results
of the relationships studies in over two decades of experience
working with clients at all income levels, from average
incomes to billion dollar estates. If you have a deep relationship
with a client, they will be loyal, bring you more business,
and introduce you to more people. Or, stated another
client relationships result in making more money working
with fewer people, and making a bigger difference in their
confirm the importance of relationship
1995, a Harvard study determined that 'satisfied' clients
defect. Only 'completely satisfied' clients are loyal.
In 2004, Russ Alan Prince surveyed clients and determined
that, on average, your clients have 8 core values.
If the client perceives you know all 8 of their core values,
they will entrust 100% of their assets with you and make
4.1 introductions. If they perceive you know 5 of
their core values, they will entrust 72% of their assets
with you and make 1.7 introductions. And, if they
perceive you only know 2 of their core values, they will
entrust 50% of their assets with you, but not make any introductions.
in 2005, a study by Allianz found that leaving a legacy
was far more important to clients than leaving an inheritance,
and that 77% of both "boomers" and their parents rated "values
and life lessons" as the most important legacy they could
receive or leave. Only 10% of boomers said that financial
assets or real estate were important as an inheritance.
concluded that money is a 'minor' component of legacy to
parents and their heirs. "Many
people wrongly assume that the most important issue among
families is money and wealth transfer -- it's not," said
Ken Dychtwald, a gerontologist, and designer of the survey.
"What we found was the memories, the stories, the values
were 10 times more important to people than the money."
many financial professionals approach the client's situation
from a purely financial perspective. "What is your net worth?"
"How much money do you want to pass on to your children?"
and "How should we plan to minimize your estate taxes?"
Are those questions important in the context of the services
the client needs? Of course. They always will
be important. However, context is everything in building
deep, meaningful relationships with clients, the kind that
can help them to achieve the success that they really want
for themselves and generations of their heirs. If
we have learned anything from studies and experience, it
is that planning for the future of the client's money is
not the same as planning for the future of their family.
And, when people define real success in the context
they want for their children, grandchildren and generations
to come, money is just about the last thing they mention.
receive and pass on two kinds of inheritance, not one.
The first, the financial inheritance, is the one with which
we are most familiar. It is the one around which advisors
have built their practices for centuries. But, the
studies tell us (as hard-earned experience tells those of
us who have been at this business for a few years) that
there is a second, more important inheritance that we also
receive and pass on. That is the emotional inheritance,
the sum total of the values, stories, life lessons, and
family traditions to which the Allianz study refers.
inheritances are different for every person, and unique
to every family, but, they can be discovered, shared and
folded into planning. We know that passing values
and life lessons to future generations is the key
to success for families who have kept their family and fortunes
together for generations. It has been the key for
out of 10 plans fail. They always have.
have probably seen or heard about the studies that conclude
that 90% of the time family fortunes are lost by the end
of the 3rd generation.
And, this is not new. Since ancient times, the majority
of inheritance plans have failed. Two thousand years ago
a Chinese scholar penned the adage: "fu
bu guo san dai," or "Wealth
never survives three generations." In thirteenth
century England they said "Clogs
to clogs in three generations," and
century America the expressions became "From
shirtsleeves to shirtsleeves in three generations." And,
over 200 years ago, Adam Smith - of "specialization and
division of labor" fame - summed it up in "The Wealth of
Nations" when he said: "Riches,
inspite of the most violent regulations of law to prevent
their dissipation, very seldom remain long in the same family."
Many cultures. Thousands of years of history. One
common tradition of failure.
raises the obvious questions:
90% of families fail to keep the family and its fortune
together for more than 3 generations, what do the other
10% do differently? And,
would it mean to your relationship with your clients (and
your practice) if you could help your clients be part
of the 10% who succeed?
difference for the 10% is not in
their financial or estate planning. The difference
is that they have a 3rd element
to their planning, described by Jay Hughes and others as heritage
planning. They prepare their family for their
inheritance. In our own situation, we studied what has worked
in successful families for centuries and put it into what
we call The Heritage Process™; a 6-step process that advisors
use to guide their clients through heritage planning.
This process allows them to build deep relationships (the
kind the experts talk about) with their clients, and provide
what they want most, which in turn increases the advisor's
client retention, increases the business they receive from
their existing clients, and increases the number of quality
introductions they receive from those
Heritage Planning Fits
the early 1980's, nearly all estate planning was done with
Wills. (Which by the way, had not changed substantially
in form or purpose since the year 1540, when King Henry
VIII of England codified estate planning and inheritance
custom into the system that would be used for nearly 400
years!) Trusts were generally believed to be
applicable only to very large and complicated estates.
In the mid-1980's, Bob Esperti and Renno Peterson formed
the National Network of Estate Planning Attorneys with a
goal to "Change how America Plans" to use Living Trusts
and avoid probates in even modest estates. When I
joined that group in the late 1980's, there were less than
90 members. Within 10 years, the Network had grown
to over 1,500 members, and Living Trusts were becoming the
norm in all estate plans.
with the increasing recognition of the importance of better
relationships between advisor and client, and bolstered
by numerous studies and practical experience validating
the 90% inheritance failure rate, it is clear that there
are not 2, but 3 elements to successful planning:
which prepares and protects the assets for the client;
prepares the assets for the client's family; and
prepares the client's family to receive their inheritance.
are vital to successful planning. You and your clients
have probably done a great job of financial and estate planning.
But, have you helped your clients prepare their families
for the inheritance they will receive as a result of the
financial and estate planning you have done?
is a wonderful idea for a client conversation. Ask
them, "if you could look 50 years into the future and see
a gathering of your family, what would you like to see going
on, and what would you like to hear them talking about?"
Most people know what they would like to
see: healthy, independent, successful individuals for whom
family unity and a common vision are paramount values. (As
you can imagine, it's also easy for them to envision what
they wouldn't want
to see-family strife, individuals struggling with divorce,
addiction, business failure, etc.)
they have answered the question, ask, "So, where in the
planning documents that you have done to date have you made
provisions for those outcomes?" Expect a moment of
silence. The fact is, most people (90%, according
to the studies!) have made no such provision as part of
their planning. I would argue, therefore, that the better
you are at financial and estate planning, the more important
it is that you help prepare your client's inheritors for
the inheritance they will receive. As the Allianz
study points out, this is the most important outcome that
people want from their planning. It is also what has helped
the 'successful' 10% keep family and fortune together across
generations, including through war, depressions and every
other kind of economic and political upheaval-including
times so rough that today's market and economy rollercoaster
looks tame by comparison.
your clients with the 3rd element
of planning has nothing to do with rates of returns or the
latest, greatest flavor-of-the-month product, tool, or strategy.
It is about building relationships with
those you want to work with. By adding this 3rd element
to your planning - the element of preparing the inheritors
for their inheritance - you are giving your clients and
their inheritors what they most want.
Zeeb is the President, CEO and Co-Founder of The Heritage
Institute, and Co-Author of the book, Beating
the Midas Curse.
learn more about The Heritage Process, read about our introductory
course, - "Clients
on our website (www.theheritageinstitute.com).
Or call or email us, and we will explore with you whether
our training is right for you.
Heritage Institute, 7724 SE Aspen Summit Drive, Suite 202,
Slott and Company-100 Merrick Road, 200 East, Rockville
Centre, NY 11570
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