Category Archives: Newsletter

Inherited IRA Distribution Rules Will Make Your Head Spin

There has been some confusion in both the financial planning and tax worlds recently regarding the “new rules” around inherited IRA distributions. Congress was clear as mud when they decided to change all the rules in 2020.

You see before 2020, if you inherited an IRA, the rules were pretty straightforward, whether you were the spouse, child, sibling or any other named beneficiary of the IRA. Generally speaking , your annual required minimum distribution (RMD) was based on your life expectancy.

So, if a deceased 75 year old father bequeathed their IRA to their 50 year old son, the original RMD of the father was recalculated for the longer life expectancy of the son. The RMD was now much lower than what the father was required to take and pay income taxes on.

Which meant, Uncle Sam had to wait AGAIN to recoup the deferred taxes on this glorious tax advantaged account. 

The SECURE ACT changed all this.

The “Setting Every Community Up for Retirement Enhancement” Act addressed the issue by eliminating what had been the “stretch provision”, where one’s RMD was calculated based on their life expectancy, as described in the example above.

I won’t get into all the nuances of the new rules here. Suffice it to say, there have been entire publications at this point regarding the changes, attempting to break down the confusion Congress presented two years ago and was forced to revisit and clarify in 2022.

Painting with a broad brush stroke, if you are a non-spouse and inherited an IRA in 2020 or later, you now have only 10 years to completely liquidate the account.

And the rules are different if the deceased was not yet required to take RMDs when they passed.

Most interpreted the original change to mean there were no longer RMDs, the account just needed to be empty in 10 years. Meaning, if it made sense for your situation, you could leave the assets invested for the next 9 years to continue growing tax deferred.

For the first two years of the SECURE ACT, many who were required to take distributions did not.

The IRS realized this blunder and put the brakes on it, telling everyone they had interpreted the changes incorrectly. RMDs were indeed still required, at least for some.

When you take it, whether or not you are required to take it and how much you have to take are the big questions you’ll need to answer, while also understanding the tax implications.

It is is a traditional IRA, as most that I see are, every dime you take out is 100% taxable as ordinary income, as if you earned that money from an employer.

To make things even more interesting and to keep us advisors on our toes, SECURE ACT 2.0 (that really is what it’s called) has just changed the age at which RMDs begin.

Honestly, SECURE ACT 2.0 made some sweeping changes that affect pretty much all of us. I plan to address many of them in my next newsletter, so stay tuned!

But for today I’ll leave you with this:

If you’ve inherited an IRA since 2020, you should check in with your financial or tax advisor to make sure you (and they) have a full understanding of your required distributions.

Front of Mind Thoughts


The Financial Brain Dump

Happy New Year to you!

The craziness of year-end tasks and the holidays seems to carry right over into the new year, with a sense of urgency on a whole new list of things. But hopefully you found some respite along the way before diving in to 2023!

Last year at this time, I wrote to you about “real change” taking time, suggesting that it doesn’t just happen overnight.

I highlighted not beating yourself up over “failed” new year’s resolutions by February or March, because real change seldom comes about that quickly.

Here is my INSPIRING message that kicked off 2022!

But for this month, I’d like to add another concept that one of my clients recently employed. She completed what she called her “financial brain dump” and sent it over to me. She got all of the financial items that were swirling around in her head written down.

I could almost hear the sigh of relief through her email.

Not because all tasks were miraculously completed, but because she got it all out of her head, onto paper and over to me. And by sending it to me, she knows we will address these items together in the new year.

The brain dump is not a new concept. It is a proven method to help untangle our thoughts, serving to relieve some of the stress and anxiety created by our never ending reel of to-dos and uncertainties.

Tying it into last year’s message, I had discussed taking broad resolutions like “save more money” or “get finances organized” and breaking them down into smaller, more specific and manageable tasks.

THE FINANCIAL BRAIN DUMP will help accomplish that for you. So give it a try this month and see what it does for you. Then share the psychological load by sending it to your advisor, knowing they will help elicit “real change” for you in your financial life this year!

Front of Mind Thoughts


What is Your Earliest Money Memory?

The first impactful memory I have around money always comes to me right away. It’s a story I shared at my dad’s 70th birthday celebration. I was about 10 years old and was with him at the ATM. He always counted the money before putting it in his wallet.

When he counted it on this particular morning, there were two $20’s stuck together.

My 10-year old mind thought, “How AWESOME is THAT”?

I must have not only thought it but also said something along those lines because I remember CLEAR AS DAY my father’s response:

“Susan, this is not my money. I’ll return it to the bank on Monday”.

IMPACTFUL.

Sometime not too long after, he called me over to his chair where he sat every night to watch the evening news and read the paper. He showed me a piece of mail he had just opened. It was a letter from the president of the bank thanking him for his honesty in returning the $20.

IMPACTFUL.

I’d be remiss to leave out my mom in my earliest memories around money and the impact they’ve had on me. Mom handled all the day to day family finances and taught me how to balance a checkbook…to…the…penny. Of course, with today’s technology I don’t balance a checkbook anymore, but I do still watch every penny. It was also her influence that taught me that just because you can afford something doesn’t mean you should buy it and that if you can’t afford something, then you definitely shouldn’t buy it.

That’s Cash Flow Planning 101: Needs vs Wants and Spend less than you make.

And from all this, a trusted financial advisor was born. Thanks Mom and Dad!

My clients have heard me say that not every decision around money is black and white, that there is often an emotional component to our decisions that can make things a bit gray. Behavioral Finance has become a field of study in and of itself and is often a seminar topic at  financial industry conferences.

I’m sure my parents had NO IDEA at the time that all these little things would serve as defining moments for me and my approach to all things money in the future.

But it’s something I try to remember when working with my clients; we all have a money history that started way before we ever knew it was happening.

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Great things never come from comfort zones.


Open Enrollment Serves Up a Bowl of Alphabet Soup

The fall tends to be open enrollment time and you are likely in the middle of it now, or will be soon, so I thought this month would be a great time to review some of the crazy acronyms you see as your eyes glaze over the 50+ page benefits guide from your employer.

I can’t say here which benefits are the “best fit” for you.  Reviewing benefit options is part of what I do with my clients each year. Lives change. Jobs change. Families change. Benefit packages change. For many, the confusion stays the same.

The Biggest Offenders

FSA – Flexible Spending Account

HSA – Health Savings Account

HRA –  Health Reimbursement Account

These are very similar acronyms, but these are NOT the same thing.

I’ll get the HRA out of the way, as it is not as common as the other two. This is an EMPLOYER owned and funded account an employee can use for medical expenses. It generally stays with your employer if you leave, unless they offer a retirement continuation.

FSAs are offered with a standard HMO or PPO (I’m going to assume you know these two old friends).

I wrote a newsletter on HSAs a few months ago and the triple tax benefit they offer. They are only offered in conjunction with a HDHP. Yes, here’s yet another acronym for you!

HDHP – High Deductible Health Plan

Similarities

  • Both are employee funded, although some employers will make contributions as an added benefit.
  • Both are funded with pre-tax dollars. Always a PLUS.
  • Both are used to pay for qualified medical expenses.

Differences

  • Pre-tax contribution limits are higher for the HSA than the FSA. The HSA also offers a catch up contribution for those over age 55.
  • The up front, out of pocket medical expenses are higher for Team HSA/HDHP.
  • FSA contributions are forfeited if not used in the same calendar year. There is some flexibility for carry over and grace periods, but forfeiture is the general rule. Use it or lose it.
  • HSA contributions are yours forever. No “use it or lose it” here. AND they can be invested. AND they grow tax deferred/tax free. As long as used for medical expenses, it’s tax free growth and distributions forever.
  • Your FSA is not portable. If you leave your company, the funds in the account do not go with you. Assets in your HSA are yours forever.

While the HSA offers more flexibility and tax advantaged benefits than the FLEXIBLE Spending Account (oh the irony), it does not mean it is the right choice for you, even if both are offered by your employer. Every situation is unique.

So those are the big acronym offenders for your health care options, but a distinction I explain in this next section is REALLY important.

STD  – Short Term Disability

LTD – Long Term Disability

Granted, you may actually know these two acronyms already, but are you aware of the distinction when it comes to whether this benefit it taxable or not?

It all comes down to how the premium is paid. I’ve worked with many clients who were not aware of the key difference because most benefit guides don’t do a great job of explaining it.

It makes a big difference in how much money you actually take home, should you become disabled.

  • If premiums are paid by you with after-tax dollars, then the disability benefit will not be taxable.
  • If premiums are paid by your employer, then the disability benefit will be taxable.

Most LTD benefits offer coverage for “60% of salary”. If that 60% is not taxed, you are in OK shape.

If that 60% is taxed, your monthly benefit will be significantly less than your regular pay.

One final scenario offering a TAX FREE disability benefit:

  • Your employer pays the premium BUT adds the amount paid on your behalf to your gross earnings and you pay tax on the “phantom income” with each paycheck.
  • Because you pay the taxes on the premium, any disability benefit you receive will be tax free.

If your employer offers a tax free disability benefit option, this is usually the option you want. Otherwise, you may want to consider a private policy to supplement your employer plan.

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Your mind is a garden, your thoughts are the seeds. You can grow flowers, or you can grow weeds.

Unknown


Ways You May Be Losing Money EVERY Year

A friend recently came to me with a business idea that she felt could be really useful to many.

She felt quite strongly about it because she knew it would be very useful to HER, and she correctly assumed that many (many) others are in the same position.

Let’s call it:

I PAY LITTLE TO NO ATTENTION TO WHERE MY MONEY IS ACTUALLY GOING, and I could really use some help trimming the fat.

Her request was not so much about budgeting, but simply about TUNING IN, knowing where the dollars are going and trying to cut out the fat.

And let’s face it, with inflation having snuck up on us with a vengeance this year, we all need to covet and stretch every dollar, because our dollar can no longer afford what it could just 8 months ago.

Sometimes money “lost” is simply due to our failure to tune into things, like is that medical bill accurate, did you actually get the sales price advertised or are you sitting on unreturned merchandise.

I recently received a medical bill for almost $3,500. It looked right. I mean, we did use that provider on that date, and we do have a high deductible plan. BUT, because I tune into the EOBs (explanation of benefits) that come from our insurance provider, I knew our portion was only supposed to be about $1,500.

I potentially could have tossed $1,500 out the window if I had just paid it without tuning in.

I’m also a grocery store Ninja, I’ll admit it, even pre inflationary times.  I should be on THE PRICE IS RIGHT.

And never more than now do I play their game because with three teenage football players in my house, you would not believe my grocery bill.

So while investing is an important aspect of your financial health, and it is disconcerting when the markets are down, it’s the day to day spending that you have the most control over that can make tangible differences.

If you feel like your spending could use some trimming (mine definitely could) and especially if you are finding you need every dollar just to cover the basics, here are some “tuning in” tips to think about:

Shopping:

  • Get rid of Door Dash. I will not let my kids order anything on my dime through Door Dash. I never have. What a money suck that is! Old fashioned pizza delivery, sure, but not Door Dash. I saw a receipt once that showed my son paid $9+ to have an $11 burrito delivered!
  • Tune into shipping costs and try to avoid. They can really add up.
  • Shop the grocery store circulars. Use the apps if you need to for certain “big” deals. Stick to what you would normally buy, don’t buy it because it’s on sale. But if it’s on sale AND it’s on your list for the week-fantastic. Check the receipt before you walk out the door to be sure you received the sale price. Head straight to customer service if you did not.
  • Buy store brand/generic wherever it truly does not matter, which is most of the time. But hey, we all have our favorites. I won’t give up my Charmin.  
  • Buy cards at The Dollar Store. Honestly, you should never again purchase a card anywhere else. They have great ones.  And let’s face it, your money literally gets thrown in the trash after it’s opened!
  • Return items you bought but will not be using. I’m a nut about returns. We all buy things either in store or on line that don’t work out as we had hoped, but you MUST return it or you are just throwing your money away.
  • If you are a Target shopper, use the app to place your order ahead of time and have it delivered to your car. My personal experience is you end up spending much less when you are not walking the aisles. And unlike some of the on line grocery delivery services, there are no extra fees (yet).

I wish I could say “get rid of Amazon”  but I’m trying to be realistic.  😊

Other:

  • Employer benefits I’ve seen not insignificant amounts of money left on the table when people have not used plan benefits to their best advantage.
  • Pay attention to bills you are receiving, even if you have them set to autopay. And medical bills for sure.
  • Don’t carry a balance on your credit card. For every dollar you save with smart shopping, you’ll be paying way more in interest rate charges.
  • Ask yourself the age old question, “do I need this or do I want this”?

Whatever your financial situation, remember the mantra to pay yourself first (savings) and spend less than you make. You’ll be on your way to sound financial footing!

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Do not LET what you cannot do interfere WITH what you can do.

– John Wooden


The Protection Plan I Always Recommend

This past July 4th marked the 20th year in our home. TWENTY YEARS.

Holy cow, I don’t know where the time has gone. With my oldest having just graduated from high school, I seem to be saying this a lot lately. Cue the tissue box.  

When we first bought our home, we had my dad around for all the newbie homeowner’s advice we needed. One thing he always said was to buy the service contract for the furnace. His advice has proved prudent over the years!

I’m sure I’ll be giving the same advice to my kids someday when they become homeowners, but as a homeowner or not, there’s a much bigger investment that often goes unprotected and  has the potential to cost you a lot more than an unexpected furnace repair.

What is this investment? I’m glad you asked!

IT’S YOU!

YOU and your EARNING POTENTIAL are your single most valuable asset, yet many fail to properly protect this asset.

Most carry some level of life insurance, especially if they have a spouse or children, but that’s not what I’m talking about here.

The protection that is most overlooked and often skipped altogether is DISABILITY protection, which protects your income if you are unable to work due to injury or illness.

Let me ask you this. Is your monthly income instrumental in supporting your day to day living essentials? I’m talking things like food, gas, a mortgage or car payment?

If you answered yes, and I’m guessing you did, then you should have disability coverage.

And a misguided perception is that if your employer offers disability coverage, you are good to go. You’ll keep getting your paycheck should you go out on disability. You’ll receive something, but not necessarily an amount that can continue to cover all of your expenses.

I review employer benefits for my clients during open enrollment and often see disability benefits that provide less than adequate income replacement, especially if your employer pays the premium. This is where I would recommend a private policy to supplement your employer plan.

If you happen to be an employee in Massachusetts, there is a newish program that was rolled out in January 2021 called Paid Family Medical Leave, or PFML, not to be confused with the Federal program FMLA, which is unpaid leave.

PFML offers compensation for up to 26 weeks, of course with a special mathematical equation used to calculate how much you will actually receive.

Who pays for this program? Well, the state of Massachusetts of course! And you know what that is code for: YOU are paying for it, along with your employer.

As the saying goes, nothing in this life is free.

If you are not sure if you are covered by this state run benefit, take a look at your paystub. If you are paying into it, you will see a small deduction each pay period for “MA PFML”, or something along those lines.

MA resident or not, state coverage like this or basic coverage through your employer are often not enough to most effectively insure this risk. Look into what you have and take steps to insure your most valuable asset.

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Time you enjoy wasting is not wasted time.

-Marthe Troly-Curtin


I Did NOT Know That!

You know those moments when you learn something new that you can’t believe you did not know before now, and depending what it is, you may even feel like a bit of a dummy for not knowing?

We all have them.

I had one of these moments last week when my brother came over to change out a kitchen faucet. According to You Tube, this is a very simple task, but we may be about the worst homeowners ever when it comes to stuff like this. My brother, on the other hand, is great at this stuff and owns his own handyman business, CJD Property Specialists. We know it will end up costing us twice as much if we attempt is ourselves, so we gave him a call.

But that’s not even the “I feel like a dummy part”. That came when I asked my brother to fill the soap dispenser while he was down under the sink.

“What are you talking about Sue, you don’t fill that from under here, the pump dispenser comes off from up top.”

 Wait a minute…WHAT? It does?!

We have been emptying all supplies out from under the sink for 20 years to crawl under, unscrew the plastic bottle and fill it up. We never knew! Is it just us?!?! We felt like idiots.

But here’s the thing, if someone has never been taught or shown something…has never studied, practiced or had any interest in the subject matter at hand… why should they beat up on themselves for not knowing it?

You shouldn’t!

I often hear clients and others I speak with putting themselves down for being “horrible with financial stuff”. It really bothers me, in an empathetic way, because why would they or should they be good at it?

I’m good at it because I love it, study it, and practice it every day. If “financial stuff” is not something you love, study and keep up with every day, why would you be good at it? The tough part about this subject matter is that dealing with “financial stuff” is indeed a necessity in all of our day to day lives. And so is general plumbing, to some extent, but not as much.

We all have our strengths and passions in areas where we excel and then have those areas where we don’t, and that’s ok. That’s the beauty of being able to hire someone to handle what we don’t do well or don’t have the time or interest to do well.   

I’ll leave you with a few financial savings tips that just may be a “I did not know that!” for you:

  1. You can make contributions to an IRA for the previous calendar year up until the tax filing deadline each year (for 2021 contributions, you have until Monday, April 18th this year, due to the usual April 15th deadline falling on Good Friday and Passover). 
     
  2. If you max out your 401(k) contributions before year end, you may not be getting the full benefit of your employer match. Ask your HR department if they do what’s called a “year-end true up”, otherwise you may be leaving money on the table.
     
  3. If you start a new job with an employer that does not allow you to participate in their retirement savings plan right away, making you a “non-covered employee” by IRS standards, you may be eligible to make a deductible IRA contribution for that tax year, even if your income is above the threshold normally eligible to take the deduction.

My Favorite Quotes

Be that person who wakes up with purpose and intent. Be that person who shows up and never gives up. Be that person who believes anything is possible and is willing to work for it. 

– Unknown