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Where Did My Retirement Go? How to Locate Lost Benefits

1/19/2018

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Where Did My Retirement Go? How to Locate Lost Benefits
For one reason or another, you may find yourself in a situation where you've lost track of a retirement account like a 401(k) or pension.

There are several ways this can happen:
  • Job change. People change jobs in today's economy much faster than they did in the past, and that means that retirement accounts like 401(k)s or pensions from a brief job tenure may easily be forgotten.
  • A death in the family. Deceased loved ones may have overlooked some retirement assets in their wills, especially if they didn't organize their estate well before they died.
  • Lost access. Records or access to retirement accounts may be compromised by accidents, theft, or data losses.

Luckily, there are several handy but little-known ways to retrieve retirement account information:
  • Contact employers. Getting in touch with employers who administered a 401(k) or pension plan is one of the easiest ways to retrieve lost retirement benefits. If the account was active from 2009 or later, you can search the Department of Labor's Form 5500 database, which collects the annual information submitted by plan administrators. Often the exact person you would need to get in touch with is listed on the form.
  • Use the National Registry of Unclaimed Retirement Benefits. The registry is created by a nonprofit organization that offers a free service to link up employees with their lost retirement benefits. Visit their website and enter the Social Security number of the employee. It will locate any unclaimed accounts and then provide information about getting in contact with the employer maintaining them. Note that accounts will only appear as unclaimed if the employee's mailing address is out of date or if the employee didn't respond to the employer's attempts to pay out the account.
  • Check the Pension Benefit Guarantee Corporation (PBGC). The PBGC is a government agency that insures and tracks company pensions, and it keeps a list of unclaimed pensions online. You can search a person's name or the name of the company. Note that pensions will continue to exist at the PBGC even if the company that provided it no longer exists.
​
Once you've located a lost retirement account, you can roll it over into an IRA if it's yours, or you can take several approaches if it is an inherited asset. Reach out if you'd like to discuss your options regarding tax-advantaged retirement accounts.
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"Stretch Out" a Tricky Inheritance

1/5/2018

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​Inheriting a retirement account like a 401(k) or an IRA is more complicated tax-wise than if you’d been left a house or a set of golf clubs. Here are some tips on how to use a “stretch out” to avoid being hit with a big tax bill.

​Stretching It Out

​A stretch out is a plan to start taking small distributions from an inherited retirement account over a period of time. It allows a person who inherits a retirement account to avoid paying income tax on the entire amount right away. Taxpayers also benefit by keeping the account as a tax-advantaged investment vehicle that can grow over time.

Example: Dee Lee Beloved, 30 years old, inherits a $1 million IRA from her deceased uncle. If she were to take the whole amount in a lump sum, she would move into a higher tax bracket and pay 39.6 percent tax on most of her inheritance. Instead, she opts to stretch-out the IRA distributions over the next several decades, based on IRS life expectancy tables for her age. She thus receives smaller, more tax-efficient regular payments each year. She invests the balance of the account in mutual funds and hopes its value will grow over time.

​Choose from Two Options

The IRS requires you to take full disbursement of an inherited retirement account within five years, unless you create a formal stretch-out plan to take small regular payments over an extended period. This gives you two stretch-out options:
  • An informal, self-managed distribution strategy in which you empty the account within five years.
  • A formal plan in which you maintain the account and take regular distributions over many years, based on IRS life expectancy tables.

​Extra Option for Spouses

When spouses inherit retirement accounts, they are allowed to treat it as if it were theirs originally. That means they can continue making tax-advantaged contributions and can start withdrawing funds after reaching retirement age.
​
But younger spouses may want to consider converting accounts to stretch outs anyway. That’s because you can start taking distributions immediately, instead of waiting until age 59 ½ to withdraw funds penalty-free.

Get Help

​Stretch outs can be complicated, and some inherited accounts have special rules limiting the use of stretch outs. The best bet is to get professional assistance to help you create an optimal tax strategy when you receive an inheritance.
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Save More in 2018: Retirement Contribution and Social Security Limits on the Rise

12/11/2017

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Save More in 2018: Retirement Contribution and Social Security Limits on the Rise
​The maximum contribution to 401(k) accounts is being raised by $500 in 2018, the first increase in three years. If you have not already done so, now is the time to plan for contributions into your retirement accounts in 2018.

​Retirement Contribution Limits

Retirement Program
2018
2017
Change
Age 50 or over catch up
​401(k), 403(b), 457 plans
​$18,500
$18,000
+$500
​add: $6,000
​IRA: Roth
​$5,500
$5,500
none
​add: $1,000
​IRA: SIMPLE
​$12,500
$12,500
none
​add: $3,000
​IRA: Traditional
​$5,500
$5,500
none
​add: $1,000

​Social Security

Item
2018
2017
Change
Wages subject to Social Security
$128,700
​$127,200
+$1,500
Average estimated monthly retirement benefit
​$1,404
$1,360
+$44
​Don't forget to account for any matching programs offered by your employer as you determine your various funding levels for next year.
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When Do You Have to Withdraw from Retirement Accounts?

12/1/2017

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When Do You Have to Withdraw from Retirement Accounts?

How the Required Minimum Distribution Works

​We're always being reminded to save for retirement in tax-advantaged accounts like 401(k)s or IRAs. But did you know the government does an about-face and forces us to take money out of those accounts once we reach retirement? It's called the required minimum distribution (RMD) rule. Here are some tips you should know about RMDs well before you reach retirement age:
​
  1. RMD penalties are high. RMD rules require you to withdraw a certain amount of money every year from tax-deferred retirement plans like 401(k)s and traditional IRAs after you reach age 70½. Whether you want to or not. These withdrawals are then taxed as ordinary income. If you don't follow the rules, the IRS can assess a penalty equal to 50 percent of the amount that should have been withdrawn, on top of the regular tax due.
  2. Start thinking about RMDs early. One of the biggest mistakes retirees make is waiting until age 70½ to start thinking about RMDs. Remember, you can start withdrawing funds without penalty after you reach age 59½. If you start planning a tax-efficient withdrawal strategy before RMD rules kick in, you can manage what tax rate will be applied to your retirement distributions. With careful planning, smart taxpayers can easily reduce the federal tax rate they pay on their retirement distributions by 5 percent or more.
  3. The ½ year start date is confusing. You don't have to start taking RMDs until April 1 of the year after you turn 70½. For example, if you turned 70½ on July 15, 2017, you wouldn't have to take your first RMD until April 1, 2018. However, after that first year, RMDs will be due by Dec. 31 on every year afterward (including on Dec. 31, 2018 in this example).
  4. RMD amounts are based on complex tables. How much you're required to withdraw is based in part on the average life expectancy of someone your age. A calculation based on complex IRS life expectancy tables, plus your retirement account balance in the prior tax year, is used to determine your RMD. The good news is that the financial institution handling your retirement account will usually do the calculation for you.
  5. There are exceptions to distributions if you still work. If you reach 70½ and you’re still working for an employer providing you with a 401(k), you usually don't have to take an RMD from that account as long as you don't own 5 percent or more of the company. However, you still must take RMDs from other plans where you have assets.
  6. Not all accounts require distributions. Remember, not all retirement accounts require you to take an RMD. Roth accounts, for example, avoid RMDs and give you some extra flexibility to manage your other taxable withdrawals during retirement.
​
RMD rules can be confusing, and are a good example of why tax planning is such an important component of a retirement strategy. Please call if you have questions about any tax obligations related to your retirement accounts.
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End-of-Year Tax Checklist

11/8/2017

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End-of-Year Tax Checklist
As the year comes to an end, there are several tax-saving ideas you should take into consideration. Use this checklist to ensure you don't miss an opportunity before the year is over.
​
  • Retirement distributions and contributions. Make final contributions to your qualified retirement plan, and take any required minimum distributions from your retirement accounts. The penalty for not taking minimum distributions can be high.​
  • Investment management. Rebalance your investment portfolio, and take any final investment gains and losses. You can use capital losses to net against your capital gains. You can also take up to $3,000 of capital losses in excess of capital gains each year and use it to lower your taxable ordinary income.
  • Last-minute charitable giving. Make a late-year charitable donation. Even better, make the donation with appreciated stock you've owned more than a year. You frequently can make a larger donation and get a bigger deduction without paying capital gains taxes.
  • Noncash donation opportunity. Gather up noncash items for donation, document the items, and give those in good condition to your favorite charity. Make certain you obtain a receipt from the charity, and take a photo of the items donated.
  • Gifts to dependents and others. You may give gifts to an individual of up to $14,000 per year in total. Remember that all gifts given (birthdays, holidays, etc.) count toward the annual total.
  • Organize records now. Start collecting and organizing your end-of-year tax records. Estimate your tax liability and make any required estimated tax payments.
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How to Avoid Tax Penalties on 401(K) Retirement Plan Distributions

11/6/2017

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How to Avoid Tax Penalties on 401(K) Retirement Plan Distributions
While every retirement plan has similar early withdrawal penalty exemptions, they are not all the same. Being aware of these slight differences within 401(k) plans can help you get around a 10 percent tax penalty if you withdraw funds from the plan before reaching age 59 1/2. This is the case because a basic rollover of funds into a Traditional IRA is a readily available option to avoid the penalty. You should consider rolling over your 401(k) into an IRA prior to early distribution when:
​
  • Using Retirement Funds for Qualified Higher Education Expenses. Want to use retirement funds to pay for college? Make sure you pull the funds out of an IRA and not another retirement account type or you could be subject to an added 10 percent early withdrawal penalty. After rolling the funds into an IRA, the funds can be used penalty-free if they are for qualified educational expenses at a qualified school.
  • Using Retirement Funds to Buy, Build, or Rebuild a First Home. You may use up to $10,000 of your IRA per person to buy a first home and avoid paying the 10 percent early withdrawal penalty. If these same funds are pulled out of a 401(k) plan you could be subject to an added federal tax of up to $1,000. Roll the funds to a Traditional IRA first, and save the tax.
  • Using Retirement Funds to Pay for Medical Insurance. There is also a provision for an unemployed individual to use IRA funds to pay for medical insurance. This provision does not exist in 401(k)s, so to avoid the early withdrawal penalties, roll the money from your 401(k) into an IRA before using the funds to pay for your insurance premiums.

​Remember, by rolling the funds prior to pulling the funds for pre-retirement distribution you are avoiding the early withdrawal penalties, but you must still pay the applicable income tax.

Bonus Retirement Plan Tips

Two other quirks in the retirement tax code to be aware of:
​
  1. Early Distributions from a SIMPLE IRA Could Trigger a 25 Percent Penalty. The early distribution penalty of 10 percent increases to 25 percent for those in SIMPLE IRAs, if the withdrawal occurs during a two-year period starting from your initial enrollment date in the SIMPLE plan. You may not roll your funds into another retirement plan type during this two-year period to try to avoid the increased early withdrawal penalty.
  2. Minimum Distributions Are Required from ROTH 401(K)S but Not ROTH IRAs. In an unusual quirk in the tax code, if you have a ROTH 401(k) you are required to make minimum required distributions from this account like other 401(k)s and IRAs when you reach age 70 1/2. If, however, you roll the ROTH 401(k) funds into a ROTH IRA you are no longer subject to the minimum distribution rule requirements.
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How to Fix Your Overfunded Accounts

11/1/2017

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How to Fix Your Overfunded Accounts
Is storing huge sums of money in a tax-deferred retirement account ever a bad idea? It is when you surpass the annual IRS limits. Whether deliberate or not, the penalties can be detrimental. Here's how overfunding happens and what steps you can take to solve the problem.

How Overfunding Happens

​Overfunding retirement accounts occurs more than you might think. It can be the result of a job change that causes you to take part in two different employer retirement plans. Occasionally people forget they made IRA contributions earlier in the year and do it again later. Others forget that the IRA limit is the total of all accounts, not per account. The rules are complex. Traditional IRAs can't be added to after age 70½, while Roth IRA contributions are subject to income limits. In addition, all contributions are predicated on having earned income.

IRAs

​The yearly Roth and Traditional IRA contribution limit is $5,500 ($6,500 if age 50 or older). If you exceed this amount, you pay a 6 percent penalty on the overpayment every year until it's corrected, plus a potential 10 percent penalty on the investment proceeds attributed to the overfunded amount.

The fix: If the overfunding is found before the filing deadline (plus extensions), you can withdraw the excess and any income earned on the contribution to avoid the 6 percent penalty. You will possibly owe a 10 percent penalty in addition to ordinary income tax on the earnings of the excess contributions if you're under age 59½. Frequently you can apply the contribution to the upcoming year. If your problem is due to age (70½ or older for a Traditional IRA) or income limit (for a Roth IRA), consider recharacterizing your contribution from one IRA type to another.

401(k)s

The rules for correcting an overfunded 401(k) are a slightly more rigid. You have until April 15 to return the funds, period. The nature of the penalty is also different. The excess amount is taxable in the year of the overfunding, and taxable again when withdrawn. So, you could pay the penalty several times on the same amount. And, in certain cases, overfunding a 401(k) could cause it to lose its qualified status.

The fix: If you suspect an overpayment situation, contact your employer right away. Adjust your contribution amount before the end of the year and try to get the problem resolved that way.
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Social Security Payments Will Increase in 2018

10/26/2017

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Social Security Payments Will Increase in 2018
​Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 66 million Americans will increase 2.0 percent in 2018.
The Social Security Administration announced this week a 2 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2018. The increase is the largest since 2012, and is based on the rise in the Consumer Price Index over the past 12 months ending in September 2017.
​
For those still contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 1.2 percent this year, to $128,700.

​What Does It Mean for You?

  • Up to $128,700 in wages will be subject to Social Security taxes, up $1,500 from 2017. This amounts to $7,979.40 (up 1.2 percent from 2017) in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.
  • For all retired workers receiving Social Security retirement benefits the estimated average monthly benefit will be $1,404 per month in 2018.
  • SSI is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
  • A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

​Social Security & Medicare Rates

​The Social Security and Medicare tax rates do not change from 2017 to 2018.
Tax Rate
2017
2018
Employee
7.65%
7.65%
Self–Employed
15.30%
15.30%
Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also 0.9 percent Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.
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Is Your HSA a Retirement Tool?

9/5/2017

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Is Your HSA a Retirement Tool?
​Health Savings Accounts (HSAs) are a great way to pay for medical expenses, and since unused funds roll over from year to year, the account can also provide a source of retirement savings in addition to other plans like 401(k)s or IRAs.

But be aware HSAs can also come with significant disadvantages and less flexibility when compared with other retirement investment tools. 

The Good

HSAs work best when they are used for their designed purpose: to pay for qualified medical expenses. Neither your original contributions to an HSA nor your investment earnings are taxed when used this way.

This makes HSA funds valuable, given that medical costs are one of our largest expenses as we age. The Employee Benefit Research Institute estimates the average 65-year-old couple needs $264,000 to pay for medical care over the course of their retirement. Being able to cover that amount with pre-tax dollars greatly extends the value of retirement savings.

In addition, unlike other retirement plans, there is no required distribution of funds after you reach age 70½.

The Bad

​First, you can only contribute to an HSA if you have a high-deductible health insurance plan. That means you will pay more out of pocket each year when you need to use health services, which could make it difficult to build a balance within your HSA.

Second, contributions are limited. Currently, annual contributions to HSAs are limited to $3,400 a year for individuals and $6,750 a year for families. These limits get bumped up by $1,000 for people aged 55 or older. You also may only contribute to an HSA until your retirement age.

Finally, HSAs typically have fewer investment options compared with other investment tools including 401(k)s and IRAs. The accounts often have high management and administrative fees. All this makes building HSA earnings tough to do.

The Ugly

​The worst thing about HSAs: before you reach age 65, non-medical withdrawals from HSAs come with a whopping 20 percent penalty. Plus non-medical withdrawls are taxed as income. Even after age 65, both contributions and earnings are taxed when they are withdrawn for non-medical expenses.

In this way, HSAs compare unfavorably with 401(k)s and IRAs, which end their early withdrawal period earlier, at age 59½. They also have lower early withdrawal penalties of just 10 percent.

HSAs are a powerful tool to help manage the ever-rising costs of health care. Knowing the rules and the costs associated with using these funds outside of medical expenses can help you get the most out of an HSA and avoid costly missteps.
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The Most- and Least-Taxed States for Retirement

8/22/2017

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The Most- and Least-Taxed States for Retirement
When it comes to choosing where to live during retirement, weather isn't the only consideration. State and local tax laws have a significant impact on your nest egg.

The charts below show the highest and lowest state tax rates and costs of living, from data provided by nonprofit think tanks the Tax Foundation and the Council for Community and Economic Research.

​State Income Tax Rates

Highest
1. California (13.3%)
2. Oregon (9.9%)
3. Minnesota (9.85%)
4. Iowa (8.98%)
5. New Jersey (8.97%)
6. Vermont (8.95%)
7. Washington DC (8.95%)
Lowest
50. Alaska (0%)
49. Florida (0%)
48. Nevada (0%)
47. South Dakota (0%)
46. Texas (0%)
45. Washington (0%)
44. Wyoming (0%)

State and Local Sales Taxes

(state and average local tax rates combined)
Highest
1. Louisiana (10%)
2. Tennessee (9.5%)
3. Arkansas (9.3%)
4. Alabama (9%)
5. Washington (8.9%)
Lowest
50. Delaware (0%)
49. Montana (0%)
48. New Hampshire (0%)
47. Oregon (0%)
46. Alaska (1.8%)

Property Taxes

(Rankings based on the statewide average of local rates.)
Highest
1. New Jersey
2. Illinois
3. New Hampshire
4. Connecticut
5. Wisconsin
Lowest
50. Hawaii
49. Alabama
48. Louisiana
47. Delaware
46. Washington DC
If taxes were the only consideration in our retirement destinations, everyone would move to Alaska, which has no state income or sales taxes. However, the "last frontier" state also has one of the highest costs of living in the U.S. Therefore, you may also wish to consider which states have high and low costs of living.

Don't Forget: Cost of Living

Highest
1. Hawaii
2. District of Columbia
3. California
4. Alaska
5. New York
Lowest
50. Mississippi
49. Arkansas
48. Oklahoma
47. Michigan
46. Tennessee
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Ellsworth & Associates, Inc. CPAs
513.272.8400
Cincinnati: 9624 Cincinnati Columbus Road, Suite 209, Cincinnati, OH 45241
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