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Greetings!
Happy August! Just a few short weeks to the NFL preseason. I'm ready...Go Packers!
I've accomplished one of my recurring writing goals in this newsletter...a title to an article with no actual words in it. Who says acronyms are dead? Once you figure out the title, the article covers some quirks in the rules when it comes to the Thrifts Savings Plan and Required Minimum Distributions. Take a look at the article. You don't want to get this one wrong.
The second article talks about the difference in Long-Term Care Expenses amongst the states. It may be something you want to consider when you select your "final" retirement location.
I wrap things up with some thoughts on Self-Directed IRAs, my least favorite topic in the world the AMT (by the way for most readers of this newsletter you are likely to have to pay AMT if your income is in the $200 - $300k region, you have a large family and you pay a lot of state income taxes), and finally some tax traps and tricks.
Enjoy the rest of the summer...see you around Labor Day.
Curt
Curtis L. Sheldon, CFP®, EA, AIF® C.L. Sheldon & Company, LLC (703)542-4000 or (800) 928-1820 |
 TSP RMDs
One of the main reasons to contribute to TSP is so that you can take the money out and spend it in retirement. Often though, retirees may not need or want to take their money out of the Thrift Savings Plan (TSP). But, the IRS wants you to take the money out, more than you want to leave it in TSP and they have the power to make you do it. You have to take out Required Minimum Distributions (RMDs)
The IRS (Congress more accurately) says that you must start taking distributions from your TSP by April 1st (not the 15th) of the year after you turn 70 1/2. If you're still employed by the US Government when you turn 70 1/2 then your RMDs are deferred....generally until Apr 1st of the year after retirement. Realize that if you avail yourself of the 1 Apr option you will have to make two RMDs that year. One for the age 70 1/2 year and one for the current year.
Since the IRS "knows all" it knows how long you will live. There is a table of Uniform Life Expectancy" that you use to determine how much you must take out each year. It is important that you get this right, as the penalty for withdrawing too little is 50% of the amount you didn't take out. That is one of the highest penalties I know of.
Whether you are taking RMDs or any other type of distribution, your distribution will be "proportional". For example, if you have 50% in the Roth TSP, 50% in the "normal" TSP and 5% of your "normal" TSP balance is tax exempt (from contributions made in a combat zone) your distribution will be 50% Roth, 45% normal and 5% Tax Exempt. The same holds true for funds. If you have 50% in the G Fund and 50% in the C Fund your distribution will be 50/50 G and C Fund. Nothing too out of the ordinary here. Where things do get weird is if you fail to direct TSP to take out distributions.
If by the April 1 deadline you do not make a withdrawal election you will FORFEIT your TSP balance. You can reclaim your account, but you will earn zero income during the time of forfeiture. And since it is TSP, you'll have to complete a form and make a full withdrawal to get your money back (you can roll the withdrawal to an IRA so you won't get nailed with a big tax bill). The one bit of good news is you won't have to pay a penalty, because TSP will make a distribution, this one time, on 1 Mar.
Unlike an IRA or most 401(k) plans, you can't instruct TSP to make an "automatic" RMD distribution at some point during the year. If you are taking withdrawals of some sort though and the amount withdrawn does not satisfy the RMD requirements, TSP will send you an additional payment to make sure you cover your RMD.
So, what is the take away? Well the big one is make sure you start taking withdrawals or set up a withdrawal plan prior to 1 Apr of the year after you turn 70 1/2. If you don't, you'll lose money (no income in the forfeited account) and flexibility (when you are forced to take a total withdrawal).
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 Where You Live Matters: Counting the Cost of Long-Term Care It probably comes as no surprise that the cost of long-term care services -- including nursing homes, assisted-living facilities, and home-based care -- continues to rise steadily across the country. Among the various services tracked by Genworth's annual Cost of Care Survey, home-based care costs are rising at a slower pace than other forms of care. Specifically, Genworth's most recent report found that, on a national basis, home-based care rose just 1% to 1.5% over the last five years, while costs at nursing homes and assisted-living facilities have increased 2.5% to 4% over the same five-year period.(1) Genworth also tracks long-term care cost data on a regional and state-by-state basis. For planning purposes -- either your own or for an aging parent or other loved one -- this is vital information to know and discuss with your financial professional when forecasting retirement income scenarios. Following are the 10 most expensive states for a private room in a nursing home -- the top-of-the-line care tracked by the annual study -- and the most expensive mode of care available today. Along with the median annual cost for each state is the comparable median annual cost for home health aide services. Top 10 States for Cost(2) |
State
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Median Annual Nursing Home Cost (private room)
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Median Annual Home Health Aide Cost
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Alaska
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$281,415
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$59,488
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Connecticut
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$158,775
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$50,336
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Massachusetts
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$139,580
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$57,200
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New York
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$136,437
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$52,624
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Hawaii
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$135,050
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$56,056
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New Jersey
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$127,750
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$48,506
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New Hampshire
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$122,275
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$54,912
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Delaware
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$117,895
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$50,336
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Pennsylvania
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$113,150
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$47,911
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Maryland
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$110,230
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$45,760
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National Median Cost
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$91,250
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$45,760
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Is your state among the most expensive listed above? If not, review the Genworth 2015 Cost of Care Survey to find cost information for all types of long-term care services in your state.
While the impact of long-term care can be staggering on one's finances, it can also take a significant toll on families and careers. To learn more about strategies for coping with this potential need, speak with your financial advisor. Source/Disclaimer: 1Financial Planning, "LTC: 10 Most Expensive States for Nursing Homes," April 27, 2015. 2Genworth 2015 Cost of Care Survey, March 20, 2015.
Required Attribution
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.
© 2015 Wealth Management Systems Inc. All rights reserved.
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Curt's Quick Comment
Been thinking about opening a Self-Directed IRA so you can hold some "unique" asset in it? Stop thinking. You're about to walk into a minefield. I just read about two cases where that great plan didn't work so well. In the first case, the IRA bought a business that employed the IRA owner. The courts ruled that a prohibited transaction and the IRA was disqualified...Huge Tax Bill. In the second case, the IRA bought shares of a closely held company. When it came time for RMDs no one wanted to buy the shares so the IRA owner couldn't take money out...50% penalty. Just say no.
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Don't Be Caught In the Web of this Stealth Tax
Most of us are all too familiar with the regular income tax calculation on Form 1040. But a somewhat lesser-known tax, the alternative minimum tax, or AMT, could end up giving you a larger tax bill. The AMT was designed initially to apply only to the very wealthiest taxpayers, but for many years now, this so-called "stealth tax" has ensnared millions of taxpayers at less rarified income levels. You could be one of them. Read More Here... |
Here are the Latest Tax Traps, Tips and Tricks
Navigating the maze of investment tax rules isn't easy, especially when the law changes pretty much every year. And while tax-saving opportunities may present themselves, there also are little-known pitfalls that could increase your tax bill. Here are several tax traps, trips, and tricks to think about this year. More Here... |
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