Is a Roth Conversion a Good Idea when the Market Is Down?

A stock market downturn may be a prime time for a Roth IRA conversion, reports CNBC’s recent article titled “Here’s why a Roth individual retirement account conversion may pay off in a down market.” This is especially true if you were considering a Roth conversion and never got around to it.

A Roth conversion allows higher earners to sidestep earnings limits for Roth IRA contributions, which are capped at $144,000 MAGI (Modified Adjusted Gross Income) for singles and $214,000 for married couples filing jointly in 2022.

Investors make non-deductible contributions to a pre-tax IRA, before converting funds to a Roth IRA. The tradeoff is the upfront tax bill created by contributions and earnings. The bigger the pre-tax balance, the more taxes you’ll pay on the conversion. However, the current market may make this a perfect time for a Roth conversion.

Let’s say you own a traditional IRA worth $100,000, and its value drops to $65,000. Ouch! However, you can save money by converting $65,000 to a Roth instead of $100,000. You’ll pay taxes on the $65,000, not $100,000.

According to Fidelity Investments, the first quarter of 2022 saw Roth conversions increase by 18%, compared to the first quarter of 2021. That was before the second quarter’s market volatility, which has been more dramatic.

The decision to do a Roth conversion can’t take place in a vacuum. Consider how many years of tax savings it will take to break even on the upfront tax bill. Weigh combined balances across any other IRA accounts, because of the “pro-rata rule,” which factors in your total pre-tax and after-tax funds to determine your tax costs.

Attractive features of the Roth IRA are the freedom to take—or not take—distributions when you want, and there are no taxes on the withdrawals. However, there is an exception, and it pertains to conversions—the five year rule.

If you do a conversion from a traditional IRA to a Roth IRA, you have to wait five years before making any withdrawals of the converted balance, regardless of your age. It’s an expensive mistake, with a 10% penalty. The clock begins running on January 1 of the year of the conversion. If you are close to retirement and will need funds within that timeframe, you’ll need other assets to live on.

However, there’s more. If the conversion increases your Adjusted Gross Income (AGI), it may create other issues. Medicare Part B calculates monthly premiums using Modified Adjusted Gross Income (MAGI) from two years prior, which means a higher income in 2022 will lead to higher Medicare bills in 2024.

Before doing a Roth conversion, evaluate your entire financial and retirement situation.

Reference: CNBC (May 10, 2022) “Here’s why a Roth individual retirement account conversion may pay off in a down market”

How Do I Find a Great Elder Law Attorney?

Zobuz’s recent article entitled “4 Tips for Hiring a Lawyer to Help with Medicaid Planning” says you may need to turn to an Elder Law attorney who can help you with Medicaid planning.

Here are some factors in choosing the best attorney:

Referrals and Recommendations. Look for an elder law attorney in the National Elder Law Foundation or the National Academy of Elder Law Attorneys database. You can also ask local agencies who work with seniors, such as the Alzheimer’s Association, AARP, as well as hospitals and nursing home social workers.

Experience. Elder law attorneys specialize in legal and financial issues that affect seniors. This includes areas such as estate planning and Medicaid planning. Look for an attorney who’s been successful in Medicaid planning and is board-certified in elder and special needs law.

Fees. Be sure that you understand how fees are structured. You should get a client engagement letter that outlines the services he or she will provide, as well as the fees they charge.

Customer Service. Dealing with Medicaid planning is a process that takes time. You need an attorney you can contact when you have questions.

A Few Other Thoughts…

Meet the elder law attorney in person for a consultation. This will help you to get a sense of his or her personality.

Look for a lawyer who will speak to you in a way you can understand and clarify points as needed.

Remember: if you don’t feel at ease with the attorney, look elsewhere.

When you select a qualified lawyer to help you with Medicaid planning and other medical insurance concerns, you will secure your future care.

Don’t risk your financial security or that of your family by waiting until it is too late.

Reference: Zobuz (April 22, 2022) “4 Tips for Hiring a Lawyer to Help with Medicaid Planning”

Key Dates for Planning Retirement

Just as there are many types of retirement benefits, there are many dates to keep in mind when creating a retirement plan. Some concern when you can make larger contributions to retirement accounts and others have to do with withdrawals. Knowing the dates for each matters to your retirement planning, according to the recent article title “10 Important Ages for Retirement Planning” from U.S. News & World Report.

When should you max out retirement savings contributions? The sooner you start saving for retirement, the more likely you’ll retire with robust tax-deferred accounts. Tax breaks and employer matches add up, as do compounding interest returns. The 401(k) contribution limit in 2021 is $19,500. Wage earners can deposit up to $6,000 in a traditional IRA or Roth IRA. If you’re in your peak earning years, traditional IRAs and 401(k)s may be better, since your tax bracket is likely higher to be higher than when you started out.

Catch-up contributions begin at age 50. Once you’ve turned 50, you can make catch up contributions to 401(k)s—up to $6,500—and up to $7,000 in traditional IRAs. That’s for 2021. If you’re able to take advantage of these contributions, you can put away additional money and qualify for even bigger tax deductions.

401(k) withdrawals could start at 55. If you left your job in the same year you hit the double nickel, you can take 401(k) withdrawals penalty-free from the account associated with your most recent job. The “Rule of 55” lets you avoid a 10% early penalty, but you’ll still have to pay income taxes on any withdrawals from a 401(k) account. However, if you roll a 401(k) account balance into an IRA, you’ll need to wait until age 59½ to take IRA withdrawals without any penalties.

When does the IRA retirement age begin? The magic number is 59½. However, traditional IRA distributions are not required until age 72. All traditional IRA withdrawals are also taxable.

Social Security eligibility begins at age 62. The earlier you start collecting Social Security, the smaller your monthly benefit. Your full retirement age depends upon your date of birth, when the benefit amount will be higher than at age 62. If you work after signing up for Social Security, your benefits could be temporarily withheld if your salary is higher than the annual earnings limit. If you retire before your full retirement age and earn more than $18,960 per year, for every $2 above this amount, your benefits will be reduced by $1. Benefits will be recalculated once you reach full retirement age.

Medicare eligibility begins at age 65. Enrollment in Medicare may take place during a seven-month period that begins three months before the month you turn 65. Signing up on time matters, because Medicare Part B premiums increase by 10% for every 12-month period you were eligible for benefits but failed to enroll. Are you delaying enrollment because you or your spouse is still covered by a group health plan at work? Make sure to sign up within eight months of leaving your job or health plan and avoid the penalty.

Social Security Full Retirement Age is 66 for most Baby Boomers. 67 is the full retirement age for workers born in 1960 or later. Millennials and younger generations qualify after age 67.

If you can wait until 70, you’ll max out on Social Security. Social Security benefits increase by 8% for each year you wait to start payments between Full Retirement Age and age 70. After age 70, the number remains the same.

RMDs begin for 401(k) and IRA retirement accounts at age 72. These mistakes here are expensive! Your first distribution must be taken by April 1 of the year you turn 72. After that, annual withdrawals from 401(k)s and traditional IRAs must be taken by December 31 of each year. Missing a required distribution and you’ll get hit with a nasty 50% of the amount that you should have withdrawn.

Reference: U.S. News & World Report (July 28, 2021) “10 Important Ages for Retirement Planning”

How Do I Find a Great Elder Law Attorney?

Elder law attorneys specialize in legal affairs that uniquely concern seniors and their adult children, says Explosion’s recent article entitled “The Complete Guide on How to Find an Elder Law Attorney.”

Finding the right elder law attorney can be a big task. However, with the right tips, you can find an experienced elder law attorney who is knowledgeable, has the right connections and fits your budget.

While, technically, a general practice attorney will be able to handle your retirement, Medicaid and even your estate planning, an elder law lawyer is deeply entrenched in elder law. This means he or she will have extensive knowledge and experience to handle any case within the scope of elder law, like the following:

  • Retirement planning
  • Long-term care planning and insurance
  • Medicaid
  • Estate planning
  • Social Security
  • Veterans’ benefits; and
  • Other related areas of law.

While a general practice lawyer may be able to help you with one or two of these areas, a competent elder law lawyer knows that there’s no single formula in elder law that applies across the board. That’s why you’ll need a lawyer with a high level of specialization and understanding to handle your specific circumstances. An elder law attorney is best suited for your specific needs.

A referral from someone you trust is a great place to start. When conducting your elder law lawyer search, stay away from attorneys who charge for their services by the hour. For example, if you need an elder law attorney to work on a Medicaid issue, they should be able to give you an estimate of the charges after reviewing your case. That one-time flat fee will cover everything, including any legal costs, phone calls, meetings and court fees.

When it comes to elder law attorneys, nothing says more than experience. An experienced elder law lawyer has handled many cases similar to yours and understands how to proceed. Reviewing the lawyer’s credentials at the state bar website is a great place to start to make sure the lawyer in question is licensed. The website also has information on any previous ethical violations.

In your search for an elder law attorney, look for a good fit and a high level of comfort. Elder law is a complex area of law that requires knowledge and experience.

Reference: Explosion (Aug. 19, 2020) “The Complete Guide on How to Find an Elder Law Attorney”

Why are Medicare Scams Increasing in the COVID-19 Pandemic?

Medicare scams are increasing in the COVID-19 pandemic. Motley Fool’s recent article entitled “Seniors, Be Wary of These Medicare Scams During COVID-19” discusses some red flags you should look out for to avoid being a victim.

  1. Callers requesting your Medicare number. Medicare typically won’t call beneficiaries and randomly ask them to verify their benefits. If someone calls you and requests your Medicare ID number, don’t give them your information.
  2. Callers requesting your Social Security number. If a bad guy gets your Social Security number, he can do a number of things with that information, any of which will create headaches for you. This includes opening a credit card in your name and charging a lot of expenses on it. If you get a caller who says he’s a Medicare representative who needs your Social Security number to process a health claim, don’t give it to him.
  3. Email or phone calls asking you to send money. Medicare doesn’t sell prescriptions over the phone or ask seniors to pre-pay for services. If someone calls asking you to send money or give out credit card information, it’s a bogus caller.
  4. A promise for early access to a COVID-19 treatment or vaccine. Right now, there is no COVID-19 vaccine. There is also no mail-order treatment that you can stock up on to protect yourself in case you’re struck with the virus. Therefore, don’t believe a caller who says he’s from Medicare and is offering you a chance to get in on a groundbreaking medication. Don’t pay him or share your Medicare ID number during that conversation. When an effective vaccine is available, Medicare will pay for it and let you know how to get it.
  5. Someone at your door claiming to be from Medicare. Medicare doesn’t have sales reps. Therefore, if someone says they’re from Medicare, lock the door and demand that that person leave immediately. Call the police, if you need help.

When a lot of seniors are worried, isolated, and in financial straits, they don’t need to fall victim to a scam. Be prepared and be aware of what common fraud attempts look like. That way, you’ll be in a good position to protect yourself.

If you receive a suspicious email or phone call, report it at 1-800-MEDICARE. This might prevent another senior from falling victim to what could be an extremely dangerous trap.

Reference: Motley Fool (May 25, 2020) “Seniors, Be Wary of These Medicare Scams During COVID-19”

Medicare Patients Be Wary of COVID-19 Scams!

It’s still not easy to get tested for COVID-19 in many states, so it’s not surprising to learn that scammers are exploiting the shortage. They’re especially preying on the elderly.

Money Talks News’ recent article entitled “Are You on Medicare? Beware Coronavirus Scammers” reports that scammers use stolen personal data to commit Medicare fraud and identity theft, according to the U.S. Department of Health and Human Services.

Medicare warned beneficiaries in a recent email, “Unfortunately, scammers are using the COVID-19 pandemic to try to steal your Medicare number, personal information and money. And they’re using robocalls, social media posts and emails to do it.”

Some of these criminals are even knocking on people’s doors to talk them out of their personal data.

Seniors are advised to not divulge their personal information, including their Medicare number, with anyone, except a trusted health care provider or other qualified expert. If you’re unsure who’s legitimate, call for help and advice from your Senior Medicare Patrol, volunteer groups funded by the Department of Health and Human Services (HHS).

Health and Human Services says that your personal information can be used to fraudulently bill federal health care programs and commit medical identity theft.

You may also wind up being responsible for charges, if Medicare denies the claim for an unapproved test. You need to protect your Medicare and Social Security information, because it can be used in fraud schemes. If you think you’ve been contacted by a scammer, do the following:

  • Report suspected criminals to the National Center for Disaster Fraud Hotline at 866-720-5721 or write to disaster@leo.gov.
  • Be on guard, if someone requests your Medicare number, when you didn’t ask for services.
  • Be suspicious of those offering coronavirus supplies or testing.
  • When using social media, don’t click or respond to advertisements and offers for coronavirus testing.
  • If you think you should get a COVID-19 test, ask your doctor or doctor’s office.

In addition, the FBI advises everyone — not only seniors — to be aware of and to report:

  • Bogus emails purporting to be from the Centers for Disease Control and Prevention (CDC).
  • Phishing emails, which try to trick you into sharing personal information.
  • Counterfeit treatments and equipment, like sanitizing products, masks, face shields, goggles, respirators, protective gloves or gowns.

Reference: Money Talks News (May 19, 2020) “Are You on Medicare? Beware Coronavirus Scammers”

Is Long-Term Care Insurance Really a Good Idea?

Forbes’ recent article entitled “Is Long-Term Care Insurance Right For You?” says that a big drawback for many, is the fact that LTCI is expensive. However, think about the costs of long-term care. For example, the current median annual cost for assisted living is $43,539, and for a private room in a nursing home, it’s more than $92,000.

Another issue is that there’s no way to accurately determine if in fact you’ll even need long-term care. Much of it depends on your own health and family history. However, planning for the possibility is key.

Remember that Medicare and other types of health insurance don’t cover most of the cost of long-term care—what are known as “activities of daily living,” like bathing, dressing, eating, using the bathroom and moving. Medicare will only pay for medically necessary skilled nursing and home care, such as giving shots and changing dressings and not assisted-living costs, like bathing and eating. Supplemental insurance policies generally don’t pay for this type of care.

Those with a low net worth might qualify for long-term care provided under Medicaid.

Shop around, because policies and prices are different. Check the policy terms and be sure you understand:

  • The things that are covered, such as skilled nursing, custodial care, and assisted living
  • If Alzheimer’s disease is covered as it’s a leading reason for needing long-term care
  • If there are any limitations on pre-existing conditions.
  • The maximum payouts
  • If the payments are adjusted for inflation
  • The lag time until benefits begin
  • How long benefits will last
  • If there’s a waiver of premium benefit, which suspends premiums when you are collecting long-term care benefits
  • If there’s a non-forfeiture benefit, which offers limited coverage even if you cancel the policy
  • If the current premiums are guaranteed in future years, or if there are limits on future increases
  • How many times rates have increased in the past 10 years
  • If you purchase a group policy through an employer, see if it is portable (if you can take it with you if you change jobs).

Typically, when you are between 50 to 65 is the most cost-effective time to buy LTCI, if you’re in good health. The younger you buy, the lower the cost. However, you will be paying premiums longer. Premiums usually increase as you get older and less healthy. There’s a possibility that you’ll be denied coverage, if your health becomes poor. Therefore, while it’s not inexpensive, buying LTCI sooner rather than later may be the best move.

Reference: Forbes (April 17, 2020) “Is Long-Term Care Insurance Right For You?”

What are the Restrictions on Visiting the Elderly in a Care Facility?

The restrictions in Virginia started after the American Health Care Association, the largest national trade organization representing long-term care centers, and the Centers for Disease Control and Prevention issued guidance recommending extreme measures to prevent a scenario that has played out in a Washington state nursing home, where the virus spread rapidly and took many lives.

The Richmond Times-Dispatch’s recent article entitled “Virginia nursing homes restrict visitors over coronavirus fears, families worry about separation” says, however, that some family members and advocates worry that — without loved ones allowed to visit — residents will be even more vulnerable to neglect in nursing homes that already struggle to give them basic care.

“What we have found is that experts believe that this is the most prudent step that we can take to protect the residents,” said Keith Hare, CEO of the Virginia Health Care Association, the state chapter of the AHCA. “We have to put the health and well-being of these residents first. … It really is unprecedented action.”

However, some family members who are told that they can drop off supplies for the residents at the nursing home, cannot stay for a visit. Some are worried that parents with Alzheimer’s who need help eating, won’t be fed without their regular visitors because nursing homes are understaffed.

Nursing homes in the state say it was a hard decision to cease visitation, but it was necessary to prevent any exposure in the care facilities. They’re going to do whatever we can to keep it out, official say.

Innovative Healthcare Management, a company that runs five nursing homes in Virginia with a total of 750 residents, said that it has been educating its staff and preparing for a potential outbreak, since first learning of the coronavirus outbreak in China. IHM recently began screening visitors for possible coronavirus infection before they entered the facilities. The company decided to restrict all nonessential visitors, except when a resident is believed to be dying.

Nursing homes are trying other ways for family members to connect with residents, like phone calls and video chats.

While nursing homes around the country are doing the same thing and are restricting group gatherings within the centers, they are trying to make sure residents are being entertained with in-room activities, such as movies, card games, and puzzles. The focus at the facilities is on communication and keeping residents entertained.

Reference:  Richmond Times-Dispatch (March 15, 2020) “Virginia nursing homes restrict visitors over coronavirus fears, families worry about separation”