Kansas and Missouri Estate Planning

Are There Any Tax Deductions for Long-Term Care?

Long-term care costs and taxes are financial stressors in retirement.

You are getting older.

Your age says this is true, as confirmed by the increasing number of candles on your birthday cake.

Your body reminds you of this fact, too.

Long-term care costs are coming, if they are not already here.

Great.

One more expense to add to your bills and your tax responsibilities.

There may be some good news.

According to a recent Kiplinger article titled “Deduct Expenses for Long-Term Care on Your Tax Return,” you may be able to receive a tax deduction on some long-term care expenses.

What expenses might you deduct?

You could include medical expenses and eligible expenses for assisted living, in-home, or nursing home care.

To be eligible, certain requirements must be met.

What are these requirements?

A given expense must be medically necessary.

It can include personal care, preventative care, therapeutic treatment, rehabilitative treatment, and other services.

You may be able to include meals and lodging at a live-in facility, if the primary reason for being there is qualified medical care.

You must also be chronically ill and the care must be prescribed by your licensed health care practitioner.

What constitutes chronically ill?

You must require help in two daily living activities for at least 90 days.

Daily activities include tasks like bathing, toileting, transferring, dressing, or eating.

It may include cognitive impairment, if you require supervision for your safety and health.

You will need the condition to be certified in writing within the past twelve months.

What must you do to claim these deductions?

You will need to itemize you tax return.

To qualify, the expenses must exceed 10 percent of your adjusted gross income.

If your adult children are providing care, can they receive a tax deduction?

They can if they are able to claim you as a dependent.

Can you receive a deduction if you have long-term care insurance?

You can receive a limited deduction for certain long-term care insurance premiums.

You will follow the same itemization steps and have the same adjusted gross income requirements as with the qualified expenses.

There are limits regarding the types of insurance and the age of the insured as there is an age cap.

The insurance can only cover long-term care costs.

What does this mean?

Hybrid policies do not qualify.

You must have a traditional policy.

Although these deductions likely will not prove helpful until you reach your 70s, it is important to understand your options and to plan accordingly.

Make sure you consult with your CPA every step of the way.

Reference: Kiplinger (September 4, 2019) “Deduct Expenses for Long-Term Care on Your Tax Return”

Do I have Enough Moola to Retire?

The need for money does not disappear in retirement.

You cannot predict the course your life will take.

The Great Recession took jobs and retirement savings from many Americans.

When life knocks you down, you do not need to stay there.

According to a recent Consumer Reports article titled “Will you have enough money to retire?,” you can adjust and still have a financially sound retirement.

What can you do?

Review finances.

You bring home a paycheck.

You also have taxes, deductions, and bills.

Calculate how much money you have after these expenses.

This will help you know how much you have available to save.

Cut the fat.

Evaluate what expenses you need.

Compare the costs and consider switching providers.

A little bit can go a long way.

Pay off debt.

You do not want to carry debt into retirement.

Start with the highest rate debt first.

Reconsider big ticket items.

Purchase a used car rather than a new vehicle.

Choose a vacation close to home rather than traveling far away.

Move to a smaller home.

Prioritize retirement savings.

Does your employer provide matching benefits for retirement contributions?

Take advantage of this.

It is free money.

What if you are self-employed?

Set up your own IRA or solo 401(k).

These accounts are off-limits until retirement.

Stay employable.

Do not let your current certifications or licenses lapse.

Never stop learning.

If you can meet future needs, you may continue to work if you need more money for retirement.

Incorporating these strategies into your financial plan will set you up for a more relaxed retirement.

Reference: Consumer Reports (August 29, 2019) “Will you have enough money to retire?”

What Exactly is a "Shared Living Arrangement"?

Roommates may be an option beyond college.

The "cost of living" can be expensive for anyone.

Whether you are young and paying off college debt or older adding health care costs, you may be looking for ways to save money.

According to a recent The Mercury article titled “Do shared living arrangements make sense?,” shared living arrangements may be an viable cost-saving option.

Some immediate benefits include sharing responsibility for mortgages, taxes, and utilities.

Throughout history, generations of families have lived together.

When Gretchen and I lived in Germany, this was the norm among our neighbors.

If you need to save on expenses, shared living space can be a good choice.

Do not commit blindly.

Discuss household expectations, financial issues, and estate planning needs.

Not every family will enter into the same arrangement.

Some parents may choose to buy a home with their adult children.

Often this is easier and more cost effective than retrofitting a current home to fit the needs of an aging parent.

Be careful when it comes to "titling" property, too.

Work with an experienced estate planning attorney to determine what is best given the laws in your state.

For other families, it is simpler to have an aging parent simply move in with an adult child.

If you do this, make sure to have written agreement on the parent helping with monthly expenses.

You should also include payment for any alterations made to the home for the aging parent.

Having these in writing will be helpful should the parent need to apply for Medicaid.

A third option is for an adult child to move in with the aging parent.

An adult child can buy into the home as a joint tenant with right of survivorship.

Work with an experienced elder law attorney to determine what options are best for your circumstances, especially when it comes to Medicaid, real estate ownership, and estate planning issues.

Reference: The Mercury (August 28, 2019) “Do shared living arrangements make sense?”

Feeling "Sandwiched" Children and Aging Parents?

You do not have to care for others alone.

You have aging parents.

You have children of your own.

You are also nearing retirement.

You feel pressure in all directions.

According to a recent The Motley Fool article titled “How to Help Your Parents Retire Without Derailing Your Own Retirement,” you are not alone.

Nearly 16 percent of Americans are currently providing care for an aging relative.

This number will continue to rise as the population ages.

Neglecting your own saving for retirement, does not do you (or anyone you love) any favors.

What can you do to protect your future, while also caring for your children and parents?

Look into government assistance.

The government has many programs for citizens at different life stages.

Research whether your loved ones might qualify for help with food, utilities, housing, or healthcare.

For example, there may be the option of Supplemental Social Security Income for those over age 65.

What does this do?

In the year 2019, this provides up to $771 per month if your parent is single or $1,157 for a qualifying couple.

Cut costs.

You should have a budget.

Your parents should also have a budget.

Keeping track of money will help remove unnecessary expenditures.

It will also help you understand what steps need to be taken to cover costs.

Have a sale.

Whether you need to simply downsize or have valuable antiques, selling possessions can help.

Use the money to take care of expenses.

Create a plan.

You and your parents will continue to age.

You cannot neglect your own future needs.

Discuss future needs with your family .

Be realistic about the cost of your parents care and the care you may need in the future.

If you have siblings, work together now to better care for your parents later.

One sibling should not bear the responsibly alone.

Working with an experienced financial advisor and estate planning attorney can help you meet the needs and demands of aging.

Reference: The Motley Fool (August 25, 2019) “How to Help Your Parents Retire Without Derailing Your Own Retirement”

What Should I Know About Roth IRAs?

Roth IRAs can be an amazing tool in retirement planning.

You know you need to plan for retirement.

You are not sure where to start.

There seem to be so many options.

You are not wrong.

According to a recent the balance article titled “9 Surprising Facts About Roth IRAs,” certain people will find Roth IRAs are a great option.

Why?

Roth IRAs can serve as emergency funds.

Emergencies come when you least expect them.

Emergencies are often expensive.

What happens if you do not have enough money in your checking or emergency fund to cover an unplanned cash call?

Are you out of luck?

Not necessarily.

If you have money in a Roth account, you could make withdrawals for these emergencies.

Would it trigger a penalty?

Not necessarily.

Why?

The contributions made in a Roth are not deductible.

If the money you take out does not exceed the amount you put in, you can make withdrawals without penalties or taxes.

Translation?

This means if you put in $5,000 and it grows to $6,000, you should only take $5,000.

You could use a non-deductible IRA to fund a Roth.

There are income limits governing eligibility for a Roth IRA.

However, there may be an option for a “backdoor Roth.”

What is this?

It happens when money inside a non-deductible IRA is converted into a Roth.

Does it sound complicated?

It can be.

Do not try doing it yourself.

Work with an experienced professional.

Mistakes can be quite costly.

You may roll after-tax 401(k) contributions into a Roth IRA.

Do you have an employer sponsored IRA?

At retirement, could can role these after-tax contributions into a Roth IRA.

What about the investment gain?

No.

This is not included in the deal.

Stick to the contributions.

Roth IRAs have no RMDs (Required Minimum Distributions).

For traditional IRAs you will be required to take minimum distributions once you reach a certain age.

With a Roth, there are no required minimum distributions because you already paid the taxes on the money contributed.

If you leave the account to a non-spouse, the heir will need to take distributions though.

You can contribute to both a SIMPLE IRA and a Roth IRA.

If you meet income requirements, you can contribute to SIMPLE IRAs and Roth IRAs.

Your SIMPLE IRA contributions will be tax deductible.

The Roth IRA contributions are not tax deductible.

These could allow you to get a tax break now and later.

This is especially beneficial if you are self-employed.

Your employer plan may allow Roth contributions.

If your employer offers a 401(k) with Roth contributions, it would be beneficial.

It is best to ask your HR department for specifics regarding your options here.

Age is not the key factor in determining whether to use a Roth IRA.

Income is important when determining whether a Roth is right for you.

If you expect your income be in a lower tax bracket in retirement, a traditional IRA may be better.

If you will be in the same or higher bracket, a Roth would be a wise option.

You might be able to make a spousal Roth contribution.

If you earn an income and your spouse does not, you can make contributions to a Roth IRA on their behalf.

This will increase your overall retirement savings as a couple.

Be careful about Roth conversions.

This is not DIY planning. Get help from an experienced professional.

He or she will help you to devise a strategy to best meet your retirement needs and goals.

Reference: the balance (August 13, 2019) “9 Surprising Facts About Roth IRAs”

 

What Should I Consider Before Relocating in Retirement?

Moving may seem a welcome option for retirees.

You have worked for years.

Your decisions have been focused on your career.

You have constantly done the will of your superiors.

Retirement has come.

Now you are itching to move.

According to a recent Nasdaq article titled “Don’t Relocate in Retirement Without Answering These 5 Questions,” you should think long and hard about what you want and why before you move.

What should you consider?

Income Taxes.

In retirement, you depend on retirement savings, pensions, and Social Security.

Taxes will impact how much actually ends up in either you pocket or government coffers.

For example, thirteen states tax Social Security benefits.

Some states do not tax withdrawals from retirement accounts.

If you currently live in a state with no income tax, moving to another state could give you quite a shock.

Do your research and determine whether you can afford the new location.

If you are lacking in retirement funds, states with fewer taxes could help you significantly.

Estate and Income Taxes.

If you plan to leave your loved ones some of your estate, this is important to know.

Not all states have inheritance taxes.

Of those with inheritance taxes, some are greater than others.

Also, not all states have state estate taxes.

Some will have an estate tax, but have a lower threshold than the federal estate tax.

Part of maximizing your estate is taking these laws into account when deciding where to reside when you retire.

Fortunately, neither Kansas nor Missouri has an inheritance tax or a state estate tax.

Cost of Living.

An increase in the cost of living when you are on a fixed income can take a chunk out of your retirement.

If where you currently live is expensive, moving would be wise.

Transportation.

You may not always be able to drive.

Motor vehicles are costly to maintain.

Insurance can increase after certain ages.

Your health may bar you from renewing your license.

If you can walk where you need to go or there is public transportation, you could save money and even stay healthier.

Health Care.

Good health does not last forever.

As you age, your body will begin to face chronic issues.

Educate yourself on doctors, hospitals, Medicare policies, and even nursing home communities.

You will want quality care you can afford.

Although moving may seem appealing, you should not do so on impulse.

Do your research, run the numbers, and move forward with confidence.

Reference: Nasdaq (August 9, 2019) “Don’t Relocate in Retirement Without Answering These 5 Questions,”

Aging Parents: How do I Have the "Money Talk"?

Talking finances with your parents can protect all of you.

Money.

We all need it to live in society.

Nevertheless, we do not always like talking about it.

Having these conversations with aging parents can be even more uncomfortable.

Kinda like the "birds and the bees" conversation when you where a teenager.

According to a recent Forbes article titled “What You Don’t Know About Your Parents’ Finances Could Ruin Yours,” it is important to have these conversations.

Why?

As your parents age, so do their bodies.

Their minds may not be as sharp.

They may need help with their finances.

They may need you.

Failing to discuss finances with them early on could create an unnecessary financial burden for them and for you.

Medicare does not cover long-term care costs for home help, assisted-living, or nursing home care.

This care can be expensive—exceeding $8,000 per month.

Only 5 percent of Americans ages 55 to 60 have long-term care insurance.

Only 11 percent of those 65 and older have long-term care insurance.

Without insurance, you may become the only option for paying for or providing care.

This will cost you in money as well as in income from lost time at work.

It is important for you to have this discussion so you can either help them prepare financially or help create a plan with your siblings to ensure everyone is prepared for potential financial burdens.

While you are discussing finances, talk with your parents about their estate planning.

Be sure they have an up-to-date last will, general durable power of attorney for financial matters, and advance health care directives.

Knowing your parents have a plan in place and the nature of the plan will give you and your loved ones peace of mind.

Final thought.

Be good to your parents.

Not only is it meet and right so to do, but your children are watching and learning from your example.

Reference: Forbes (July 17, 2019) “What You Don’t Know About Your Parents’ Finances Could Ruin Yours”

How does a "Working Retirement" Affect My Social Security?

Some people need to work after retiring from their career.

Retirement does not look the same for everybody.

Expenses do not disappear once you stop working.

Bills need to be paid.

Food needs to be purchased.

Life goes on.

A mixture of Social Security, retirement savings accounts, and investment accounts become your income when you no longer work.

What if it is not enough?

Can you continue working?

Should you continue working?

According to a recent New Hampshire Register article titled “Returning to work after you retire,” the answer depends on your specific circumstances.

Some people would like to retire later but can no longer work due to injury or illness.

Others are simply victims of downsizing and are unable to find a comparable job.

What if you are able to continue working?

Should you?

This depends on how much you earn, how old you are, and whether you have claimed Social Security benefits.

If you are younger than full retirement age and have claimed benefits but make more than a certain amount, the IRS will deduct money from your Social Security benefits.

What is the limit?

In 2019, the threshold is $17,640.

If you earn more than this, then you will lose $1 for every $2 you earn over the limit.

The threshold changes every year.

What happens if you reach full retirement age?

The year you reach full retirement age threshold rises to $46,920 in 2019.

The amount deducted also changes to $1 for every $3 over the limit.

After full retirement age, there is no longer a threshold on how much you can earn.

When it comes to working in retirement, being strategic is beneficial.

Consider your finances, but also consider the type of work you would like.

Retirement may allow you opportunities to explore new careers, help others through consulting or by serving your community.

Whatever you choose, a little forethought does not hurt.

Reference: New Haven Register (July 7, 2019) “Returning to work after you retire”

What are Some Benefits of Delaying Retirement?

Good things come to those who wait.

You may be itching to retire.

Perhaps you are tired of working for someone else.

Perhaps you want to create your own schedule.

Why would anyone not leave work at the first opportunity?

According to a recent USA Today article titled “18% of baby boomers and Gen Xers plan to work past age 74. Why you should do the same,” there are plenty of reasons.

What are they?

Growing retirement savings.

If you have more money saved, you will be more comfortable and secure in retirement.

Unfortunately, many are not prepared for retirement.

About 17 percent of boomers have fewer than $5,000 saved for retirement.

Yikes!

You will need more than this, yes?

Accordingly, working longer can help you save more and give you greater financial security.

Delay taking Social Security.

If you have income coming in from employment, you may not need to take Social Security benefits as early.

Why might that be a prudent move?

If you delay taking Social Security, your benefit increases by 8 percent a year for each year you delay until age 70.

And, that is not all.

If you earned the greater income, your spouse will receive a higher survivor benefit if you die first.

Stay connected socially.

Research, let alone our own anecdotal evidence gleaned from own circle of retired family members and friends, reveals that when human contact is diminished it can lead to depression.

Working longer can not only provide stimulating relationships, but it can also allow you to save more money for travel and other activities when you retire.

When it comes to retiring, be sure you have are prepared emotionally, financially, and socially.

In short, delaying retirement a short time can have significant returns.

Reference: USA Today (June 29, 2019) “18% of baby boomers and Gen Xers plan to work past age 74. Why you should do the same.”

Photo by Blaz Erzetic on Unsplash

How do I Prepare for Income Taxes in Retirement?

Income taxes are applicable even without your day job.

You may elect not work in retirement.

You may simply enjoy families, hobbies, and volunteering.

Accordingly, you will not earn a paycheck.

According to a recent Market Watch article titled “How 401(k) savers can avoid a nasty surprise come retirement,” you will still owe income taxes.

This is no joke.

Keep reading.

If you have a traditional IRA or 401(k), you will owe taxes on withdrawals regardless whether they are part of your Required Minimum Distribution.

Does this mean you should not make contributions to your retirement plan while working?

Absolutely not.

You do received a tax benefit when the contributions are made.

The contributions are not "tax-free," however.

Rather taxes are deferred to the time you take withdrawals from the account.

When planning for retirement and calculating what you need, be sure you take the tax consequences into account.

For example, if you have $1 million in an account, you may only have $700,000 after taxes.

No one knows or can predict future tax rates.

As a baseline plan on 20 percent at the federal level and 3 to 10 percent at the state level.

To maximize the money in these accounts, be sure to delay withdrawals until after you turn 59½.

Why?

You will pay a penalty on any withdraw taken before this age.

What a waste.

If you plan to work and take withdrawals, this could put you in a higher tax bracket and require you pay more money in taxes or Medicare premiums.

If you plan to work in your 60s and 70s, delay withdrawals as long as possible.

If you can wait until you are 70½, you likely will maximize your retirement fund accumulations as this is the age when you must begin taking your Required Minimum Distributions.

A little strategy can go a long way in maximizing your savings and minimizing your tax liability.

Reference: Market Watch (June 3, 2019) “How 401(k) savers can avoid a nasty surprise come retirement”