Wednesday, August 23, 2017

Inflation-Fighting TIPS By John Jastremski

It's easy to see how inflation affects your daily life. Gas prices are higher. Electric bills are steeper. Wallets are thinner. But what inflation does to your investments isn't always as obvious. Let's say your money is earning 4% and inflation is running between 3% and 4% (its historical average). That means your so-called "real return"--the stated return minus inflation--is only 1% at best. After you subtract any account fees, taxes, and other expenses, you could actually end up with a negative number.

What can you do to keep from losing the race against inflation? One way is to buy investments that are designed to keep pace automatically.

Take stock of TIPS

Since the U.S. Treasury introduced them in 1997, Treasury Inflation-Protected Securities (TIPS) have become the most widely known example of what are generally referred to as "inflation-protected securities." TIPS may be attractive to long-term investors who want to preserve the purchasing power of their money over time. Investors also may like the security of knowing their investment is backed by the U.S. government as to the timely payment of principal and interest.

Like other Treasury bonds or notes, TIPS are basically loans to the U.S. government. You receive interest payments every six months based on a fixed interest rate specified in advance. With most bonds, it's easy to know the exact amount of money you'll receive each year. You simply multiply the principal--the amount of your initial investment--by the interest rate.

TIPS work a little differently. Instead of guaranteeing how much you'll be paid in interest, an inflation-protected security guarantees that your real return will keep up with inflation. The interest rate stays fixed; what you won't know is the exact dollar amount of the payments you'll receive. If inflation goes up, your return will increase to match it. With TIPS, you're trading off the certainty of knowing exactly how much you'll receive for the knowledge that, as long as you hold the bond until it matures, your investment will maintain its buying power.

How do TIPS work?

TIPS pay slightly lower interest rates than equivalent Treasury securities that don't adjust for inflation. The reason for that reduced rate? Your TIPS principal is automatically adjusted twice a year to match any increases or decreases in the Consumer Price Index (CPI), a widely used measure of inflation. If the CPI increases, the Treasury recalculates your principal to reflect the increase.

For example, let's say you buy $20,000 worth of TIPS that pay a fixed interest rate of 2.5%. Over the next six months, the CPI rises at an annual rate of 3%. Your $20,000 principal would go up by 1.5% (half of the 3% annual inflation rate) to $20,300.

This adjustment will affect the amount of your semiannual interest payments. Even though the interest rate stays the same, it's applied to the recalculated amount of your principal. In this example, the 2.5% interest rate would be applied to the new $20,300 figure. The actual dollar amount paid in interest goes up because it's based on a higher principal; instead of $250, your next semiannual payment would be $253.75. If inflation goes up again, your next payment will be higher still. (The return on a specific bond may be different, of course, since this is only a hypothetical illustration designed to show how the return on a TIPS is calculated.)

If the CPI figure is lower in six months, your principal will be adjusted accordingly when it's recalculated; that in turn will affect the amount of your next interest payment. If there's a period of deflation and the CPI is actually a negative number, your principal and interest payment would both drop.

The inflation adjustment feature means that if you hold a TIPS until it matures, your repaid principal will likely be higher than when you bought the bond. Even if the CPI turns negative and the economy experiences deflation, the amount you'll receive when the bond matures will be the greater of the inflation-adjusted figure or the amount of your original investment.

How do you know whether owning a TIPS makes sense? Subtract the TIPS interest rate from the rate for an equivalent bond without the inflation protection feature. If the inflation rate is higher than the difference between the two rates, the TIPS may have an advantage.
If a TIPS pays ...And equivalent non-TIPS yield is ...Inflation rate needed for a TIPS advantage is ...
2.5%4.5%More than 2%
3%6%More than 3%

Things to think about

You can still lose money with a TIPS if you don't hold it until it matures. Inflation rates rise and fall, and as with any bond, the returns offered by other investments can affect the market value of your TIPS. Also, if inflation turns out to be less over time than you had anticipated when you invested, the total return on a TIPS could actually be less than that of a comparable Treasury security without the inflation-adjustment feature.

If the inflation rate over time isn't high enough to make up for the difference between the lower interest rate of a TIPS and that of an investment without inflation protection, the TIPS has no advantage. That's why TIPS may only be appropriate for part of your bond holdings.

There's another catch. You'll also need to think about the federal taxes that will be due each year on the interest and any increases in your principal. Even though the Treasury records the changes in your principal every six months, you don't actually receive that money until the TIPS matures. However, the government still taxes that increase each year as if you've received the cash. Many investors prefer to postpone that tax bill by holding TIPS in a tax-deferred account such as an IRA.

How can I buy TIPS?

You can buy TIPS individually, with maturities of 5, 10, or 30 years, and in $100 increments (although individual brokers may have higher minimum purchase requirements). You could choose a selection of TIPS that mature at different times. When the shorter-term bonds mature, you could reinvest that principal into either another TIPS or some other type of bond. Known as "laddering," this strategy gives you flexibility as interest rates change. If interest rates are higher than the bond that's maturing, you can invest at a higher rate; if rates are lower, you might prefer an investment that offers a higher return. Also, if you will need some of your principal for a specific goal, such as college tuition, you can select maturity dates that return your principal at the right time.

Another possibility is a mutual fund, which may invest in TIPS only or mix them with inflation-protected securities from other entities, such as foreign governments. Typically, a fund invests in a variety of debt instruments to balance the higher interest rates usually offered by longer-term bonds with the flexibility of shorter maturities. A TIPS mutual fund pays out not only the interest but also any annual inflation adjustments, which are taxed as short-term capital gains. Some exchange traded funds (ETFs) also invest in an index composed of TIPS with various maturities.

Before investing in a mutual fund, carefully consider its investment objective, risks, fees, and expenses, which are contained in the prospectus available from the fund. Review it carefully before investing.
Your financial professional can help you decide which choices may be appropriate as you race to keep up with rising costs. However, there is no guarantee that working with a financial professional will improve investment results.





Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.Group, LLC, a registered investment advisor which is not affiliated with FSC Securities Corp.            Securities provided by FSC Securities Corporation, member FINRA / SIPC . Investment advisory services offered through The Retirement Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials.



Wednesday, February 22, 2017

Retirement Plans for Small Businesses -by John Jastremski

If you're self-employed or own a small business and you haven't established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future.

Tax advantages

A retirement plan can have significant tax advantages:
• Your contributions are deductible when made
• Your contributions aren't taxed to an employee until distributed from the plan
• Money in the retirement program grows tax deferred (or, in the case of Roth accounts, potentially tax free)

Types of plans

Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or "qualified" (like 401(k)s, profit-sharing plans, and defined benefit plans). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets must be held either in trust or by an insurance company. With IRA-based plans, your employees own (i.e., "vest" in) your contributions immediately. With qualified plans, you can generally require that your employees work a certain numbers of years before they vest.

Which plan is right for you?

With a dizzying array of retirement plans to choose from, each with unique advantages and disadvantages, you'll need to clearly define your goals before attempting to choose a plan. For example, do you want:

• To maximize the amount you can save for your own retirement?
• A plan funded by employer contributions? By employee contributions? Both?
• A plan that allows you and your employees to make pretax and/or Roth contributions?
• The flexibility to skip employer contributions in some years?
• A plan with lowest costs? Easiest administration?
The answers to these questions can help guide you and your retirement professional to the plan (or combination of plans) most appropriate for you.

SEPs

A SEP allows you to set up an IRA (a "SEP-IRA") for yourself and each of your eligible employees. You contribute a uniform percentage of pay for each employee, although you don't have to make contributions every year, offering you some flexibility when business conditions vary. For 2015, your contributions for each employee are limited to the lesser of 25% of pay or $53,000. Most employers, including those who are self-employed, can establish a SEP.

SEPs have low start-up and operating costs and can be established using an easy two-page form. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and who earns $600 or more.

SIMPLE IRA plan

The SIMPLE IRA plan is available if you have 100 or fewer employees. Employees can elect to make pretax contributions in 2015 of up to $12,500 ($15,500 if age 50 or older). You must either match your employees' contributions dollar for dollar--up to 3% of each employee's compensation--or make a fixed contribution of 2% of compensation for each eligible employee. (The 3% match can be reduced to 1% in any two of five years.) Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan. SIMPLE IRA plans are easy to set up. You fill out a short form to establish a plan and ensure that SIMPLE IRAs are set up for each employee. A financial institution can do much of the paperwork. Additionally, administrative costs are low.

Profit-sharing plan

Typically, only you, not your employees, contribute to a qualified profit-sharing plan. Your contributions are discretionary--there's usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose (although your contributions must be nondiscriminatory, and "substantial and recurring," for your plan to remain qualified). The plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses. Generally, each employee with a year of service is eligible to participate (although you can require two years of service if your contributions are immediately vested). Contributions for any employee in 2015 can't exceed the lesser of $53,000 or 100% of the employee's compensation.

401(k) plan

The 401(k) plan (technically, a qualified profit-sharing plan with a cash or deferred feature) has become a hugely popular retirement savings vehicle for small businesses. According to the Investment Company Institute, 401(k) plans held $4.3 trillion of assets as of March 2014, and covered 52 million active participants. (Source: www.ici.org/401(k), accessed February 5, 2015.) With a 401(k) plan, employees can make pretax and/or Roth contributions in 2015 of up to $18,000 of pay ($24,000 if age 50 or older). These deferrals go into a separate account for each employee and aren't taxed until distributed. Generally, each employee with a year of service must be allowed to contribute to the plan.

You can also make employer contributions to your 401(k) plan--either matching contributions or discretionary profit-sharing contributions. Combined employer and employee contributions for any employee in 2015 can't exceed the lesser of $53,000 (plus catch-up contributions of up to $6,000 if your employee is age 50 or older) or 100% of the employee's compensation. In general, each employee with a year of service is eligible to receive employer contributions, but you can require two years of service if your contributions are immediately vested.

401(k) plans are required to perform somewhat complicated testing each year to make sure benefits aren't disproportionately weighted toward higher paid employees. However, you don't have to perform discrimination testing if you adopt a "safe harbor" 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees' contributions (100% of employee deferrals up to 3% of compensation, and 50% of deferrals between 3 and 5% of compensation), or make a fixed contribution of 3% of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested.

Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs, but can also allow loans and Roth contributions. Because they're still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven't become popular.

Defined benefit plan

A defined benefit plan is a qualified retirement plan that guarantees your employees a specified level of benefits at retirement (for example, an annual benefit equal to 30% of final average pay). As the name suggests, it's the retirement benefit that's defined, not the level of contributions to the plan. In 2015, a defined benefit plan can provide an annual benefit of up to $210,000 (or 100% of pay if less). 

The services of an actuary are generally needed to determine the annual contributions that you must make to the plan to fund the promised benefit. Your contributions may vary from year to year, depending on the performance of plan investments and other factors.

In general, defined benefit plans are too costly and too complex for most small businesses. However, because they can provide the largest benefit of any retirement plan, and therefore allow the largest deductible employer contribution, defined benefit plans can be attractive to businesses that have a small group of highly compensated owners who are seeking to contribute as much money as possible on a tax-deferred basis.

As an employer, you have an important role to play in helping America's workers save. Now is the time to look into retirement plan programs for you and your employees..








This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Wednesday, August 24, 2016

Changing Jobs? Take Your 401(k) and Roll It -by John Jastremski

If you've lost your job, or are changing jobs, you may be wondering what to do with your 401(k) plan account. It's important to understand your options.

What will I be entitled to?

If you leave your job (voluntarily or involuntarily), you'll be entitled to a distribution of your vested balance. Your vested balance always includes your own contributions (pretax, after-tax, and Roth) and typically any investment earnings on those amounts. It also includes employer contributions (and earnings) that have satisfied your plan's vesting schedule.

In general, you must be 100% vested in your employer's contributions after 3 years of service ("cliff vesting"), or you must vest gradually, 20% per year until you're fully vested after 6 years ("graded vesting"). Plans can have faster vesting schedules, and some even have 100% immediate vesting. You'll also be 100% vested once you've reached your plan's normal retirement age.

It's important for you to understand how your particular plan's vesting schedule works, because you'll forfeit any employer contributions that haven't vested by the time you leave your job. Your summary plan description (SPD) will spell out how the vesting schedule for your particular plan works. If you don't have one, ask your plan administrator for it. If you're on the cusp of vesting, it may make sense to wait a bit before leaving, if you have that luxury.

Don't spend it, roll it!

While this pool of dollars may look attractive, don't spend it unless you absolutely need to. If you take a distribution you'll be taxed, at ordinary income tax rates, on the entire value of your account except for any after-tax or Roth 401(k) contributions you've made. And, if you're not yet age 55, an additional 10% penalty may apply to the taxable portion of your payout. (Special rules may apply if you receive a lump-sum distribution and you were born before 1936, or if the lump-sum includes employer stock.)

If your vested balance is more than $5,000, you can leave your money in your employer's plan until you reach normal retirement age. But your employer must also allow you to make a direct rollover to an IRA or to another employer's 401(k) plan. As the name suggests, in a direct rollover the money passes directly from your 401(k) plan account to the IRA or other plan. This is preferable to a "60-day rollover," where you get the check and then roll the money over yourself, because your employer has to withhold 20% of the taxable portion of a 60-day rollover. You can still roll over the entire amount of your distribution, but you'll need to come up with the 20% that's been withheld until you recapture that amount when you file your income tax return.

Should I roll over to my new employer's 401(k) plan or to an IRA?

Assuming both options are available to you, there's no right or wrong answer to this question. There are strong arguments to be made on both sides. You need to weigh all of the factors, and make a decision based on your own needs and priorities. It's best to have a professional assist you with this, since the decision you make may have significant consequences--both now and in the future.

Reasons to roll over to an IRA:

• You generally have more investment choices with an IRA than with an employer's 401(k) plan. You typically may freely move your money around to the various investments offered by your IRA trustee, and you may divide up your balance among as many of those investments as you want. By contrast, employer-sponsored plans typically give you a limited menu of investments (usually mutual funds) from which to choose.

• You can freely allocate your IRA dollars among different IRA trustees/custodians. There's no limit on how many direct, trustee-to-trustee IRA transfers you can do in a year. This gives you flexibility to change trustees often if you are dissatisfied with investment performance or customer service. It can also allow you to have IRA accounts with more than one institution for added diversification. With an employer's plan, you can't move the funds to a different trustee unless you leave your job and roll over the funds.

• An IRA may give you more flexibility with distributions. Your distribution options in a 401(k) plan depend on the terms of that particular plan, and your options may be limited. However, with an IRA, the timing and amount of distributions is generally at your discretion (until you reach age 70½ and must start taking required minimum distributions in the case of a traditional IRA).

• You can roll over (essentially "convert") your 401(k) plan distribution to a Roth IRA. You'll generally have to pay taxes on the amount you roll over (minus any after-tax contributions you've made), but any qualified distributions from the Roth IRA in the future will be tax free.

Reasons to roll over to your new employer's 401(k) plan:

• Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer's plan that permits loans, you may be able to borrow up to 50% of the amount you roll over if you need the money. You can't borrow from an IRA--you can only access the money in an IRA by taking a distribution, which may be subject to income tax and penalties. (You can, however, give yourself a short-term loan from an IRA by taking a distribution, and then rolling the dollars back to an IRA within 60 days.)

• A rollover to your new employer's 401(k) plan may provide greater creditor protection than a rollover to an IRA. Most 401(k) plans receive unlimited protection from your creditors under federal law. Your creditors (with certain exceptions) cannot attach your plan funds to satisfy any of your debts and obligations, regardless of whether you've declared bankruptcy. In contrast, any amounts you roll over to a traditional or Roth IRA are generally protected under federal law only if you declare bankruptcy. Any creditor protection your IRA may receive in cases outside of bankruptcy will generally depend on the laws of your particular state. If you are concerned about asset protection, be sure to seek the assistance of a qualified professional.

• You may be able to postpone required minimum distributions. For traditional IRAs, these distributions must begin by April 1 following the year you reach age 70½. However, if you work past that age and are still participating in your employer's 401(k) plan, you can delay your first distribution from that plan until April 1 following the year of your retirement. (You also must own no more than 5% of the company.)

• If your distribution includes Roth 401(k) contributions and earnings, you can roll those amounts over to either a Roth IRA or your new employer's Roth 401(k) plan (if it accepts rollovers). If you roll the funds over to a Roth IRA, the Roth IRA holding period will determine when you can begin receiving tax-free qualified distributions from the IRA. So if you're establishing a Roth IRA for the first time, your Roth 401(k) dollars will be subject to a brand new 5-year holding period. On the other hand, if you roll the dollars over to your new employer's Roth 401 (k) plan, your existing 5-year holding period will carry over to the new plan. This may enable you to receive tax-free qualified distributions sooner.

When evaluating whether to initiate a rollover always be sure to (1) ask about possible surrender charges that may be imposed by your employer plan, or new surrender charges that your IRA may impose, (2) compare investment fees and expenses charged by your IRA (and investment funds) with those charged by your employer plan (if any), and (3) understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan.

What about outstanding plan loans?

In general, if you have an outstanding plan loan, you'll need to pay it back, or the outstanding balance will be taxed as if it had been distributed to you in cash. If you can't pay the loan back before you leave, you'll still have 60 days to roll over the amount that's been treated as a distribution to your IRA. Of course, you'll need to come up with the dollars from other sources.









This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Monday, August 22, 2016

Trusteed IRAs -by John Jastremski

The tax code allows IRAs to be created as trust accounts, custodial accounts, and annuity contracts. Regardless of the form, the federal tax rules are generally the same for all IRAs. But the structure of the IRA agreement can have a significant impact on how your IRA is administered. This article will focus on a type of trust account commonly called a "trusteed IRA," or an "individual retirement trust."

Why might you need a trusteed IRA?

In a typical IRA, your beneficiary takes control of the IRA assets upon your death. There's nothing to stop your beneficiary from withdrawing all or part of the IRA funds at any time. This ability to withdraw assets at will may be troublesome to you for several reasons. For example, you may simply be concerned that your beneficiary will squander the IRA funds.

Or it may be your wish that your IRA "stretch" after your death--that is, continue to accumulate on a tax-deferred (or in the case of Roth IRAs, potentially tax-free) basis--for as long as possible. IRA owners sometimes select much younger IRA beneficiaries because their young age means a longer life expectancy, and this in turn requires smaller required minimum distributions (RMDs) from the IRA each year after your death--allowing more of your IRA to continue to grow on a tax-favored basis for a longer period of time. Your intent to stretch out the IRA payments may be defeated if your beneficiary has total control over the IRA assets upon your death.

Even if your beneficiary doesn't deplete the IRA assets, in a typical IRA you normally have no say about where the funds go when your beneficiary dies. Your beneficiary, or the IRA agreement, usually specifies who gets the funds at that point. And in a typical IRA, particularly a custodial IRA, your beneficiary is responsible for investing the IRA assets after your death, regardless of his or her inclination, skill, or experience.

A trusteed IRA can help solve all of these problems. With a trusteed IRA, you can't stop the payment of RMDs to your beneficiary but you can restrict any additional payments from this IRA. For example, you could maximize the period your IRA will stretch by directing the trustee to pay only RMDs to your beneficiary. Or you can ensure that your beneficiary's needs are taken care of by providing the trustee with the discretion to make payments to your beneficiary in addition to RMDs as needed for your beneficiary's health, welfare, or education.

Another option is to impose restrictions on distributions only until you're comfortable your beneficiary has reached an age where he or she will be mature enough to handle the IRA assets.

In each case, the balance of the IRA (if any) passing, upon your beneficiary's death, can be paid to a contingent beneficiary of your choosing (the contingent beneficiary will continue to receive RMDs based on your primary beneficiary's remaining life expectancy). For example, if you've remarried, you may want to be sure your current spouse is provided for upon your death, but also that any IRA funds remaining on your spouse's death pass to the children of your first marriage. Or you may want to ensure that if your spouse remarries, his or her new spouse won't be the ultimate recipient of your IRA assets.

A trusteed IRA can also be structured to qualify, for example, as a marital, QTIP, or credit shelter (bypass) trust, potentially simplifying your estate planning.

Finally, a trusteed IRA can even be a valuable tool during your lifetime. For example, the IRA can provide that if you become incapacitated the trustee will step in and take over (or continue) the investment of assets, and distribute benefits on your behalf as needed or required, ensuring that your IRA won't be in limbo until a guardian is appointed.

How do you establish a trusteed IRA?

First, you'll need to find a trustee that offers IRA planning services. Not all do, and the ones that do don't all provide the same amount of flexibility. So you may need to shop around to find a trustee that can meet your particular needs. As with a typical IRA, you'll name the beneficiary of the IRA. You and your attorney will work with the trustee to draft a beneficiary designation form and trust agreement that contain any custom language that you need.

Is a trusteed IRA right for you?

While trusteed IRAs can be as flexible as a particular trustee will allow, they're not right for everyone. The minimum balance required to establish a trusteed IRA, and the fees charged, are usually significantly higher than for typical custodial IRAs, making trusteed IRAs most appropriate for large IRA accounts. You may also incur significant attorney fees and other costs. And in some cases, another approach might be more appropriate. For example, you may be able to achieve the same results as a trusteed IRA by instead naming a trust as the beneficiary of your IRA.

The "see-through" trust

Unlike a trusteed IRA, where the trust is the IRA funding vehicle and you select the beneficiary of the IRA, with a see-through trust you name the trust itself as the IRA beneficiary, and you also select the beneficiary of the trust.

Normally, when you name an IRA beneficiary that isn't an individual (i.e., a trust, charity, or your estate), that beneficiary must receive the entire balance of your IRA within five years after your death. However, special rules apply to trusts. If specific IRS rules are followed, then the trust beneficiary, and not the trust itself, will be deemed the beneficiary of the IRA, allowing RMDs to be calculated using the trust beneficiary's life expectancy and avoiding the five-year payout rule. Because the IRS looks beyond the trust to find the IRA beneficiary, this is commonly referred to as a "see-through trust."

To qualify as a see-through trust, the following four requirements must be met in a timely manner:

• The trust beneficiaries must be individuals clearly identifiable (from the trust document) as
designated beneficiaries as of September 30 following the year of your death.

• The trust must be valid under state law. A trust that would be valid under state law, except for the fact that the trust lacks a trust "corpus" or principal, will qualify.

• The trust must be irrevocable, or (by its terms) become irrevocable upon the death of the IRA
owner or plan participant.

• The trust document, all amendments, and the list of trust beneficiaries (including contingent and remainder beneficiaries) must generally be provided to the IRA custodian or plan administrator by the October 31 following the year of your death.

If you have multiple trust beneficiaries, then the life expectancy of the oldest beneficiary will be used to calculate RMDs. IRS regulations provide that trust beneficiaries can't use the "separate account" rule that might otherwise allow each IRA beneficiary to use his or her own life expectancy. If you want each beneficiary to be able to use his or her own life expectancy to calculate RMDs, then you'll generally need to establish separate trusts for each beneficiary to accomplish that goal.

Generally, see-through trusts are structured as "conduit trusts," where all distributions received by the trustee from the IRA must be passed on to your beneficiary. While an accumulation trust (where the trustee can accumulate distributions, even RMDs, received from the IRA instead of paying them out) might also qualify as a see-through trust, the IRS's rules governing these trusts are not as clear.

Trusteed IRA or see-through trust?

Trusteed IRAs are generally less expensive, less complicated, and have less uncertainty than see-through trusts. However, it's important that you make your decision with an eye toward your total estate plan. You should consult an estate planning professional who can explain your options and help you choose the right vehicle for your particular situation.

And a word about spouses ...

In most cases, if your primary goal is that your IRA stretch for the longest period of time, this can be best accomplished by simply naming your spouse as the sole IRA beneficiary, with no withdrawal restrictions. Upon your death your spouse can roll the IRA assets over to his or her own IRA, or simply treat your IRA as his or her own. Your spouse can then name a beneficiary who'll receive RMDs over the beneficiary's life expectancy upon your spouse's death. But while this may provide the longest potential RMD payout period, it doesn't solve the problem of your spouse using the funds sooner than you'd like, or naming a contingent beneficiary that's unacceptable to you. With a trusteed IRA, even if your spouse is the sole beneficiary, your spouse can't treat the IRA as his or her own if his or her withdrawal rights are limited.








This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Friday, August 12, 2016

Medicare Prescription Drug Coverage -by John Jastremski

If you're covered by Medicare, here's some welcome news--Medicare drug coverage can help you handle the rising cost of prescriptions. If you're covered by original Medicare, you can sign up for a drug plan offered in your area by a private company or insurer that has been approved by Medicare. Many Medicare Advantage plans will also offer prescription drug coverage in addition to the comprehensive health coverage they already offer. Although prescription drug plans vary, all provide a standard amount of coverage set by Medicare. Every plan offers a broad choice of brand name and generic drugs at local pharmacies or through the mail. However, some plans cover more drugs or offer a wider selection of pharmacies (for a higher premium) than others, so you'll want to choose the plan that best meets your needs and budget.

How much will it cost?

What you'll pay for Medicare drug coverage depends on which plan you choose. But here's a look at how the cost of Medicare drug coverage is generally structured in 2015:

A monthly premium: Most plans charge a monthly premium. Premiums vary, but average $33.13. (Source: Centers for Medicare and Medicaid Services.) This is in addition to the premium you pay for Medicare Part B. You can have the premium deducted from your Social Security check, or you can pay your Medicare drug plan company directly.

An annual deductible: Plans may require you to satisfy an annual deductible of up to $320. Deductibles vary widely, so make sure you compare deductibles when choosing a plan.

A share of your prescription costs: Once you've satisfied the annual deductible, if any, you'll generally need to pay 25% of the next $2,640 of your prescription costs (i.e., up to $660 out-of-pocket) and Medicare will pay 75% (i.e., up to $1,980). After that, there's a coverage gap; you'll need to pay 100% of your prescription costs until you've spent an additional $3,720. (Some plans offer coverage for this gap.) However, once your prescription costs total $6,680 (i.e., your out-of-pocket costs equal $4,700--you've paid a $320 deductible + $660 + $3,720 in drug costs--and Medicare has paid $1,980), your Medicare drug plan will generally cover 95% of any further prescription costs. For the rest of the year, you'll pay either a coinsurance amount (e.g., 5% of the prescription cost) or a small co-payment for each prescription.

Again, keep in mind that all figures are for 2015 only--costs and limits may change each year, and vary among plans.

Note: Health-care legislation passed in 2010 gradually closes the prescription drug coverage gap. In 2015, if you have spending in the coverage gap, you'll receive a 55% discount on covered brand-name drugs, and a 35% discount on generic drugs. Other changes will take effect in future years.

 Total prescription costs in 2015
What you pay
What Medicare pays
$0 to $320
You pay deductible of $320 (some plans may offer lower deductibles)
Medicare pays nothing until deductible is satisfied
$320 to $2,960
You pay 25% of costs
Medicare pays 75% of costs
$2,960 to $6,680
You pay 100% of costs
Medicare pays nothing
Over $6,680
You pay 5% of costs
Medicare pays 95% of costs


What if you can't afford coverage? 

Extra help with Medicare drug plan costs is available to people who have limited income and resources. Medicare will pay all or most of the drug plan costs of seniors who qualify for help. If you haven't already received an application for help, you can get one at your local pharmacy or order one from Medicare.

When can you join?

Seniors new to Medicare have seven months to enroll in a drug plan (three months before, the month of, and three months after becoming eligible for Medicare). Current Medicare beneficiaries can generally enroll in a drug plan or change drug plans during the annual election period that occurs between October 15 and December 7 of each year, and their Medicare prescription drug coverage will become effective on January 1 of the following year. If you qualify for special help, you can enroll in a drug plan at anytime during the year. Certain other events may qualify you for a Special Enrollment Period outside of the annual election period when you can enroll in a plan or switch plans.
If you already have Medicare drug coverage, remember to review your plan each fall to make sure it still meets your needs. Before the start of the annual election period, you should receive a notice from your current plan letting you know of any important plan modifications or additional plan options. Unless you decide to make a change, you'll automatically be re-enrolled in the same drug plan for the upcoming year.

Do you have to join?

No. The Medicare prescription drug benefit is voluntary. However, when deciding whether or not to 
enroll, keep in mind that if you don't join when you're first eligible, but decide to join in a future year, you'll pay a premium penalty that will permanently increase the cost of your coverage. There's an exception to this premium penalty, though, if the reason you didn't join sooner was because you already had prescription drug coverage that was at least as good as the coverage available through Medicare.

What if you already have prescription drug coverage?

Like many people, you may already have prescription drug coverage through the Medicare Advantage program, private health insurance such as Medigap, or your employer or former employer's health plan. You can generally opt either to keep that coverage or join a Medicare prescription drug plan instead. If you already have other prescription drug coverage, you'll receive a notice from your current provider explaining your options.

What happens after you join?

Once you join a plan, you'll receive a prescription drug card and detailed information about the plan. In order to receive drug coverage, you'll generally have to fill your prescription at a pharmacy that is in your drug plan's network or through a mail-order service in that network. When you fill a prescription, show the card to the pharmacist (or provide the card number through the mail) even if you haven't satisfied your annual deductible, so that your purchase counts toward the deductible and benefit limits.
What if you have questions?

If you have questions about the Medicare prescription drug benefit, you can get help by calling 1-800-MEDICARE (1-800-633-4227) or by visiting the Medicare website at www.medicare.gov. Look for information in the mail from Medicare and the Social Security Administration (SSA), including a copy of this year's "Medicare and You" publication that will give you details about the prescription drug plans available in your area.

Choosing a Medicare Prescription Drug Plan

• Start by making a list of all the prescription drugs you currently take and the price you pay for them to see how much you're spending on prescription drugs.
• Next, compare plans. Does each plan cover all of the drugs you currently take?
• What deductible and co-payments does each plan require?
• What monthly premium will you pay?
• What pharmacies are included in each plan's network?
• Finally, ask for help if you need it. A family member or friend can help you find information, or you can call a Medicare customer representative at 1-800-MEDICARE.










This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.