When will Social Security Stimulus Checks Arrive?

There have been a few hiccups in the distribution of stimulus checks, and some people may have to wait months before their check is delivered. Most of us are able to monitor the status of our check by using the IRS’s Get My Payment tool. However, for many Social Security beneficiaries, they’ll see a message that says “Payment Status Not Available.” That’s because most Social Security recipients don’t file tax returns.

Motley Fool’s ’s recent article entitled “Social Security Beneficiaries: Here’s When You’ll Get Your Stimulus Check” advises that if you are unable to track your payment, here’s when you can expect to receive your stimulus money if you’re collecting Social Security benefits.

Those first to see their stimulus checks will be the ones who have their direct deposit information on file with the IRS. The agency will deposit the stimulus check straight to their bank account.

However, if you receive your benefits in the mail via paper check, or if you’re not certain if your bank account information is on file, you can provide your information through the Get My Payment tool. This will help you get your check faster.

While using direct deposit will ensure you get your check the quickest, you can get your check in the mail instead if your bank account info isn’t on file. The IRS started sending stimulus checks the week of April 20, and it expects to mail out about five million checks per week. At that rate, it could take 20 weeks for all checks to be delivered.

Whether you receive your check in days or months will depend on your income. The IRS is sending checks in a particular order, and those with the lowest-income individuals will get their checks first. If your income is nearer to the $99,000 per year income limit (or $198,000 per year for married couples), you might not receive your check until late August or early September.

If your income is somewhere in the middle, it’s estimated that you’ll get your check sometime this summer.

If you’re receiving Supplemental Security Income (SSI), you’ll see your stimulus payment in early May, according to the IRS. Whether you receive that money via direct deposit or paper check will be based on whether the IRS has your bank account information on file.

The COVID-19 pandemic has caused a real financial hardship for millions of Americans, and waiting for your stimulus check can be stressful, especially if money is tight and you need the extra money. However, it’s a little easier when you can at least calculate when your cash is expected to be delivered.

Reference: Motley Fool (April 27, 2020) “Social Security Beneficiaries: Here’s When You’ll Get Your Stimulus Check”

Does the Stimulus Bill have an Impact on RMDs?

The Stimulus Bill gives some relief to those “who would otherwise be required to withdraw funds from these retirement accounts during the economic slowdown due to COVID-19.”

Waiving 2020 RMDs will help many people avoid a tax bill on IRA value that has disappeared. Without this relief, 2020 RMDs would be based on the account value at Dec. 31, 2019, when the Dow was around 28,000, says Think Advisor’s article entitled “Stimulus Plan Includes Temporary RMD Waiver.”

The Stimulus Bill’s RMD waiver also applies to IRA and Roth IRA beneficiaries who have 2020 RMDs.  However, the Treasury Department says that about 80% of people subject to RMDs take more than the minimum because they need the money. As a result, the RMD waiver won’t be much help to these individuals.

RMDs are also waived for IRA owners who turned 70½ in 2019 and must take their 2019 RMD by April 1. Those who ignored traditional advice about spreading their first two RMDs over two years (2019 and 2020), can now have their first two RMDs waived.

If they have already taken any part of their first RMD in 2019, that can’t be undone or waived.

As far as special rules for use of retirement funds, like previous disaster-related relief, the Stimulus Bill waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. The bill also states that “income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.”

The distribution is still taxable, but the tax impact can be lessened because it can be spread over three years. The funds can also be repaid within the three years.

The law also gives an exclusion for certain employer payments of student loans. This lets employers provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, “an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit, as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law.”

The provision applies to any student loan payments made by an employer for an employee after date of enactment and before Jan. 1, 2021.

Reference: Think Advisor (March 31, 2020) “Stimulus Plan Includes Temporary RMD Waiver”

Should I Use Life Insurance in My Estate Planning?

With proper planning, insurance money can pay expenses like estate taxes. It will help keep other assets intact.

For example, Hector passes away and leaves his rather large estate to his daughter, Isabella. Because of the size of the estate, there’s a hefty estate tax due. However, unfortunately, most of Hector’s assets are tied up in real estate and an IRA. Isabella may not be keen on a quick forced sale of the real estate to free up some cash for the taxes. If Isabella taps the inherited IRA to raise cash, she’ll have to pay income tax on the withdrawal and lose a valuable opportunity for extended tax deferral.

FedWeek’s recent article entitled “Using Life Insurance to Protect Your Estate” that in this scenario, Hector could plan ahead. Anticipating such a result, he could buy insurance on his own life. The proceeds of that policy could be used to pay the estate tax bill. Isabella can then keep the real estate, while taking only the Required Minimum Distributions (RMD) that are warranted by law from the inherited IRA. If the insurance policy is owned by Isabella or by a trust, the proceeds most likely won’t be included in Hector’s estate, and the money won’t increase the estate tax liability she has.

However, some common life insurance mistakes can sabotage your estate plan:

  • Designating your estate as the beneficiary. This will place the policy proceeds in your estate, which exposes the funds to estate tax and your creditors. Your executor will also have more paperwork, if your estate is the beneficiary. Instead, name the appropriate people, trust or charities.
  • Naming just a single beneficiary. Name at least two “backup” beneficiaries to decrease confusion, in the event the main beneficiary should die before you.
  • Placing your policy in the “file and forget” drawer. Review your policies at least once every three years, make the appropriate changes and get a confirmation, in writing, from the insurance company.
  • Inadequate insurance. In the event of your untimely death, if you have a young child, in all likelihood it will take hundreds of thousands of dollars to pay all her expenses, such as college tuition. Failing to purchase adequate insurance coverage may hurt your family. This also shouldn’t be a hardship with term insurance costs so low.

Reference: FedWeek (Feb. 6, 2020) “Using Life Insurance to Protect Your Estate”

How Do I Do the Most with My Inheritance?

Studies have shown that when people unexpectedly come into money, they’ll treat it differently than the money they’ve earned.

Forbes’ recent article entitled “5 Important Steps To Maximize An Inheritance” says that even the most financially astute consumers can get inundated with their newfound wealth. People can feel pressure to use the cash to purchase new vehicles, bigger homes, or even take their families on dream vacations. Others may feel that they can safely quit their jobs and live the life of luxury.

Many people regret jumping into major purchases after getting an inheritance. Others will give away much of the money or even make bad investments that are completely wrong for their goals and financial needs. If you don’t get expert financial guidance to develop a plan for your inheritance, or take the time to do it yourself, you may find yourself worse off than you were before you became wealthier via an inheritance.

Here are some financial planning tips for anyone who is receiving an inheritance or another windfall.

Do Something Fun. Set aside an amount to splurge on something fun. However, figure out how much you want to spend and on what. Without that, you may find that one small splurge turns into many, and next thing, a big chunk of your inheritance could be spent.

Taxes on Your Inheritance. It’s uncommon for someone to get an inheritance big enough to trigger the federal estate tax. However, estate taxes will vary at the state level, so check with your estate planning attorney. Depending on the type of assets you inherit and how they’re held, you may owe taxes on some of your newfound riches.

Quitting Your Job. This sounds tempting, but before you take this big step, make sure you’ve thought it through and that you have a plan to replace your income. It’s not hard to underestimate how much money you’ll actually need to provide a nice standard of living for the rest of your life.

Take Care of Yourself. When you come into money, you’ll hear from relatives you never knew you had. They’ll all be asking for money. Make sure your own finances are in order, before you commit to take care of others beyond your immediate family.

Consult Experts. An inheritance can be stressful and overwhelming, so talk to an experienced estate planning attorney. He can help with tax filing deadlines and provide strategies to protect that wealth.

Reference: Forbes (Feb. 26, 2020) “5 Important Steps To Maximize An Inheritance”

Why Do I Need to Have Up-to-Date Beneficiaries on My Accounts?

When a family member passes away, it can be a very unsettling time. There are many tasks that need to be accomplished in a short amount of time. One way that you can lessen that burden for your heirs by clearly telling them your preferences for your assets. One element of this is making certain that you have accurate beneficiaries to your retirement and investment accounts.

Nerd Wallet’s recent article entitled “5 Reasons to Add Beneficiaries to Your Investment Accounts Now” says taking the time to do this will help save your heirs and family time, money and energy when they need it most. Let’s take a look at some of the compelling reasons to do this.

  1. Your beneficiaries get to keep more money (and get it faster). When your beneficiaries are assigned to your investment and retirement accounts, the assets will pass directly to them. However, if they are not, those accounts may have to go through the probate process to settle an estate after someone dies. A typical probate case can drag on for a year or longer, and during that time, your beneficiaries are unable to access their inheritance. “Court” also means expenses, time, effort and added stress—all of which are things they’d rather avoid.
  2. Less stress for your heirs. When you make certain that you designate the beneficiaries for your accounts, it can relieve your family of a heavy burden, so they’re not trying to figure out your finances while they’re grieving.
  3. Your beneficiaries will supersede your will. If you have beneficiaries named, those choices will typically override what is written in your will. Therefore, you can see that keeping your beneficiaries up-to-date is extremely important.
  4. It’s easy and painless. If you have a retirement account, such as a 401(k) or an IRA, your account will typically have its own beneficiary form within the account itself. With this, you are able to choose your beneficiaries when you open your account or review them later. With a regular investment account, you’ll need to ask for a transfer on death (TOD) form to make beneficiary elections.
  5. You recently experienced a change in your circumstances. If you experience a big life change, like getting married or having a child, it’s critical to update or add beneficiary elections immediately. It’s best to be prepared for the unexpected.

Remember that in community property states, spouses may be entitled to half of the assets in an IRA — even if another beneficiary is listed — unless you have written consent. Ask a qualified estate planning attorney about state laws to be sure your money goes to whom you want.

Reference: Nerd Wallet (January 22, 2020) “5 Reasons to Add Beneficiaries to Your Investment Accounts Now”

What Exactly Is the Estate Tax?

In the U.S., we treat the estate tax and gift tax as a single tax system with unified limits and tax rates—but it is not very well understood by many people. The Motley Fool’s recent article entitled “What Is the Estate Tax in the United States?” gives us an overview of the U.S. estate and gift tax, including what assets are included, tax rates and exemptions in 2020.

The U.S. estate tax only impacts the wealthiest households. Let’s look at why that’s the case. Americans can exempt a certain amount of assets from their taxable estate—the lifetime exemption. This amount is modified every year to keep pace with inflation and according to policy modifications. This year, the lifetime exemption is $11.58 million per person. Therefore, if you’re married, you and your spouse can collectively exclude twice this amount from taxation ($23.16 million). To say it another way, if you’re single and die in 2020 with assets worth a total of $13 million, just $1.42 million of your estate would be taxable.

However, most Americans don’t have more than $11.58 million worth of assets when they pass away. This is why the estate tax only impacts the wealthiest households in the country. It is estimated that less than 0.1% of all estates are taxable. Therefore, 99.9% of us don’t owe any federal estate taxes whatsoever at death. You should also be aware that the lifetime exemption includes taxable gifts as well. If you give $1 million to your children, for example, that counts toward your lifetime exemption. As a result, the amount of assets that could be excluded from estate taxes would be then decreased by this amount at your death.

You don’t have to pay any estate or gift tax until after your death, or until you’ve used up your entire lifetime exemption. However, if you give any major gifts throughout the year, you might have to file a gift tax return with the IRS to monitor your giving. There’s also an annual gift exclusion that lets you give up to $15,000 in gifts each year without touching your lifetime exemption. There are two key points to remember:

  • The exclusion amount is per recipient. Therefore, you can give $15,000 to as many people as you want every year, and they don’t even need to be a relative; and
  • The exclusion is per donor. This means that you and your spouse (if applicable) can give $15,000 apiece to as many people as you want. If you give $30,000 to your child to help her buy their first home and you’re married, you can consider half of the gift from each spouse.

The annual gift exclusion is an effective way for you to reduce or even eliminate estate tax liability. The estate tax rate is effectively 40% on all taxable estate assets.

Finally, the following kinds of assets aren’t considered part of your taxable estate:

  • Anything left to a surviving spouse, called “the unlimited marital deduction”;
  • Any amount of money or property you leave to a charity;
  • Gifts you’ve given that are less than the annual exclusion for the year in which they were given; and
  • Some types of trust assets.

Reference: The Motley Fool (Jan. 25, 2020) “What Is the Estate Tax in the United States?”

What Should I Know about Beneficiary Designations?

A designated beneficiary is named on a life insurance policy or some type of investment account as the individual(s) who will receive those assets, in the event of the account holder’s death. The beneficiary designation doesn’t replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent doesn’t have a will, the beneficiary may see a long delay in the probate court.

If you’ve done your estate planning, most likely you’ve spent a fair amount of time on the creation of your will. You’ve discussed the terms with an established estate planning attorney and reviewed the document before signing it.

FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.

The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.

A beneficiary designation on account, like an IRA, gives instructions on how your assets will be distributed upon your death.

If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.

For more customization, you can have a form prepared by an estate planning attorney familiar with retirement plans.

You can address various possibilities with this form, such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address, is if you and your beneficiary die in the same accident.

These situations aren’t fun to think about but they’re the issues usually covered in a will. Therefore, they should be addressed, if a sizeable IRA is at stake.

After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.

Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”

What’s the Best Thing to Do with an Inherited Investment?

Wealth Advisor’s recent article entitled “How to Handle Inherited Investments” provides us with some of the top inheritance considerations:

Consider Cash. Besides cash, the most common inheritances are securities, real estate and art. These assets usually go up in value, but another big benefit is their favorable tax treatment. The heirs won’t pay capital gains on unsold investments that went up in value during the lifetime of the deceased (estate taxes would apply). Those taxes would only apply to the gains that happened after they took possession.  There’s a good reason to hang onto these investments. These types of property carry some risks, so you may consider putting some of your inherited investments into cash, cash equivalents, or life insurance with a guaranteed payout to avoid exposure to undue risk.

Beware of Concentration Risk. It’s not unusual for an inheritance to be heavily concentrated within a specific asset. While the deceased’s instincts may have been accurate at the time of their initial investment, there’s no guarantee that their strategy will continue to pay dividends long term.  Diversifying into other areas—even with high-volatility vehicles that are unrelated to the original inherited investment—can lessen that concentration risk. An even safer strategy would be to build a portfolio of diverse holdings that includes multiple asset classes across different sectors.

Learn about Trusts. Sometimes when people inherit assets through a trust, they don’t think it’s critical to require anything but a superficial understanding of how these work. This is because the trustee assumes nearly all the fiduciary duties. However, this could change when a beneficiary attains a certain age, which often triggers a dissolution of the trust or stipulates a transfer of trustee responsibilities to them. You should understand what will happen at that point. You may want to create your own trust to distribute part or all of your unmanaged inherited assets to heirs in a framework that suits you best, and without having to go through the probate process. In any event, you should learn how trusts work and the difference between revocable and irrevocable trusts. Ask your estate planning attorney about your specific situation and whether there is a trust that may be best for your circumstances.

Reference: Wealth Advisor (Jan. 7, 2020) “How to Handle Inherited Investments”

How Will the New SECURE Act Impact My IRAs and 401(k)?

The SECURE Act is the most substantial change to our retirement savings system in over a decade, says Covering Katy (TX) News’ recent article entitled “Laws Change for IRA and 401K Retirement Savings Plans.” The new law, called the Setting Every Community Up for Retirement Enhancement (SECURE) Act, includes several important changes. Let’s take a look at them.

There is a higher age for RMDs. The current law says that you must start taking withdrawals or required minimum distributions from your traditional IRA and 401(k) or similar employer-sponsored plan when you turn 70½. The new law delays this to age 72, so you can hold on to your retirement savings a while longer.

No age limit for contributions to traditional IRAs. Before the new law, you could only contribute to your traditional IRA until you were 70½. However, now you can now fund your traditional IRA for as long as you have taxable earned income.

Stretch IRA Limitations. Previously, beneficiaries could stretch taxable RMDs from a retirement account over his or her lifetime. Under the SECURE Act, spouse beneficiaries can still take advantage of this “stretch” distribution, but most non-spouse beneficiaries will have to take all the RMDs by the end of the 10th year after the account owner dies. Therefore, non-spouse beneficiaries who inherit an IRA or other retirement plan could have tax issues, because of the need to take larger distributions in a shorter amount of time.

Early withdrawal penalty eliminated for IRAs and 401(k)s when new child arrives. Usually, you must pay a 10% penalty when you withdraw funds from your IRA or 401(k) if done prior to 59½. However, the new legislation allows you take out up to $5,000 from your retirement plan without paying the early withdrawal penalty, provided you withdraw the money within a year of a child being born or an adoption becoming final.

There are provisions of the SECURE Act that primarily impact business owners, which include the following:

New multi-employer retirement plans. The new law allows unrelated companies to coordinate to offer employees a 401(k) plan with less administrative work, lower costs and fewer fiduciary responsibilities than individual employers now have when offering their own retirement plans.

Tax credit for automatic enrollment. There’s now a tax credit of $500 for some small businesses that create automatic enrollment in their retirement plans. A tax credit for establishing a retirement plan has also been increased from $500 to $5,000.

Annuities in 401(k) plans. The Act makes it easier for employers to add annuities as an investment option within 401(k) plans. Before the SECURE Act, businesses avoided annuities in these plans because of the liability related to the annuity provider. However, the new rules should help decrease any concerns.

Talk to an experienced estate planning attorney to examine the potential impact on your investment strategies and determine any possible tax and estate planning implications of the SECURE Act.

Reference: Covering Katy (TX) News “Laws Change for IRA and 401K Retirement Savings Plans”

How Do I Incorporate My Business into My Estate Planning?

When people think about estate planning, many just think about their personal property and their children’s future. If you have a successful business, you may want to think about having it continue after you retire or pass away.

Forbes’ recent article entitled “Why Business Owners Should Think About Estate Planning Sooner Than Later” says that many business owners believe that estate planning and getting their affairs in order happens when they’re older. While that’s true for the most part, it’s only because that’s the stage of life when many people begin pondering their mortality and worrying about what will happen next or what will happen when they’re gone. The day-to-day concerns and running of a business is also more than enough to worry about, let alone adding one’s mortality to the worry list at the earlier stages in your life.

Business continuity is the biggest concern for entrepreneurs. This can be a touchy subject, both personally and professionally, so it’s better to have this addressed while you’re in charge rather than leaving the company’s future in the hands of others who are emotionally invested in you or in your work. One option is to create a living trust and will to put in place parameters that a trustee can carry out. With these names and decisions in place, you’ll avoid a lot of stress and conflict for those you leave behind.

Let them be upset with you, rather than with each other. This will give them a higher probability of working things out amicably at your death. The smart move is to create a business succession plan that names successor trustees to be in charge of operating the business, if you become incapacitated or die.

A power of attorney document will nominate a fiduciary agent to act on your behalf, if you become incapacitated, but you should also ask your estate planning attorney about creating a trust to provide for the seamless transition of your business at your death to your successor trustees. The transfer of the company to your trust will avoid the hassle of probate and will ensure that your business assets are passed on to your chosen beneficiaries. Timely planning will also preserve your business assets, as advanced tax planning strategies might be implemented to establish specific trusts to minimize the estate tax.

Estate planning may not be on tomorrow’s to do list for young entrepreneurs and business owners. Nonetheless, it’s vital to plan for all that life may bring.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”