Over the past several decades, life expectancy in the U.S. has increased. This trend has caused many Americans to fear the possibility of running out of money. Expenses during retirement such as taxes and medical costs along with a volatile stock market have seemed to deepen these fears. Questions such as “How much do I need to retire comfortably?” or “Have I saved enough?” or “Do I still have time to save for retirement?” can be troubling for some as the answers may not be clear. Now, more than ever before, it is important to make sure you have sound retirement distribution strategies in place. What if you no longer want to risk your assets in the stock market, are there alternative investment options available that protect assets but still satisfy your goals?



Scores of Americans today are looking for planning solutions outside of the typical retirement investments. The good news is, there is an available solution that is fiscally safe, provides tax-deferred cash accumulation and can provide a tax-free death benefit. What is it? The answer to that question and other valuable retirement information is contained in this month’s issue!

Required Beginning Date

If you turned 70½ in 2016 and have not taken your first RMD, you have until April 1st to take the distribution without incurring a penalty tax. The government has given Americans the opportunity to save for their retirement on a tax-deferred basis using a traditional IRA or other qualified retirement plans.

However, you can’t leave this money sitting and growing forever. At some point, the government wants their share so the IRS requires certain retirement plan owners to begin taking required minimum distributions or RMDs. When? RMDs must begin by the required beginning date or RBD which is April 1st of the year following the year the IRA owner turns 70½. The April 1st deadline only applies to your very first RMD, all subsequent RMDs must be taken no later than December 31st each year. For example, if you turned 70½ in 2016 but waited until February 2017 to take your very first RMD, you still have to take your RMD for 2017 by December 31st this year. Yes, that means you would have to take two RMDs in the same year if you choose to delay your first RMD!




Tax season is in full swing. Even if you are one of many Americans not required to file a 2016 individual income tax return, you may choose to file in order to take advantage of certain tax credits such as, Earned Income Tax Credit, Additional Child Tax Credit, American Opportunity Credit, Health Coverage Tax Credit and Federal Income Tax Withheld. Contact your personal tax professional to find out what credits may be available to you


The NUA Advantage


Many corporations offer their employees different kinds of incentives and/or bonuses. One of these is company stock held in a 401(k) or other qualified pension plan. If you hold stock from a previous employer in a qualified plan, you are eligible, under the IRS code, for special tax treatment on those assets based upon a concept called Net Unrealized Appreciation (NUA). To put it simply, if you rollover the stock to an IRA, the company stock’s NUA will be taxed at your ordinary income tax rate when you distribute the stocks. If, however, you transfer the company stock in kind to a regular brokerage account, your ordinary income tax rate will apply to the basis (which is recognized as a distribution). But, the long-term capital gains tax rate in effect at the time you eventually sell the stock will apply to the NUA upon distribution.


When you decide to sell those shares, you will only pay the capital gains tax rate, not ordinary income tax on the appreciation. This rule holds true for whenever you choose to sell – once you trigger an NUA strategy, the 1 year holding period for long-term capital gains treatment is automatically satisfied. Your personal retirement distribution specialist and tax professional can explain to you the stipulations in the Tax Code involving NUA.


Some Stipulations include:

• There must be a triggering event – separation from service, turning 59½, full disability (if selfemployed) or death.

• The stock must have been purchased with pretax contributions or employer matches.

• To qualify for the break, you must take the entire pension plan account balance in a lump sum distribution over the course of one tax year – all assets must be distributed, not just the stock.

• Dividends paid on the stock are not tax-deferred. • For inherited stock in an IRA, beneficiaries are taxed at a different cost basis, called a step-up in basis. Your advisor can describe for you how step-up in basis works, and how it may affect you and your heirs.



Keep in mind that even though an NUA strategy may be available to you, it may not necessarily be wise or appropriate for you. You shouldn’t make an NUA decision without first consulting with your personal advisors to fully assess your individual objectives, taking into account crucial factors like age, tax implications, income requirements, retirement needs and any potential risk or downside with respect to an NUA strategy. In light of the 2012 American Taxpayer Relief Act, it is important to carefully analyze the pros and cons of an NUA strategy in your particular situation before committing.


IUL Planning

A tool that is often overlooked in retirement planning is IUL. What is IUL? It is an indexed universal life policy. Because there are tons of companies who offer tons of specific products, this article is merely intended to give you a brief general description of this little-known strategy that could be a great benefit for certain individuals. You may be thinking “Isn’t this just life insurance? That’s too expensive and too complicated, I don’t want anything to do with it.” Others may have had negative experiences with older policies and are thinking “My dad had a life policy, it wasn’t worth it and I don’t need one.”


Unlike older life policies, an IUL may be suitable for certain individuals (especially business owners!) who are looking for security in retirement while enjoying interest earning accumulation in their policy. Another benefit is the death benefit on an IUL is permanent. Optional riders may be available and can offer additional benefits. IULs are not like your father’s or your grandfather’s policies, they are more sophisticated planning tools and offer greater advantages than traditional life policies.

Five Important Advantages of IUL as a Planning Vehicle Are: 1. Flexible Premium Payments 2. Greater Access to Savings Before Retirement 3. Flexible Distributions 4. Preferred Tax Treatment at Death 5. Security from Future Income Tax Hikes

Common Mistake: Underestimating the Value of a CPA


Common Mistake: Underestimating the Value of a CPA Over the last several years, many taxpayers have been going the do-it-yourself route when it comes to tax preparation. While that may be a great option for many people, if you have an IRA or other retirement assets, you may want to consider sticking with your trusty CPA who can provide accounting services beyond the do-it-yourself computer programs. In a Tax Court case, Bernard v. C.I.R. (T.C. 2012) 104 T.C.M. (CCH) 136, a married couple failed to correctly report their IRA distributions on their tax return. They used a popular tax preparation software program but, unfortunately, such programs cannot always determine whether or not the user is properly inputting data. The petitioners in this case mischaracterized $99,334.82 of their IRA distributions, incorrectly reporting them as proceeds of a sale and long-term capital gains. They also failed to report six additional IRA distributions totaling $26,637. The IRS determined a deficiency of $44,643 and a section 6662 penalty of $8,179.




The case went to trial. The petitioners received a deficiency notice from the IRS but erroneously claimed that because capital gains within their IRAs increased the value of those accounts, they were entitled to report the IRA distributions received as capital gains instead of ordinary income. Had the petitioners relied on the professional advice of a certified public accountant and a retirement distribution expert, they would not likely have encountered such problems. The Tax Court stated that: “Petitioners did not rely on relevant authorities or competent tax advisers or otherwise make reasonable efforts to assess their proper tax liability.”


The retired couple in this case learned a lesson the hard way that ended up costing them nearly $10,000 in penalties and an undisclosed amount in litigation costs. Don’t forget they are also liable for the income tax owed on the deficient amount of IRA distributions that should have been reported as ordinary income in the first place.

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