As 2017 approaches, Americans can’t help but wonder what the New Year has in store including the fate of retirement planning. Will there be significant tax hikes? Tax breaks? How will the new administration change the way we develop our estate and distribution planning strategies? How is the market going to perform in 2017? So many unanswered questions but that doesn’t mean we should wait until next year to get our ducks in a row. After all, strategies that are available today could be gone tomorrow. Even if you don’t plan to retire any time soon, it’s never too late to get prepared and take charge of your financial and retirement future.



New Strategies for a New Year

2016 was a year packed with changes in laws, regulations and political victories and/or disappointments, depending on your perspective. The truth is, right now nobody really knows what next year will bring. Despite this, running out of money is a fear that is always the number one concern for retirees and soon to be retirees in our country. This fear is likely going to remain in the number one spot regardless of changes in the economy or government so why not face this fear head on and start working on new strategies for a new year.

Have you saved enough for retirement? Many households will need to downsize and curb spending during retirement. Nobody wants to run out of money and have to re-enter the workforce at let’s say age 75. Even the most disciplined savers run into this problem but creating a distribution strategy today is necessary to ensure you are saving enough and will have enough money to maintain your desired standard of living during retirement. The harsh reality is, many people do not save enough for retirement and are faced with a rude awakening when they realize there is no “pension fairy” waiting to give them money after they retire. It is important to figure out what you need to do today to achieve your retirement goals tomorrow.

Is your pyramid upside down or right side up? Wait, what does that mean?? You may have heard of the “Buffet Pyramid” which illustrates an asset allocation model. It basically divides asset classes by risk and shows by percentage how people should ideally allocate their assets by risk category: No Risk, Moderate Risk and High Risk. The pyramid illustrates, as we age, it is prudent to gradually become more financially conservative as we reach (or are already in) retirement because there is less time to make up for any losses on assets that are in the high or moderate risk categories.


Do you have a reasonable and realistic retirement budget plan in place? You must have a budget and stick to it. When most Americans retire, they have no distribution strategy and thus, no budget parameters for drawing down their assets during their “decumulation” or distribution phase. Adjusting to a fixed income is difficult when you have been accustomed to mass consumption during your entire adult life. One rule-of-thumb touted by some financial advisors is for a draw-down ratio that is “25 times,” meaning, you will need a retirement portfolio that is 25 times the amount you withdraw during your first year of retirement. People essentially have to “relearn” how to handle finances and adjust their strategies for their distribution phase.


Finally, when pondering new strategies for a new year, don’t forget about those unforeseen retirement plan expenses that can sneak up on you…taxes and penalties! If you have an IRA, 401(k) or other retirement plan, you must remember to follow the distribution rules to avoid penalties. The IRS has strict rules and if, for example, if you miss a required minimum distribution (RMD), the IRS imposes a 50% penalty on the undistributed amount! Another common mistake is missing the IRA 60-day deadline if you decide to do a rollover rather than a trustee-to-trustee transfer. Rollovers are only permitted once per year. If you choose to do a rollover, make sure that you adhere to the 60-day rollover deadline for redepositing those IRA funds or it will be treated as a fully taxable distribution. Also, if you are under 59½, a 10% early distribution penalty would apply as well.




Latest PLR: Rollover Errors

Speaking of 60-day rollover mistakes…that bring us right into the latest PLR update on this subject. It’s true, 60-day rollover errors are still a common occurrence no matter how much we warn people about being careful and encourage people to seek professional guidance to help identify and prevent errors. Unfortunately, not all IRA errors can be fixed. An IRA owner recently sought relief from the IRS but he only won half the battle.


As you know, you may engage in one rollover per year among your IRAs tax-free as long as the transaction is completed within 60 days. In the latest ruling, PLR 201647014, a taxpayer took two separate distributions from two separate IRAs. However, he failed to complete both of his rollover transactions and sought relief from the IRS, citing cognitive impairment as evidence of reasonable cause.

While genuine cognitive impairment was accepted as reasonable cause for relief with respect to his first IRA distribution, the taxpayer was not granted relief for the second distribution. Why? Because the second distribution was never rollover eligible to begin with. The Tax Code imposes a firm one per year rollover limitation regardless of how many IRAs a taxpayer may have. That is a hard and fast rule and the IRS in this case did not budge on this issue. They said the second IRA distribution was not allowed to be rolled over anyway, thus rendering it a fully taxable distribution. Oops.

How can you avoid potential IRA rollover rule errors? The solution is simple…request trustee-to-trustee transfers instead, they are also tax-free transfers and they are unlimited!


Have An IRA?

Your ATS retirement distribution specialist can help you turn your IRA into a legacy that provides for you and your family. To schedule your FREE IRA consultation, please contact your local ATS member today! Some of the key services offered are:

• Beneficiary Reviews

• Custodial Reviews

• Customized Beneficiary Forms to Ensure Your Goals Will Be Met

• Knowing the Advantages of an MGIRA Strategy

• RMDs: When to Take Them and Help Calculating Your RMDs


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