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Page 1 Northeast Planning Associates, Inc.
This reference guide is created for Northeast Planning
Associates
Advisors and Staff use only. Use with the General Public is
prohibited.
2018
QuickQuickQuick
Reference Reference Reference
GuideGuideGuide
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Page 2 Quick Reference Guide Page 2 Quick Reference Guide
© 2018 Northeast Planning Associates, Inc.
All rights reserved.
This reference guide is created for
Northeast Planning Associates Advisors and Staff use only.
Use with the General Public is prohibited.
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Page 3 Northeast Planning Associates, Inc. Page 3 Northeast
Planning Associates, Inc.
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Page 4 Quick Reference Guide
Table of Contents
NPA Extensions 6
Section I: 2018 Updated Tax Information
Tax Cuts and Jobs Act - Individuals 9
Tax Cuts and Jobs Act - Businesses 10
Employee Benefit Limits 11
IRA Contribution Limits 12
2018 Income Tax Brackets - Individuals and Trusts/Estates 13
2018 Gift & Estate Tax Information 14
2018 Gift Tax Exclusions, SS Taxation and Offset Provisions
15
Tax-Qualified Long-Term Care Insurance Summary 16
Medicare Tax on Net Investment Income & Tax Free Policy
Exchanges 17
Section II: Government Benefits
When to Take Social Security Benefits 21
Effect of Retirement Age on Social Security Benefits 23
How Work Affects Social Security Benefits 24
Useful Social Security Information 25
SS Retirement & Survivor Benefit Tables 26
Medicare 28
Medicaid Provisions 31
Section III: IRAs, Qualified Plans & Employee Benefits
Qualified Plan/IRA Rollover Options 37
Getting through the IRA Maze - 2018 38
Required Minimum Distributions 41
Uniform Lifetime Table to calculate RMDs 43
Single Lifetime Table to calculate RMDs 44
Retirement Plan Distributions Prior to 59 1/2 45
Taxation of Roth IRA Distributions 47
Back Door Roth IRA Contribution 48
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Page 5 Northeast Planning Associates, Inc.
Table of Contents
Waiver of 60-Day Rollover- Self-Certification 49
Roth IRA Conversion Factors to Consider 49
Roth Conversion Decision Tree 50
Trusteed IRA 51
Incentive and NQ Stock Options 51
Comparative Features FSA, HRA, HSA 52
Section IV: Education Planning
Qualified Tuition Savings Plans (529) 57
Superfunding a 529 & Internet Resources 59
Section V: Estate & Charitable Gifting
Estate & Gift Tax Information 63
Transfer on Death Titling 64
Charitable Remainder Trusts 65
Charitable Lead Trusts 66
Section VI: Financial Concepts
CPI & Inflation Tables 71
Tax Exempt vs Taxable Income 73
Financial Destinations - Rates of Return for Each Time Period
74
Accumulating One Million Dollars 75
Savings Early vs. Saving Late 76
Bond Maturity vs. Duration 77
Rule of 72 & Rule of 115 & 2017 Market Results 78
Sustainable Withdrawal Rates 79
Notes 81
The Planning Center 82
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Page 6 Quick Reference Guide
Receptionist 200
CEO’s Office—Ed Hiers 300
President’s Office—Ben Hiers 234
Assistant to CEO/President—Ruth Etelman-Smith 225
Corporate Development/
Integrated Partners—Chris Soucy 211
The Planning Center—Matt Eaton
Marie Smith
Andrew Doughty
227
301
228
Virtual Assistant—Deb Dussault 236
Technology—Joe Lemire 248
Marketing—Bryan Harms
Megan Ayers
246
266
Compliance/Operations—Mike Hartman
Claudia Vecchi
Jocelyn Lockwood
212
208
240
Accounting—Rachel Lessard 232
Northeast Planning Associates, Inc.
43 Constitution Dr.
Bedford, NH 03110
(603) 471-0900 - FAX (603) 471-0471
Extension Listing
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Page 7 Northeast Planning Associates, Inc.
2018 Updated Tax Info TAB
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Page 8 Quick Reference Guide
2018 Updated Tax Info TAB
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Page 9 Northeast Planning Associates, Inc.
Tax Cuts and Jobs Act - Individuals
Pre-Reform 2018 Post-Reform 2018
Top Individual Tax Rate 39.6% 37% (until 2025) - see pg. 13
Estate Tax Exemption $5.59 Million $11.18 Million (until
2025)
State and Local Tax
(SALT)
Deductible Capped at $10,000 property
and income tax
Mortgage Interest
Deduction
Deductible up to $1 Million +
$100,000 home equity
Deductible up to $750,000 of
new mortgages; no home
equity
Medical Expense
Deduction
Floor of 10% of AGI Floor reduced to 7.5% AGI for
tax years 2017 & 2018
Miscellaneous Deduction
(i.e. invest. advisory fees)
Floor of 2% AGI Eliminated
Personal Exemption $4,150 per person Eliminated
Standard Deduction $6,500 single; $13,000 joint $12,000 single;
$24,000 joint
Child Tax Credit $1,000 per child $2,000 per child;
refundable
up to $1,400
ACA Individual Mandate Penalty of $695 or 2.5% for no
health insurance
Eliminates Penalty
Individual AMT $55,400 single; $86,200 joint
exemption; $164,000 phase-out
$70,300 single; $109,000 joint
exemption; phaseout of $1M
Section 529 Plans Qualified higher education ex-
penses only
K-12 education expenses now
approved up to $10,000/yr per
Student Loan Interest
Deduction
Deductible No Change
First-In, First-Out (FIFO) Flexibility to optimize No Change
Capital Gain Long-Term: 0%/15%/20%
Short-Term: Ordinary Income
No Change
Municipal Interest
Exemption
Muni interest exempt from
federal income tax
No Change
The 2017 Tax Cuts and Jobs Act was officially signed into law on
December 22,
2017. This is the most sweeping federal tax legislation in more
than three dec-
ades, and it affects both individual taxpayers and
businesses.
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Page 10 Quick Reference Guide
Pre-Reform 2018 Post-Reform 2018
Corporate Tax Rate 35% 21% (permanent)
Top Pass-Through Rate 39.6% 20% deduction (until 2025) -
N/A to Prof Service Corp
Corporate AMT 20% tax to broadly defined
alternative income
Repealed
Expensing 50% expensing through 2020 100% expensing through
2023
Interest Expense
Deductibility
No Limit Limits to 30% EBITDA until
2021; 30% EBIT thereafter
Net Operating Loss Carry-back 2yrs; Carry-
forward up to 20yrs
Eliminates carry-backs; indef-
inite carry-forwards (caveats)
Taxation of Foreign
Income
Worldwide (repatriated only) Territorial; 100% exemption
Deemed One-Time
Repatriation Tax
Not Applicable 15.5%; 8% illiquid
Tax Cuts and Jobs Act - Businesses
Other Important Changes/Implications:
Charitable Contributions - Donations of cash to public charities
will be deductible
up to 60% of AGI, an increase from the current 50%. Implications
of this for char-
itable trusts and donor advised funds as more may be
deducted
Alimony Payments - The deduction for alimony paid to an
ex-spouse will be disal-
lowed, and the income will no longer be taxed to the recipient.
This only applies
to divorces entered into after 2018.
Recharacterization of Roth Conversion - The ability to
recharacterize a Roth con-
version is eliminated. This is retroactive, so while normally
taxpayers have until
October 15th of the year following the conversion to request a
“do over”, those
who converted back in 2017 no longer have this option.
ABLE Accounts - Annual contributions to these tax-deferred
accounts for those
with disabilities are currently capped at the annual gift tax
exclusion amount
($15,000 in 2018). Beneficiaries are now allowed to contribute
their own earnings
once the limit has been reached by gifts from others.
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Page 11 Northeast Planning Associates, Inc.
Employee Benefit Limits
Defined Benefit Plans $220,000
Defined Contributions $55,000 or 100% of pay
Elective Deferral Limit for
401(k) (incl. Roth) and 403(b) plans $18,500
Catch-up for 401(k) and 403(b) plans $ 6,000
SIMPLE IRAs and SIMPLE 401(k) plans $12,500
Catch-up for SIMPLE IRAs and
SIMPLE 401(k) plans $ 3,000
Elective Deferral for 457 Plans $18,500
Catch up for 457 Plans: $ 6,000
SEP Contributions: 25% of Covered Comp up to
maximum of $55,000
Minimum Compensation for SEPs $ 600
Maximum Compensations for SEPs,
VEBAs, TSAs, Qualified Plans $275,000
Highly Compensated Employee Comp $120,000
Key Employee Compensation $175,000
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Page 12 Quick Reference Guide
Contributions Limits—Traditional & Roth IRA
*Taxpayers age 50 and over are eligible to make catch-up
contributions
AGI Phase-Out Range for Contributions to Roth IRAs
Married Filing Jointly $189,000—$199,000
Single $120,000—$135,000
Traditional IRA Deductibility Rules
Covered by an employer sponsored plan, phase-out for deduction
is
Married Filing Jointly $101,000—$121,000
Single $63,000—$73,000
Not covered by an employer sponsored plan, but filing a joint
return with a
spouse who is covered by one, phase-out for deduction is
$189,000—$199,000
Single individuals not covered by a qualified plan and married
couples where
neither is participating in a qualified plan, deduction of up to
the lesser of $5,500
(plus Catch Up) or 100% of earned income allowed without regard
to AGI
Kiddie Tax
Changed as part of the Tax Cuts and Jobs Act, any earned income
for a child
will be taxed using the trust tax rates (see pg. 13). These
revised kiddie tax
rules are set to expire after 2025.
2017 2018
Regular $5,500 $5,500
Catch-Up* $1,000 $1,000
Social Security/Medicare Taxes
OASDI Wage Base: $128,400
OASDI Tax: 6.2%
Medicare Wage Base: Unlimited
Medicare Tax: 1.45%
Additional Medicare Tax .90%
Single $200,000+, Married $250,000+
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Page 13 Northeast Planning Associates, Inc.
2018 TAX YEAR INFORMATION
Federal Income Taxes
Married Filing Jointly & Surviving Spouse
Single Individuals
STANDARD DEDUCTION Joint $24,000 Single $12,000
Trust & Estates Income Tax Rates
Ordinary Taxable Income Income Tax Rate Capital Gains Rate
$0 - $2,550 10% 0%
$2,551 - $9,150 24% 15%
$9,151 - $12,500 35% 15%
$12,501+ 37% 20%
Taxable Income Tax on Column 1I Tax on Excess Gross Income*
Capital Gains
$0 $0 10% $24,000 0%
$19,050 1,905.00 12% $43,050 0%
$77,400 8,907.00 22% $101,400 10%
$165,000 28,179.00 24% $189,000 15%
$315,000 64,179.00 32% $339,000 15%
$400,000 91,379.00 35% $424,000 18.8%**
$600,000 161,379.00 37% $624,000 23.8%**
Taxable Income Tax on Column 1I Tax on Excess Gross Income*
Capital Gains
$0 $0 10% $12,000 0%
$9,525 $952.50 12% $21,525 0%
$38,700 $4,453.50 22% $50,700 0%
$82,500 $14,089.50 24% $94,500 15%
$157,500 $32,089.50 32% $169,500 15%
$200,000 $45,689.50 35% $212,000 18.8%**
$500,000 $150,689.50 37% $512,000 23.8%**
*Gross Income prior to standard deduction(s).
**Includes additional Medicare tax on Net Investment Income
above $250,000 (MFJ)/$200,000 (Single). See page 17.
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Page 14 Quick Reference Guide
2018 Estate & Gift Tax Table
(also found in Estate & Charitable Section - pg. 63)
Taxable Gift Taxable Gift Tax on Rate on
From To Col. 1 Excess
$ 0 $ 10,000 $ 0 18%
10,000 20,000 1,800 20%
20,000 40,000 3,800 22%
40,000 60,000 8,200 24%
60,000 80,000 13,000 26%
80,000 100,000 18,200 28%
100,000 150,000 23,800 30%
150,000 250,000 38,800 32%
250,000 500,000 70,800 34%
500,000 750,000 155,800 37%
750,000 1,000,000 248,300 39%
1,000,000 11,180,000 345,800 40%
11,180,000 —— 4,417,800 40%
Estate & Gift Tax Exclusion Amount
Year Exclusion Amount Tax Credit
2018 11,180,000 $4,417,800
Portability between spouses is now permanent. (“DSUE” =
Deceased
Spousal Unused Exclusion).
Basis is stepped up at death.
Why consider Marital or CST trusts?
DSUEA amount is NOT indexed after the first death.
CST will shelter future appreciation.
Marital trust can irrevocably name beneficiaries.
Trust assets are generally sheltered from creditors and are
kept
private.
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Page 15 Northeast Planning Associates, Inc.
2018 Gift Tax Credit
Exclusion Equivalent
$11,180,000
Annual Exclusion for Gifts
$15,000 per donee
Annual Exclusion for Gifts to Non-Citizen Spouse
$152,000
Social Security Benefits
Maximum SSI Benefit: $2,788/month
Earnings Limits for under Full Retirement
Age -Lose $1 for every $2 earned over: $17,040/year
Over age Full Retirement Age: No Limit
Taxation of Social Security Benefits
Married Filing Jointly Single
0% Taxable Up to $32,000 MAGI* Up to $25,000 MAGI*
50% Taxable $32,001—$44,000 MAGI* $25,001—$34,000 MAGI*
85% Taxable Above $44,000 MAGI* Above $34,000 MAGI*
*MAGI equals Adjusted Gross Income plus any tax exempt interest
earned and 1/2 of
Social Security Benefit
Social Security Exempt Pension Offset
Personal Social
Security
Collecting Spouse
Benefit
Collecting Surviving
Spouse Benefit
Person
Receiving
Exempt
Pension
Approximately
50% reduction
in SSI
67% of exempt
pension subtracted
from SSI eligibility
67% of exempt pen-
sion subtracted from
SSI eligibility
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Page 16 Quick Reference Guide
Type of
Taxpayer Deduction of Premiums
Taxation of
Benefits
Individual tax-
payer who does
NOT itemize
deductions
No LTC insurance premium deduction available
Reimburse-
ment: benefits
are not included in
income.
Individual tax-
payer who item-
izes deductions
LTC insurance treated as accident and health insurance Deduction
is limited to the lesser of actual premium paid or
eligible LTC premium amounts Eligible LTC premium in 2018:
Attainted age Limit 40 or less $ 420 41-50 $ 780 51-60 $1,560 61-70
$4.160 71 and older $5,200 Medical expense deduction is allowable
to extent that such ex-
penses (including payment of eligible LTC premium) exceed
10%
of AGI.
Per diem
(indemnity):
benefits are not
included in income
except those
amounts which
exceed the greater
of: - Total qualified
LTC expenses - $360/day
MSA & HSA Eligible LTC insurance premium is considered a
qualified medical
expense
Employee (non-owner)
LTC premium paid by employee: - Deductible be employee who
itemizes (subject to limitations
above) - May NOT be paid through a cafeteria plan - May NOT be
paid through an FSA or similar
arrangement LTC premium paid by employer:
- Employer-provided LTC insurance is treated as an accident
and
health plan - Deductible by employer (subject to reasonable
compensation) - Total (not eligible) LTC insurance premium is
excluded from
employee’s income
Non-forfeiture:
benefits (return of
premium) are: - Available only
upon total surren-
der or death - May not be
borrowed or
pledged - Included in gross
income to extent
of any deduction
of exclusion al-
lowed with re-
spect to premium
C-Corporation
(shareholder/ employee w/ W-2)
Treated as “Employee” (see above)
Sole
Proprietor S-Corporation
(greater than 2%
shareholder
with W-2) Partnership (any %)
Eligible for Self-Employed health insurance deduction,
which is taken “above the line” Line 29 of IRS Form 1040 Limited
to lesser of actual LTC premium paid or eligible
LTC premium (see “Individual who itemizes” section)
Deduction is NOT limited to 10% AGI threshold. Limited
Liability Cor-
poration
(LLC)
Tax-Qualified Long-Term Care Insurance Summary
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Page 17 Northeast Planning Associates, Inc.
Medicare Tax on Net Investment Income
The tax is 3.8% on the lesser of Net Investment Income or NII
LESS the threshold
amount. See the following table for an illustration:
The following should be considered as planning techniques to
potentially reduce the im-
pact of this tax:
Targeting investments with losses will directly offset NII.
Reducing AGI will also reduce the tax, if doing so would reduce
income below the threshold amount.
Deductible contributions to IRAs and deferrals to 401(k) plans
should be considered.
Giving appreciated securities to charity as any gains would not
be included on the tax return.
If a Sub Chapter S-Corp or rental property, changing income
received from passive to active would not subject such income
to the tax. Note: Doing so will subject income to FICA.
Net Investment Income
Filing Status Married Filing Jointly Single
Threshold $250,000 $200,000
Example:
Wages $225,000 $300,000 $175,000 $250,000
Net Investment Income $75,000 $75,000 $60,000 $60,000
Total $300,000 $375,000 $235,000 $310,000
Amount Over Threshold $50,000 $125,000 $35,000 $110,000
Lesser of NII or Amount Over $50,000 $75,000 $35,000 $60,000
Tax at 3.8% $1,900 $2,850 $1,330 $2,280
Tax-Free Policy Exchanges under IRS Code Section 1035
Life insurance policies and annuities must have the same owner
and insured (cannot
go from single life policy to joint life policy).
Policy funds should transfer directly between insurance
companies.
If cash or property is included as part of the exchange, any
gain will be recognized up to that amount.
If a tax free withdrawal is taken from a life policy which is
subsequently exchanged for a new life policy it may be considered a
“step” transaction with gain recognized
to the extent of the withdrawal.
Cost basis should carry over from the old policy to the new
.
Type of New Policy/Contract
Existing Policy/Contract
Type
To Life
Insurance
To an Endow-
ment Contract
To a Fixed or
Variable Annuity
To a Qualified
LTC Contract
Life Insurance Yes Yes Yes Yes
Endowment Contract No Yes1 Yes Yes
Annuity Contract No No Yes Yes
Qualified LTC Contract No No No Yes
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Page 18 Quick Reference Guide
NOTES
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Page 19 Northeast Planning Associates, Inc.
Government Benefits TAB
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Page 20 Quick Reference Guide
Government Benefits TAB
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Page 21 Northeast Planning Associates, Inc.
When to Take Social Security Retirement Benefits Social Security
is administered by the Social Security Administration and
provides
old age (retirement), survivors, and disability benefits
(OASDI). The most widely
used aspect of this program is the retirement benefits – nine
out of ten individuals
over age 65 receive benefits. Research by the Federal government
indicates that
Social Security retirement benefits typically make up more than
one-third of the
income of Americans age 65 or older.1 Thus, the decision as to
when to begin to
take Social Security retirement benefits is an important
one.
The question is made a little easier to answer if you separate
when you want to
retire from when you want to begin receiving Social Security
retirement benefits;
these two events don’t necessarily have to occur at the same
time. An under-
standing of how your benefits are calculated and what happens if
you continue to
work after beginning to receive benefits, is also important.
“Full” Retirement Age – “Full” Benefits
Full Retirement Age (FRA), the age at which “full” benefits –
100% of an individual’s
Primary Insurance Amount2 (PIA) – are available, is set at age
65 for those born in
1937 or earlier. For those born 1938 or later, FRA gradually
increases until it
reaches age 67 for those born in 1960 or later.
Early Retirement – Reduced Benefits
If fully insured, an individual can claim permanently reduced
retirement benefit as
early as the first full month of age 62. The amount of the
reduction varies with the
year of birth. For example, an individual born in 1943 (FRA =
66) who began re-
ceiving benefits at age 62 had his or her retirement benefit
reduced to 75% of what
it would have been had they chosen to wait until FRA. However,
for a worker
born in 1962, for whom FRA is age 67, choosing to receive
retirement benefits at
age 62 results in an initial benefit reduced to 70% of what it
would have been had
the individual waited to NRA.
Delay Retirement – A Bigger Benefit
For those continuing to work past their FRA or those with
adequate retirement
income outside of Social Security, delaying receipt of
retirement benefits may be
appropriate. What happens when you decide to wait and take your
retirement
benefits later than your FRA is you get paid for waiting, in the
form of a larger
retirement benefit. For each year beyond your FRA that you delay
receiving bene-
fits – up to age 70 – your benefit is increased by 8%.
Due to new rules, a spouse or dependent of a worker born after
4/30/1950
may only receive a benefit based on the worker’s benefit if the
worker has
filed and is receiving a benefit.
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Page 22 Quick Reference Guide
Phase-In (Restricted Application)
One spouse starts receiving income before their Full Retirement
Age while the
other spouse starts receiving their benefit at their FRA. Only
available to those
born 1/1/1954 or earlier.
Example of Phase-In: This strategy provided benefits as early as
62, with the ability
to receive higher benefits later in life. At age 62, the
lower-earning spouse collects
his/her individual benefit, which is reduced based on their date
of birth and FRA. At
FRA the higher-earning spouse collects the spousal benefit only(
filing a restricted
application) in order to delay his/her own benefit until age 70.
At age 70, the higher
-earning spouse collects his/her own benefit and the
lower-earning spouse receives
the spousal benefit.
When Is Best to Receive Retirement Benefits?
One way to answer this question is to perform a break-even
analysis which esti-
mates the age at which the total value of higher benefits (from
delaying retirement)
is greater than the total value of lower benefits (from starting
retirement early).
Those expecting to live longer than the break-even age would
likely benefit from
delaying the start of Social Security retirement benefits. For
those in poor health,
or if family members have historically had short life spans, it
is likely of greater
benefit to begin benefits early.
AdvisorExchange: There is a Social Security Analysis spreadsheet
available on
AE for your use. It will compare up to 3 ages at which to begin
benefits and based
on the life expectancy assumption will provide guidance on what
age would pro-
vide the highest net present value (NPV). This can be found
under The Planning
Center: Planning.
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Page 23 Northeast Planning Associates, Inc.
The Effect of Early or Delayed Retirement on Social Security
Retirement Benefits
The table below shows the effect of early or delayed retirement
on an individu-
al’s retirement benefit, depending on their year of birth.
Source: Social Security Administration. 1The PIA is calculated
by the Social Security Administration based on a person’s lifetime
earnings rec-
ord.
Retirement Benefit as a Percentage of the Primary Insurance
Amount
at Various Ages1
Year of
Birth
Full Re-
tirement
Age (FRA)
Credit for
each year
of delayed
retire-
ment
after FRA
(Percent)
Benefit as a % of PIA at Age
62 63 64 65 66 67 70
1943-
1954 66 8 75 80 86 2/3 93 1/3 100 108 132
1955 66, 2mos 8 74 1/6 79 1/6 85 5/9 92 2/9 98 8/9 106 2/3 130
2/3
1956 66, 4mos 8 73 1/3 78 1/3 84 4/9 91 1/9 97 7/9 105 1/3 129
1/3
1957 66, 6mos 8 72 ½ 77 ½ 83 1/3 90 96 2/3 104 128
1958 66, 8mos 8 71 2/3 76 2/3 82 2/9 88 8/9 95 5/9 102 2/3 126
2/3
1959 66, 10mos 8 70 5/6 75 5/6 81 1/9 87 7/9 94 4/9 101 1/3 125
1/3
1960 and
later 67 8 70 75 80 86 2/3 93 1/3 100 124
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Page 24 Quick Reference Guide
How Work Affects Social Security Benefits
If a Social Security recipient also works while receiving
retirement benefits, some
of the benefits may be reduced if the income earned exceeds
certain dollar limits.
However, the month an individual reaches Full Retirement Age, or
FRA, Social
Security benefits are no longer reduced, regardless of the
amount of income
earned.
Example (1): An individual begins receiving Social Security
benefits at age 63 in
January 2018 with a benefit of $500/month. If the retiree works
and earns
$27,040 during the year, he or she would have to give up $5,000
of Social Security
benefits ($1 for every $2 over the $17,040 limit), but would
still receive $1,000.
Example (2): Assume an individual reaches FRA in August 2018.
Also assume the
individual has an annual salary of $60,000 for 2018. Even though
the salary is
greater than the earnings limit, only the first 7 months (the
month in which the
individual reaches FRA is not counted) or $35,000 are counted as
earnings to test
for possible reduction. Since this amount is less than the
limit, there will be no
reduction in benefits should she choose to begin receiving
benefits early.
Age of Social
Security Benefits
Recipient
Annual Exempt Amount One Dollar of Benefits Lost for
Every Two or Three Dollars
Earned Over the Exempt
Amount 2017 2018
Under FRA $16,920 $17,040 Every Two Dollars
Year FRA
Reached $44,880 $45,360 Every Three Dollars
Month FRA
Reached No Limit No Limit No Loss of Benefits
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Page 25 Northeast Planning Associates, Inc.
What Counts as Earnings? Any wages earned from work as an
employee and any net earnings from self-
employment count as earnings. Wages include bonuses,
commissions, fees and
earning from all types of work, whether or not covered by Social
Security.
Income not counted as earnings include:
Investment income including stock dividends, interest from
savings accounts, income from annuities, limited partnership income
and rental income from
real estate you own (unless counted as self-employment
income).
Payments from IRAs or Keogh Plans.
Income from Social Security, pension, other retirement pay and
Veterans Administration Benefits.
Gifts or inheritances.
Royalties received after age 65 from patents or copyrights
obtained before that year.
Retirement payments received by a retired partner from a
partnership, pro-vided certain conditions are met.
Income from self-employment received in a year after the year a
person be-comes entitled to benefits. This refers to income which
is not attributable to
services performed after the month of entitlement. This is only
excluded
from gross income for the purposes of the earning test.
Social Security Information
SSA Reinstates Mailing of Paper Statements
In September 2014, the Social Security Administration resumed
mailing paper
statements to those not enrolled in their online system.
Statements will be mailed
in five year increments, beginning at 25 and continuing to 60.
As before, it is possi-
ble to get an online estimate of your personal benefits (or
direct your clients on
how to do so). In order to use the online estimator you will
need: your social se-
curity number, mother’s maiden name, date of birth, state of
birth and earnings for
the prior calendar year. Following is a link to the estimator:
http://www.ssa.gov/
estimator/
Withdrawal of Social Security Application
An individual can start collecting benefits and then change his
or her mind by filing
a “Request for Withdrawal of Application” form with the SSA.
They will review
the request and, if it is granted, repayment of all of the
payments received is re-
quired. There is no penalty or interest on the amount repaid.
The SSA recently
restricted withdrawals to within 12 months of collecting
benefits and will only al-
low one withdrawal per lifetime. The individual can then file
for benefits at a later
date.
http://www.ssa.gov/estimator/http://www.ssa.gov/estimator/
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Page 26 Quick Reference Guide
Social Security Retirement Benefits
This table shows approximate monthly benefits at Full Retirement
Age (FRA) for a
worker and spouse. It assumes that the worker has worked since
age 22, is the
higher earner, and received annual wage increases. Values are
shown in today’s
dollars. The spouse may qualify for higher retirement benefits
based on his/her
own work record
Monthly Benefits at Full Retirement Age
Present Annual Earnings
Age in
2018
Who Receives
Benefits
$45,000 $65,000 $85,000 $128,400+
66 Worker 1,547 2,016 2,296 2,788
Spouse 773 1,008 1,148 1,349
65 Worker 1,544 2,012 2,289 2,783
Spouse 772 1,006 1,144 1,391
64 Worker 1,597 2,082 2,369 2,881
Spouse 798 1,041 1,184 1,440
63 Worker 1,645 2,144 2,442 2,970
Spouse 822 1,072 1,221 1,485
55 Worker 1,655 2,160 2,442 2,982
Spouse 827 1,080 1,221 1,491
50 Worker 1,669 2,180 2,455 3,000
Spouse 834 1,090 1,227 1,500
45 Worker 1,683 2,201 2,467 3,015
Spouse 841 1,100 1,233 1,507
40 Worker 1,697 2,221 2,480 3,029
Spouse 848 1,110 1,240 1,514
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Page 27 Northeast Planning Associates, Inc.
Social Security Survivor Benefits
This table shows approximate monthly survivor benefits payable
to a family in
2018. Figures assume work from age 22 on. Survivor benefits are
based on the
insured worker’s Primary Insurance Amount (PIA) on the date of
death.
Monthly Survivor Benefits in 2018
Present Annual Earnings
Age in
2018
Who Receives
Benefits
$45,000 $65,000 $85,000 $128,400+
66 Spouse at FRA* 1,547 2,016 2,296 2,788
Spouse at 60 1,106 1,441 1,641 1,994
Child or Spouse
caring for child
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Page 28 Quick Reference Guide
Medicare
Medicare is a federal government program providing health
insurance benefits to
qualifying individuals age 65 or older as well as certain
disabled individuals under
age 65. The two most widely recognized Medicare programs are
Part A, hospi-
tal insurance and Part B, medical insurance. Similar to
traditional medical insur-
ance Part A and Part B represent “fee for service” coverage. A
Medicare benefi-
ciary can go to any physician or health facility nationwide
which accepts Medi-
care payments.
Premiums for Medicare Parts A and B are generally paid directly
from Social
Security benefits although the Center for Medicare and Medicaid
Services (CMS)
will bill the beneficiary directly if he or she is not yet
receiving Social Security
benefits. Most Medicare beneficiaries do not pay a premium for
Part A. Medi-
care Part B premium is based on the beneficiary’s modified
adjusted gross in-
come as seen in the table below.
In a year where there is no COLA increase to Social Security
benefits, those in
the $85,000 or less (single)/$170,000 or less (joint) MAGI
brackets as part of the
“hold harmless” provision. This means that their Social Security
benefit checks
will not decrease due to Medicare Part B premium increases.
Those who are in
the higher MAGI ranges and those newly enrolling in Part B are
not “held harm-
less” and in most circumstances must bear the entire brunt of
the increase in
premiums, until Social Security COLA’s even out the distribution
of Medicare
cost increases.
Late enrollment penalty: Individuals who don't sign up for Part
B when they
are first eligible or drop Part B and then get it later, may
have to pay a late
enrollment penalty for as long as they have Medicare. The
monthly premium for
Part B may go up 10% for each full 12-month period that the
individual could
have had Part B, but didn't sign up for it.
Modified AGI - 2016 Medicare Part B Premium
Single Married Filing Joint 2018 ($3/mo surcharge)
$85,000 or less $170,000 or less $134.00
$85,001 - $107,000 $170,001 - $214,000 $187.50
$107,001 - $133,500 $214,001 - $267,000 $267.90
$133,501 - $160,000 $267,001 - $320,000 $348.30
$160,001 & above $320,001 & above $428.60
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Page 29 Northeast Planning Associates, Inc.
Services NOT Covered by Medicare – Many individuals are
surprised to
learn that Medicare does not cover most routine dental or eye
care. Following
is a list of some of the things NOT covered by Medicare. For a
more complete
list refer to the Center for Medicare & Medicaid Services
web site
(www.cms.gov)
Most Chiropractic services
Cosmetic Surgery (except after an accident)
Custodial Care
Most Dental Care
Eyeglasses and eye examinations related to eyeglasses
Routine Foot Care
Supportive devices for the feet
Hearing aids and hearing examinations for prescribing, fitting
or changing
hearing aids
Orthopedic shoes
Medicare Supplemental Insurance (Medigap Policies) – Private
insurers
offer Medigap policies designed to help pay deductibles or
coinsurance incurred
by Medicare beneficiaries covered by traditional Medicare Parts
A and B.
Medigap policies must meet federal standards and provide access
to a “core
package” of benefits. The standardized policies are identified
as A, B, C, D, F, G,
K, L, M and N. Individuals are advised to seek the assistance of
a qualified Medi-
care Supplemental Insurance specialist to determine which plan
best fits their
situation.
Medicare Part C – Medicare Advantage Plans
Unlike Medicare Part A and B which are “fee-for-service” plans,
Medicare Part C
Advantage plans are designed to provide Medicare recipients a
range of private
health plan choices, on a cost effective basis, as an
alternative to Medicare Parts
A and B. Medicare Advantage plans are required to offer the same
benefits as
Parts A and B except for hospice care. Medicare Advantage
options include:
Health maintenance organizations (HMOs)
Point-of-service (POS) plans
Preferred provider organizations (PPOs)
Provider sponsored organizations (PSOs)
Private fee-for-service plans
http://www.cms.gov
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Page 30 Quick Reference Guide
Medicare Part D – Prescription Drug Coverage
Medicare Part D, the Prescription Drug Insurance program was
added to Medicare
in 2003. It is voluntary program of health insurance covering a
portion of prescrip-
tion drug costs not generally covered by other Medicare
programs. Although Part
D is a voluntary program individuals who wish to participate
must enroll as soon as
eligible either through age (65) or loss of prior coverage.
There is a penalty for
individuals who delay enrolling in a Medicare prescription drug
plan beyond the
initial eligibility period. Prescription Drug Insurance is
offered through private
health insurance plans. Participants with traditional Medicare
can add Part D Pre-
scription Drug Insurance or choose a Medicare Advantage plan
with comprehen-
sive benefits including drug coverage. Participants can change
plans each year
during the traditional Medicare Open Enrollment period from
October 15 to De-
cember 7th.
Plans can vary widely between the medications covered and
out-of-pocket costs
for each medication. Not all pharmacies are contracted with all
plans. It is im-
portant to review the individual’s medication requirements
against those covered
by the plans as well as the monthly premium, yearly deductible
and co-payment
requirements before deciding on a plan.
2018 Medicare Prescription Drug Insurance Standard Coverage
Medicare Part D is financed partially through premiums paid by
participants. Enrol-
lees whose incomes exceed the same thresholds that are applied
to higher-income
Part B enrollees pay a monthly adjustment amount. Individuals
falling with these
income thresholds pay the regular plan premium to the
Prescription Drug Insur-
ance carrier and the monthly adjustment amount to Medicare.
$405
Deductible
$406 - $3,750
$3,751 Until Out
of Pocket Totals
$5,000
Above
$5,000 Out
of Pocket
Costs
Individual Pays $405.00 35% up to
$1,172.50 $3,427.50
Small Co-
Insurance
Plan Pays -0- 65% up to
$2,177.50 -0- Remaining
Total Drug
Expense $400 $3,750 $7,177.50
Unmarried Individuals
Married Filing Jointly
Married Filing
Separately
Monthly Adjust.
Amount
$85,000 or less $170,000 or less $85,000 or less $0.00
$85,001 - $107,000 $170,001 - $214,000 $13,00
$107,001 - $133,500 $214,001 - $267,000 $33.60
$133,501 - $160,000 $267,001 - $320,000 $54.20
$160,001 & above $320,001 & above $85,001 & above
$74.80
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Page 31 Northeast Planning Associates, Inc.
Medicaid
Medicaid & Elder Long Term Care
Medicaid is a state and federally funded welfare program
designed to provide
health care for individuals who meet certain income/asset
criteria or who are
receiving federal income maintenance payments such as
Supplemental Security
Income (SSI) or Aid to Families with Dependent Children
(AFDC).
Medical services provided include hospital (inpatient and
outpatient), physicians’
services, medical and surgical dental services, prenatal and
delivery service, post-
partum care, health care screening including diagnostic and
treatment for chil-
dren. Medicaid also provides for payment of Medicare premiums
for needy
elderly or disabled individuals along with home health care
services and long
term care for qualifying elderly individuals.
Long Term Care Services for the Elderly
Medicare and Medigap policies do NOT pay for custodial long term
care either
at home or in a nursing facility. Nursing home or assisted
living care must be
paid for either by the individual receiving the care, private
Long Term Care In-
surance or, if the individual qualifies, by Medicaid. Medicaid
eligibility is deter-
mined by measuring the “countable assets” owned by an individual
or couple.
Countable assets include any bank accounts, CDs, investments,
retirement plans,
real estate (other than primary residence or income producing),
Cash Value in
life insurance.
Non-countable assets include the primary residence (up to a
maximum amount
of $572,000* to $858,000* based on the state), tangible personal
property, one
vehicle.
An individual can retain $2,500 of countable assets (can vary by
state). For 2018
the maximum Community Spousal Resource Allowance (CSRA) is
$123,600*.
This amount is used by each state to determine Medicaid
eligibility for a couple.
There are two methods that states can use to calculate
eligibility based on this
number.
Some states apply 100% of the couple’s countable assets toward
the $123,600
maximum. In those states a couple with $100,000 of countable
assets could
keep the full $100,000 and still qualify for Medicaid. In these
states the minimum
CSRA never comes into consideration since the couple keeps 100%
of their
countable assets up to the maximum.
Other states apply 50% of the couple’s countable assets toward
the $123,600
maximum. In those states a couple with $100,000 of countable
assets could
retain only $50,000 the balance would be required to be spent
down to meet
the Medicaid qualification. In the 50% states the couple would
need $247,200 in
total countable assets in order to retain the full $123,600. For
states applying
this method the minimum CSRA of $27,980 is used if 50% of the
countable as-
sets equals less than the minimum, the couple can retain 100% of
the assets up
to the $27,980.
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Page 32 Quick Reference Guide
Any amount determined to be in excess of the CSRA must be “spent
down” to
the maximum CSRA value before the Medicaid applicant will be
eligible to re-
ceive Medicaid benefits. Acceptable use for the excess funds
includes, pre-paid
funeral expenses, burial plot, repairs to the residence,
purchase of a car to re-
place an existing vehicle.
An immediate annuity can be used to provide income to the
community spouse
as long as certain conditions are met. The annuity must be:
Irrevocable and Non-Commutable
Non Assignable
Actuarially sound (not exceeding the beneficiary’s life
expectancy, providing equal payments over the term with full
recovery of the initial premium paid)
In addition annuity payments cannot be deferred and the state
must be named as
the remainder income beneficiary up to the amounts paid by
Medicaid for the
beneficiary’s or applicant’s care.
Along with measuring an applicant’s assets the Medicaid
applicant’s income must
be less than the Medicaid reimbursement rate for the specific
facility where the
applicant resides. Reimbursement rates vary from one facility to
another but
they are generally in excess of $4,000/month. Only income
received by the
applicant is applied toward this test. Any spousal income is
ignored for this pur-
pose.
Transferring Assets
Laws have been enacted on both the federal and state level to
limit an individu-
al’s ability to transfer assets to another person in order to
qualify for Medicaid.
Assets transferred to an individual (other than the spouse) may
result in a
“disqualification period” for the Medicaid applicant.
When applying for Medicaid the applicant is asked to disclose
any gifts made
within the prior 60 months. The value of any gifts made during
that period is
divided by the average monthly cost of nursing home in the state
of application
to determine the “disqualification period”.
For example assume an individual made a gift of $50,000 36
months before ap-
plying for Medicaid and the average cost for nursing home care
in the state is
$8,000. The disqualification period would be 6.25 months:
$50,000/$8,000 =
6.25.
The 6.25 month disqualification period starts when the
individual applies for
Medicaid. The applicant would not receive Medicaid until the
6.25 month dis-
qualification period has passed.
Not all transfers of assets are subject to these rules. As noted
above a transfer
between spouses would not trigger a disqualification period and
there are special
rules relating to the transfer of a home.
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Page 33 Northeast Planning Associates, Inc.
Long Term Care Partnership
In 45 states (currently) the state government has partnered with
private health
insurers to offer residents LTC policies designed to integrate
with Medicaid. A
“Partnership LTC Policy” provides the insured with some asset
protection once
the policy’s LTC benefits are exhausted for the insured’s long
term care needs.
Estate Recovery
At the death of a Medicaid recipient the state government is
required to attempt
to recover the Medicaid funds paid for the recipient’s care.
There are very spe-
cific limits on the monies from which the state can require this
reimbursement.
State laws vary however in general:
Recovery attempts cannot take place during the lifetime of the
Medicaid recipient’s spouse.
Reimbursement is only allowed against the estate of the Medicaid
recipient.
The state’s ability to place a lien against the home are
restricted depending on whether or not a spouse or a dependent or
disabled child is living there.
Medicaid laws vary by state and changes can be frequent, it is
important to con-
sult a legal professional with experience in the field for
assistance in this area.
*Source: Medicaid.gov
AdvisorExchange: There is an LTC Cost Estimator spreadsheet
available on AE
for your use. It will illustrate the estimated cost of various
types of care in northern
New England and the annual savings needed to self-insure this
need if insurance is
not an option. This can be found under The Planning Center:
Planning.
2018 Maine New Hampshire Massachusetts Vermont Countable
Resources
per Applicant1 $2,000 $2,500 $2,000 $2,000
Spousal Resource
Allowance2
100% of
resources
up to
$123,600
$27,980 or one-
half of the assets
up to $123,600
100% of re-
sources up to
$123,600
100% of
resources
up to
$123,600
Avg. Nursing Home
Cost per Month3 $9,140 $9,657 $11,710 $8,760
1Countable Assets do not include: Principal residence, tangible
personal property, one vehicle, real property (jointly-owned &
income producing), life insurance with no cash value, contractual
Keogh plans, farm machinery, livestock, etc.
2 Information taken from www.elderlawanswers.com
3 Based on Semi-Private Room. Data from Genworth Cost of Care
(https://www.genworth.com/about-us/industry-
expertise/cost-of-care.html)
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Page 34 Quick Reference Guide
NOTES
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Page 35 Northeast Planning Associates, Inc.
IRAs, 401(k)s & Benefits TAB
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Page 36 Quick Reference Guide
IRAs, 401(k)s & Benefits TAB
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Page 37 Northeast Planning Associates, Inc.
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Page 38 Quick Reference Guide
Retirement Plan Rollover Chart References:
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Page 39 Northeast Planning Associates, Inc.
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Page 40 Quick Reference Guide
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Page 41 Northeast Planning Associates, Inc.
Required Minimum Distributions – Traditional IRAs
and Qualified Retirement Plans
Individuals who own a traditional IRA (including SEP or SIMPLE)
are required to
take annual distributions from the IRA upon attaining age 70 ½.
Participants in an
employer sponsored retirement plan are also subject to required
minimum distri-
bution rules, although the starting age may be different. In
determining when distri-
butions must start and the amount of the distribution it’s
important to know the
following:
Required Beginning Date – The date by which the account owner
must start taking required minimum distributions.
Required Minimum Distribution (RMD) – The required withdrawal
amount from the traditional IRA or qualified employer sponsored
plan. This develops
the minimum withdrawal amount the IRA owner is always free to
take more.
Required Beginning Date:
Traditional IRAs* (SEP IRAs or SIMPLE IRAs) – Not later than
April 1st of the year following the year the traditional IRA owner
turns 70 ½.
Qualified Plans including 403(b), 401(k), SIMPLE 401(k), pension
and profit sharing plans– Not later than April 1st of the year
following the later
of (a) the plan participant reaches age 70 ½ or (b) the
participant retires. If
the participant owns 5% or more of the company sponsoring the
qualified plan
then distributions must start not later than April 1st of the
year following the
year he or she reaches age 70 ½.
Initial Distribution Amount:
If the initial distribution is delayed until April 1st of the
year following the year the
owner turns 70 ½, the initial distribution is calculated based
on the values from the
prior year. In addition, if the initial distribution is delayed
until this date, a 2nd distri-
bution must be taken prior to 12/31 of the year in which the
initial distribution is
taken. The age factor is based on age at the end of year. of
withdrawal.
For example, if the IRA owner turns 70 ½ in November 2017 and
does not take a
distribution until April 1, 2018, that distribution is based on
the 12/31/2016 account
value(s) for the IRA and the distribution factor for age 70. An
additional distribu-
tion must be taken by 12/31/2018 which is calculated based on
the 12/31/2017 IRA
value(s) and the factor for age 71.
Calculating the Required Minimum Distributions
The RMD amount is calculated based on:
1. Total account value(s) of all traditional IRAs from December
31st of the prior
year and
2. The age of the account owner (and spouse) at the end of the
year
IMPORTANT NOTE: In the case of ancillary benefits, such as a
living benefit on an
annuity, only the sponsor company can calculate the RMD.
*Roth IRAs are NOT subject to minimum required distributions
during the IRA owner’s lifetime.
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Page 42 Quick Reference Guide
The RMD is determined by taking the December 31st account
value(s) and dividing the total by a factor based on the age of the
IRA owner (and spouse if married).
Factors are determined by the theoretical life expectancy of the
IRA owner and his
or her spouse, if married, and are found in one of two IRS
tables:
Single owners or those whose spouse is no more than 10 years
younger use the factor from the Uniform Lifetime Table
Married owners whose spouse is more than 10 years younger (and
the sole
beneficiary of the IRA) use the factor from the Joint and Last
Survivor Table.
While the total of all IRA and qualified plan accounts is used
in the calculating the
RMD the distribution may be taken from just one IRA or qualified
account.
Required Minimum Distributions at Death
If the IRA owner dies after his or her required beginning date
for taking RMDs, the
required minimum distribution for the year of death must be
taken before the IRA
balance can be transferred for the benefit of the IRA
beneficiary.
Penalty Tax
The Penalty Tax for late, missed or miscalculated RMDs is 50% of
the amount that
should have been distributed. Based on the size of the penalty
and the complexi-
ties of the regulation it is strongly recommended that
individuals seek the help of a
professional experienced in this area.
Required Minimum Distributions for Beneficiaries
Generally, if the IRA owner had not begun taking RMDs prior to
death, a non-
spouse beneficiary of an IRA has two options for taking required
distributions: take
distributions based on their own life expectancy using the
Single Life Table found
on page 36 (Life Expectancy Method) or withdraw the IRA balance
over 5 years
(Five Year Rule).
RMDs from a beneficiary/inherited IRA must begin by December
31st of the calen-
dar year immediately following the year in which the IRA owner
died.
If the beneficiary is the spouse of the owner, he or she has the
additional option of
transferring the inherited IRA to an IRA in his or her name so
as to avoid having to
take RMDs right away (if the spouse is younger than 70 1/2).
Titling for Beneficiary/Inherited IRA
Many IRA providers title IRAs inherited by a beneficiary as
“inherited IRAs”,
“beneficiary IRAs” and “decedent IRAs”. The account should be
titled so as to
make clear that it is inherited, the name of the beneficiary,
and the name of the
original owner. Below are acceptable examples for Mike Smith
(the beneficiary)
and John Smith (the deceased owner):
“Beneficiary IRA FBO Mike Smith B/O John Smith” (LPL uses this
format)
“John Smith Decedent IRA FBO Mike Smith”
“Inherited IRA FBO Mike Smith B/O John Smith”
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Page 43 Northeast Planning Associates, Inc.
Age Distribu-
tion Period
Distribu-tion % of
12/31 Acct Balance
Age Distribu-
tion Period
Distribu-tion % of
12/31 Acct Balance
70 27.4 3.65% 93 9.6 10.42%
71 26.5 3.77% 94 9.1 10.99%
72 25.6 3.91% 95 8.6 11.63%
73 24.7 4.05% 96 8.1 12.35%
74 23.8 4.20% 97 7.6 13.16%
75 22.9 4.37% 98 7.1 14.08%
76 22.0 4.55% 99 6.7 14.93%
77 21.2 4.72% 100 6.3 15.87%
78 20.3 4.93% 101 5.9 16.95%
79 19.5 5.13% 102 5.5 18.18%
80 18.7 5.35% 103 5.2 19.23%
81 17.9 5.59% 104 4.9 20.41%
82 17.1 5.85% 105 4.5 22.22%
83 16.3 6.13% 106 4.2 23.81%
84 15.5 6.45% 107 3.9 25.64%
85 14.8 6.76% 108 3.7 27.03%
86 14.1 7.09% 109 3.4 29.41%
87 13.4 7.46% 110 3.1 32.26%
88 12.7 7.87% 111 2.9 34.48%
89 12.0 8.33% 112 2.6 38.46%
90 11.4 8.77% 113 2.4 41.67%
91 10.8 9.26% 114 2.1 47.62%
92 10.2 9.80% 115 and over 1.9 52.63%
Uniform Lifetime Table
IRS Reg 1.401(a)(9)-9, Q+A-2
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Page 44 Quick Reference Guide
Single Life Table
Age Life Expectancy Age Life Expectancy Age Life Expectancy
0 82.4 38 45.6 76 12.7
1 81.6 39 44.6 77 12.1
2 80.6 40 43.6 78 11.4
3 79.7 41 42.7 79 10.8
4 78.7 42 41.7 80 10.2
5 77.7 43 40.7 81 9.7
6 76.7 44 39.8 82 9.1
7 75.8 45 38.8 83 8.6
8 74.8 46 37.9 84 8.1
9 73.8 47 37.0 85 7.6
10 72.8 48 36.0 86 7.1
11 71.8 49 35.1 87 6.7
12 70.8 50 34.2 88 6.3
13 69.9 51 33.3 89 5.9
14 68.9 52 32.3 90 5.5
15 67.9 53 31.4 91 5.2
16 66.9 54 30.5 92 4.9
17 66.0 55 29.6 93 4.6
18 65.0 56 28.7 94 4.3
19 64.0 57 27.9 95 4.1
20 63.0 58 27.0 96 3.8
21 62.1 59 26.1 97 3.6
22 61.1 60 25.2 98 3.4
23 60.1 61 24.4 99 3.1
24 59.1 62 23.5 100 2.9
25 58.2 63 22.7 101 2.7
26 57.2 64 21.8 102 2.5
27 56.2 65 21.0 103 2.3
28 55.3 66 20.2 104 2.1
29 54.3 67 19.4 105 1.9
30 53.3 68 18.6 106 1.7
31 52.4 69 17.8 107 1.5
32 51.4 70 17.0 108 1.4
33 50.4 71 16.3 109 1.2
34 49.4 72 15.5 110 1.1
35 48.5 73 14.8 111 and over 1.0
36 47.5 74 14.1
37 46.5 75 13.4
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Page 45 Northeast Planning Associates, Inc.
Retirement Plan Distributions Before Age 59 ½
Federal law provides significant tax benefits to most
employer-sponsored and
individual retirement plans. Contributions to plans such as a
401k and tradition-
al IRA may be tax-deductible and growth inside an account is
tax-deferred. The
purpose of these tax breaks is to encourage and reward saving
for retirement.
If funds are taken out of a retirement account before the owner
reaches age 59
½, however, the distribution is viewed as being ‘early’ and a
10% penalty is ap-
plied to that portion of the distribution. In addition to the
withdrawal being
taxed at the owner’s highest marginal tax rate, the 10% penalty
that is applied
can make the tax burden painfully high and often a last resort
to gain access to
one’s investments.
How Bad is the Tax “Bite”?
Assume that an individual who is in the 24% federal income tax
bracket takes a
withdrawal of $10,000 from his 401(k) plan. How much will he pay
in taxes on
that distribution?
Initial amount withdrawn: $10,000
Less: Federal Income Tax @ 24% -$ 2,400
Less: 10% Penalty -$ 1,000
= Net After Taxes: $ 6,400
Our hypothetical taxpayer must surrender 35% of the amount
initially with-
drawn just to pay federal income taxes. If state or local tax
law also taxes such
distributions, the total cost would be even higher.
What Types of Retirement Plans are Subject to the 10% Early
With-
drawal Penalty?
Two types of retirement plans are subject to the 10%
penalty:
Qualified Plans: Include “qualified” defined contribution
retirement plans such as 401(k) plans, 403(b) plans and 403(b)
annuity contracts, 403(a) annuity
plans, SIMPLE 401(k) plans, and Profit Sharing and Money
Purchase plans.
Distributions from 457 plans are generally not subject to the
10% penalty.
Individual Retirement Plans: Include traditional IRAs, Roth
IRAs*, individual retirement annuities, Simplified Employee Pension
(SEP) IRAs, and SIMPLE
IRA plans.
* For a withdrawal to be an income tax-free qualified
distribution, it must occur after the Roth IRA owner’s 5-year
holding period and satisfy one of the other requirements (e.g.
withdrawal taken on or after the owner reaches age 59
1/2 or the owner’s death). The Roth IRA owner’s 5-year holding
period begins with the first tax year for which a
regular contribution (or, if earlier, in which a conversion
contribution) is made to any Roth IRA of which the taxpayer is
the owner. Each conversion before age 59 1/2 creates its owner
5-year period for purposes of applying the 10% penalty
tax on premature distributions from the Roth IRA.
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Page 46 Quick Reference Guide
General Description Applicable
to Quali-
fied Plans?
Applicable
to IRAs?
Separation from service after age 55: Distributions made to
an employee after separating from service after reaching age
55. Yes No
Qualified Domestic Relations Order (QDRO): Distributions
made to an alternate payee, such as in a divorce. Yes No
Death or disability: Distributions made due to the death or
disability of the account owner. Yes Yes
Substantially Equal Periodic Payments (SEPPs): Distributions
that are part of a series of SEPPs made over the life (or
life
expectancy) of the taxpayer or made over the joint life (or
joint life expectancies) of the taxpayer and a beneficiary.
Yes Yes
Medical Expenses: Distributions made to pay for deductible
medical expenses. Only the portion that exceeds 7.5% of AGI
is exempt from the 10% penalty. Yes Yes
Higher Education Expenses: Distributions made to pay for
‘qualified higher education expenses’ for the taxpayer,
spouse,
child or grandchild. The expenses must be incurred in the
year of distribution and generally include tuition, fees,
books,
supplies and equipment for attendance at an eligible
education-
al institution.
No Yes
First-time Homebuyer: Distributions of up to $10,000 to buy,
build, or rebuild a first home. A ‘first-time homebuyer’ is
someone who had no ownership in a principal residence in the
two years prior to buying the new home. The funds must be
used within 120 days of receipt.
No Yes
Unused Health Insurance Premiums: Distributions made to
certain unemployed individuals to pay for health insurance
premiums. The individual must have lost a job or generally
must have received unemployment compensation for at least
12 weeks because of the job loss.
No Yes
Qualified Reservist: Distributions made to a military
reservist
called to active duty for more than 179 days (or
indefinitely)
after September 11, 2001. Such distributions may be repaid
within two years after the end of active duty.
Yes Yes
Transfer to a Health Savings Account (HSA): A once-in-a-
lifetime distribution of amounts in a Traditional or Roth
IRA,
in a direct, trustee-to-trustee transfer. The distribution
is
limited to the maximum amount for the year that could other-
wise be contributed to the HSA and deducted.
No Yes
IRS Levy on the Account: Distributions made to satisfy an
IRS
levy on the account. Yes Yes
Qualified Rollover: Generally a transfer of funds from one
IRA or qualified plan to an eligible recipient IRA or
qualified
plan are exempt. Yes Yes
Correct Excess Contributions: Generally, distributions made
to correct excess contributions, either by the account
owner,
employer, or both are exempt. Yes Yes
Possible Exceptions to the 10% Penalty Tax
-
Page 47 Northeast Planning Associates, Inc.
Reas
on for
Dis
trib
ution
Ear
nin
gs
Tax
able
Subje
ct t
o
10%
Penal
ty
Ear
nin
gs
Tax
able
Subje
ct to
10%
Penal
ty
On o
r af
ter
Age
59 1
/2
Yes
No
No
No
Befo
re a
ge 5
9 1
/2 (
Not
subje
ct t
o P
enal
ty E
xce
ptions
liste
d
belo
w)
Yes
Yes
Yes
Yes
1. D
eat
h
Yes
No
No
No
2. D
isab
ility
Y
es
No
No
No
3. F
irst
Tim
e H
om
ebuye
r—$10,0
00 L
imit
Yes
No
Yes
No
4. S
ubst
antial
ly E
qual
Peri
odic
Pay
ments
Y
es
No
Yes
No
5. M
edic
al e
xpense
s ab
ove
7.5
% o
f A
GI
Yes
No
Yes
No
6. In
sura
nce
pre
miu
ms
for
unem
plo
yed
Yes
No
Yes
No
7. H
igher
Educa
tion E
xpense
s Y
es
No
Yes
No
Roth
IR
A E
arnin
gs P
aid O
ut
BEFO
RE 6
Year
s
Roth
IR
A E
arnin
gs P
aid O
ut
AFT
ER
5 Y
ear
s
Dis
trib
uti
on o
f R
oth
IR
A E
arn
ings
-
Page 48 Quick Reference Guide
Backdoor Roth IRA Contribution
Generally, if adjusted gross income (AGI) exceeds the higher end
of the phase-
out ranges, one cannot make contributions to a Roth IRA. The
removal of in-
come limits for converting a Traditional IRA to a Roth IRA in
2010 brought to
light a new strategy for contributing to a Roth IRA if AGI is
above the phase-outs,
called a Backdoor Roth IRA Contribution.
Anyone at any income level can choose to make a non-deductible
contribution to
a Traditional IRA up to the annual maximum. Employing the
backdoor strategy,
this contribution can subsequently be converted to a Roth IRA,
with theoretically
a $0 or near zero tax bill, depending on any capital gain
between the time of con-
tribution and the conversion.
Two important considerations:
1. The conversion is subject to IRA aggregation rules, where the
taxability is
prorated based on the proportion of total IRA assets that were
non-
deductible contributions.
2. Utilizing this on a consistent basis may put the conversion
at risk of the IRS
applying the step transaction doctrine, treating the conversion
as a Roth IRA
contribution, with appropriate taxes excise tax levied.
Roth Conversion A conversion is a penalty-free taxable transfer
of amounts from a traditional IRA
to a Roth IRA. You can convert part or all of the money in your
regular IRA to a
Roth IRA. When you convert your traditional IRA to a Roth IRA,
you will pay
income tax on the amount converted. Before 2010 a taxpayer was
only eligible to
convert a Traditional IRA to a Roth IRA, if he or she had a
modified adjusted
gross income (MAGI) that doesn’t exceed $100,000. Additionally,
the taxpayer
could not file a married filing separately return. The Tax
Increase Prevention and
Reconciliation Act of 2005 (TIPRA) created an opportunity for
many taxpayers;
this opportunity is the ability to convert a tax deferred
Traditional IRA into a tax-
free Roth IRA starting in 2010 regardless of income. Also,
filing status restrictions
are also lifted, allowing married taxpayers filing a separate
return to convert a
Traditional IRA to a Roth IRA.
In addition to a Traditional IRA, you may be able to convert
the
following into a Roth IRA:
Qualified plan distribution
403(b) plan distribution
Simple IRA
SEP IRA
A change as a part of the Tax Cuts and Jobs Act is that Roth
Conversions
are no longer able to be recharacterized. This means that there
is no “do
over” after a conversion takes place if the owner changes their
mind or
the market performance post-conversion makes it less beneficial.
Re-
characterizations of Traditional or Roth contributions are still
allowed.
-
Page 49 Northeast Planning Associates, Inc.
Reasons to Convert to a Roth IRA
With a Roth IRA:
Contributions are allowed at any age
Qualified distributions are tax-free
No Required Minimum Distributions (RMD)
The benefits of a Roth conversion are significant and worth
considering, but
may not apply to all investors. Here are a few reasons a Roth
conversion may
be right for you.
Looking to diversify your tax exposure? By converting to a Roth
IRA, and
paying any conversion tax from other personal assets, you are
shifting more of
your assets into tax-favored status.
Was your income too high to participate in a Roth IRA before
the
TIPRA changes? Many higher income taxpayers are currently
ineligible to
contribute to Roth IRA’s. The TIPRA legislation gives many of
these same indi-
viduals access to the unique benefits of a Roth IRA starting in
2010.
Do you think taxes will rise in the future? Many taxpayers
believe tax
rates will only go up in the future. Converting to a Roth IRA,
will allow you to
pay taxes now, and your withdrawals in retirement would be
exempt from
taxes, even if income tax rates were to rise in the future.
Do you want to maximize the wealth transfer to your children?
Roth
IRAs may be a more attractive vehicle than a Traditional IRA.
Traditional IRAs
require you to take a minimum withdrawal (and pay tax on it)
from the IRA
once you reach the age of 70 ½, even if you don’t need the
money. Roth IRAs
do not have these required withdrawals, allowing you to keep
these savings
invested tax-free and available to pass to your children,
although your benefi-
ciaries must take minimum distributions after your death. Your
heirs will also
receive tax-free withdrawals from the inherited Roth IRA
compared to an
inherited Traditional IRA.
Waiver of 60-Day Rollover Requirement: Self-Certification
Sections 402(c)(3) and 408(d)(3) provide any amount distributed
from a quali-
fied plan or IRA will be excluded from income if it is
transferred to an eligible
retirement plan no later than the 60th day following the day of
receipt. Similar
rules apply to 403(a), 403(b), and 457 eligible governmental
plans. Those sec-
tions of the code also provide that the Secretary of the
Treasury may waive
the 60-day rollover requirement “where the failure to waive such
a require-
ment would be against equity and good conscience, including
casualty, disaster,
or other events beyong the reasonable control of the individual
subject to
such requirement.
Effective August 4, 2016, Rev. Procedure 2016-47 provides
further guidance to
reduce the paperwork involved. A taxpayer may submit a written
self-
certification letter to the plan administrator that will satisfy
the waiver re-
quirement. It is important to note that if the IRS subsequently
audits the tax-
payers return, they may still find that the requirement was not
waived depend-
ing on the circumstances.
-
Page 50 Quick Reference Guide
Roth Conversion Decision Tree Use the Roth Conversion Tree to
determine whether or not converting a Traditional
IRA to a Roth IRA is the appropriate strategy.
-
Page 51 Northeast Planning Associates, Inc.
Trusteed IRA
A Trusteed IRA is a trust account that integrates IRA retirement
savings goals with
estate planning objectives. A Trusteed IRA is treated much the
same way as any
inherited IRA. One main difference between the two however is
how the inherit-
ed IRA assets are handled when the IRA owner dies. With a
typical IRA, an own-
er’s beneficiary takes full control of the inherited IRA assets
upon the death of the
owner and determines when and how much will be distributed, so
long as they
take their Required Minimum Distributions (RMDs). Under a
Trusteed IRA, the
terms of the trust dictate the distribution schedule and
conditions, and can provide
potential benefits such as:
1. Require beneficiary to stretch IRA withdrawals over their
lifetime.
2. Set certain conditions to receive IRA assets (e.g. attaining
a certain age,..).
3. Simplified tax reporting through 1099 only, no 1041 or K‐1.
4. Special distributions for disability, education, home purchase,
etc.
5. Potential additional creditor protection. Note that this is a
state issue, and
some states will not provide creditor protection as they do not
consider an
inherited IRA a retirement account.
6. Provide financial support to a surviving spouse while
ensuring the remaining
assets pass to children from a prior marriage.
Incentive Stock Options (ISO)
If the stock is immediately sold after the exercise of the
option, the Net Value will
be considered ordinary income, and will be taxed accordingly.
Therefore, there is
no income tax advantage of exercising one option over another if
the stock is to
be immediately sold. The individual will be responsible for the
payment of the
taxes, not the employer.
As an ISO, there is an income tax advantage if the grant is held
for two years and
the stock is held for a period of at least one year after
exercise. In that case, the
subsequent sale of the stock would be subject to capital gains
tax treatment, which
is currently taxed at a maximum of 23.8%. Again, however,
because the tax treat-
ment is the same for all ISOs, there is no particular advantage
to exercising one
option over another. The issue would be the future value of the
stock upon ulti-
mate sale. Thus, the greater the difference between the stock
option price and the
current price, the greater the leverage for capital gains tax
treatment.
Be advised that the difference between the option price and the
fair market value is
considered an adjustment to income for AMT purposes, unless
stock is sold in the
same year option is exercised. The increase in AMT exemptions
beginning 2018
will enhance the benefits of ISO’s going forward.
Non-Qualified Stock Options (NQO)
Upon exercise of Non-Qualified Options, the Employee immediately
recognizes
the gain upon exercise as ordinary income. The gain is the
difference between the
current market value and the option price. The income is
required to be reported
by the Employer and is subject to income tax withholding. This
reporting is includ-
ed on the Employee's W-2. Tax treatment on the sale of the stock
is normal capi-
tal gain at short-term or long-term rates depending on the
holding period.
-
Page 52 Quick Reference Guide C
OM
PA
RA
TIV
E F
EA
TU
RES
FLEX
IBLE S
PEN
DIN
G A
CC
OU
NT
S (F
SA)
HEA
LT
H R
EIM
BU
RSE
MEN
T A
RR
AN
GEM
EN
TS
(HR
A)
HEA
LT
H S
AV
ING
S A
CC
OU
NT
(H
SA)
Acco
un
t F
eatu
res
FS
A
HR
A
HS
A
What
is
the P
urp
ose
T
o r
eim
burs
e q
ual
ifie
d m
edic
al,
denta
l vi
sion a
nd/o
r dependent
care
expense
s w
ith p
re-t
ax d
olla
rs
To r
eim
burs
e q
ual
ifie
d m
edic
al
expense
s
To p
ay for
unre
imburs
ed q
ual
i-
fied m
edic
al e
xpense
s an
d s
ave
for
futu
re e
xpense
s
Who o
wns
the a
ccount
Em
plo
yee
Em
plo
yer
Em
plo
yee
“Use
it
or
lose
it”
by
end o
f bene-
fit
year
Yes
(subje
ct t
o 2
1/2
month
Gra
ce
Peri
od w
hen e
xpense
s fr
om
cur-
rent
yr. ca
n b
e p
aid w
ith p
rior
year
defe
rral
)
Unuse
d funds
may
be c
arri
ed o
ver
from
one b
enefit
year
to t
he n
ext
Unuse
d funds
are c
arri
ed o
ver
from
one b
enefit
year
to t
he
next
Can
the e
mplo
yee a
ccess
the
acco
unt
afte
r jo
b t
erm
inat
ion
Yes—
Elig
ible
under
CO
BR
A
May
be—
em
plo
yer
may
opt
to g
ive
acce
ss o
r m
ay k
eep t
he m
oney
Yes
Can
the e
mplo
yee c
ontr
ibute
to
the a
ccount?
Yes
No, only
the e
mplo
yer
can c
on-
trib
ute
Yes
both
em
plo
yee a
nd e
m-
plo
yer
can c
ontr
ibute
in t
he
sam
e y
ear
-
Page 53 Northeast Planning Associates, Inc.
Acco
un
t F
eatu
res
FS
A
HR
A
HS
A
Must
be t
his
pai
red w
ith a
hig
h-
deduct
ible
heal
th p
lan?
No
No
Yes
May
this
be u
sed in c
onju
nct
ion
with o
ther
heal
th c
are s
pendin
g
acco
unts
?
Yes
Yes
Yes
May
the m
oney
be u
sed for
ex-
pense
s oth
er
than
heal
th c
are
No
No
Yes,
it
then b
eco
mes
taxab
le
inco
me a
nd w
ill t
rigg
er
an a
ddi-
tional
10%
tax
penal
ty
What
are
the t
ax c
onse
quence
s FSA
ele
ctio
ns
reduce
tax
able
inco
me.
Save
s FIT
, SI
T, FIC
A
HR
A d
istr
ibutions
are
tax
-fre
e
HSA
dis
trib
utions
are t
ax-f
ree for
elig
ible
expense
s. In
tere
st a
c-
crues
tax d
efe
rred
Contr
ibution L
imits—
2018
$2,6
50 s
ubje
ct t
o
Use
it
or
lose
it
ove
r $500
None—
dete
rmin
ed b
y
Em
plo
yer
annual
ly
Self O
nly
—$3,4
50
Fam
ily—
$6,9
00
$1,0
00 C
atch
Up o
ver
55
CO
MPA
RA
TIV
E F
EA
TU
RES
FLEX
IBLE S
PEN
DIN
G A
CC
OU
NT
S (F
SA)
HEA
LT
H R
EIM
BU
RSE
MEN
T A
RR
AN
GEM
EN
TS
(HR
A)
HEA
LT
H S
AV
ING
S A
CC
OU
NT
(H
SA)
-
Page 54 Quick Reference Guide
NOTES
-
Page 55 Northeast Planning Associates, Inc.
Education Planning TAB
-
Page 56 Quick Reference Guide
Education Planning TAB
-
Page 57 Northeast Planning Associates, Inc.
529 Education Savings Plan
Under IRC Sec. 529, federal tax law allows states to establish
tax-advantaged sav-
ings programs to pay for students’ qualified education expenses.
In these programs,
cash contributions are made to an account established for a
named beneficiary,
which may or may not be the same as the account owner.
Under federal tax law, contributions are not tax deductible;
however any growth in
an account is tax-deferred. Distributions used solely to pay for
qualified education
expenses are federally tax-exempt. Contributions may or may not
be tax deducti-
ble,
Key Definitions Under IRC Sec. 529
Qualified Education Expenses: Generally, tuition, fees, books,
supplies, and equipment and technology required for attendance
qualify. Reasonable costs
of room and board are also included if the student is attending
school at least
half-time. Additionally, qualified education expenses include
costs incurred to
allow a special needs beneficiary to enroll at and attend an
eligible institution.
Eligible Educational Institution - Higher Education: Accredited
post-high school educational institutions in the U.S. offering
associate’s, bachelor’s, grad-
uate level, or professional degrees typically qualify as
eligible. Certain voca-
tional schools and international institutions are also
included.
New in 2018: Up to $10,000 per year per beneficiary for K-12
education is considered a qualified education expense.
Contributions
Contributions to a savings plan must be in cash and may not
exceed the amount
necessary to provide the beneficiary’s qualified higher
education. Program sponsors
will specify the maximum allowable contribution. In many
programs, more than
$300,000 may be contributed for a single beneficiary. While some
donors contrib-
ute lump-sum amounts, many 529 plan accounts are set up with
automatic monthly
payments. Other considerations include:
For federal gift tax purposes, contributions are considered
completed gifts of a present interest. Generally, no federal gift
tax will be payable if a contribution
is limited to the annual gift tax exclusion amount. For 2018,
this is $15,000. A
married couple can elect to split gifts for a total annual
contribution of
$30,000.
The donor may elect to “superfund” a 529 plan by contributing up
to 5 times the annual exclusion amount, and have such amount be
treated as though it
had been made equally over 5 years, and avoid paying gift taxes.
See page 59.
Contributions may be made to both a 529 savings plan and a
Coverdell Educa-tional Savings Accounts (Coverdell ESA) for the
same beneficiary in the same
year. Coverdell ESA annual maximum contribution per beneficiary
is $2,000.
-
Page 58 Quick Reference Guide
Distributions
Tax Law Change: Distribution from a 529 plan for K-12 education
expenses are now allowed
up to $10,000 per year per beneficiary.
For federal income tax purposes, distributions used to pay for
qualified education
expenses are generally excluded from income if the amount
distributed does not ex-
ceed the amount of qualified education expenses. If a
distribution is greater than the
amount of qualified education expenses, the earnings may be
subject to federal income
tax and a 10% penalty tax may also apply.
Distributions due to death or disability of the beneficiary, or
the recipient of certain scholarships: The earnings portion of the
distribution is taxable as ordi-
nary income to the recipient of the payment.
Rollover Distributions: Federal law allows one tax-free transfer
every twelve months, from one savings plan to another, for the same
beneficiary. Funds may
be rolled from a 529 savings plan to a 529 pre-paid tuition plan
and vice versa. If
there is a change of beneficiary within the same family
(including siblings, children,
grandchildren, parents, nieces, nephews, uncles, aunts, their
spouses, and first
cousins), the rollover must be completed within 60 days or the
earning portion
will be subject to tax.
Other Distributions: If a distribution is made from a 529
savings plan for any other reason than qualified education expenses
the earnings portion of the distri-
bution is included in the taxable income of the recipient. A 10%
penalty tax is
also applied against the distributed earnings.
Coordination with Other Programs: A beneficiary may generally
also claim either the American Opportunity Tax Credit or Lifetime
Learning Credit (not both in
the same tax year), receive a distribution from a Coverdell ESA,
or claim the
tuition and fees deduction, as long as the qualifying
educational expenses are not
the same.
Education Savings Account Characteristics
There are a number of account characteristics that a donor
should clearly understand:
The beneficiary must be identified at the time the account is
created. The ac-count owner is usually the primary contributor;
however others, such as grand-
parents, may also contribute.
The account owner may change the beneficiary. If the new
beneficiary is a mem-ber of the same family, there is generally no
current federal income tax liability.
Members of the same family include: siblings, children,
grandchildren, parents,
nieces, nephews, uncles, aunts, their spouses, and first
cousins.
Amounts accumulated in a savings plan operated by one state
generally may be used at educational institutions in a different
state, or even internationally.
Under federal law, 529 savings plan investments are not
permitted to be self-directed by either the beneficiary or the
account owner. Account owners may,
however, choose among broad investment strategies established by
the program
sponsor. A change in investment strategy is generally permitted
once each calen-
dar year, or when a new beneficiary is named.
Most savings plans require that funds in a custodial account
become the property of the beneficiary when the beneficiary reaches
his or her majority. A custodial
account is one set up under the Uniform Transfers to Minors Act
(UTMA), the
Uniform Gifts to Minors Act (UGMA), or the local state
version.
-
Page 59 Northeast Planning Associates, Inc.
Superfunding a 529 Plan
“Superfunding” is another term for taking advantage of the
5-year gift-tax election
that can be made when contributing to a 529 Educational Savings
Plan. A great
way to jumpstart savings for a child’s future education
expenses, the tax law al-
lows an individual to contribute up to 5-times the annual gift
tax exclusion amount
per beneficiary at one time without affecting their lifetime
exemptions.
Eligible contributions of no more than $75,000 in a year: While
an individual can
contribute up to the maximum a 529 will allow (many times
$300,000 or more),
only $75,000 is eligible for the 5-year election. Thus, if an
individual contributed
$100,000 in a year to a beneficiary’s 529 plan, $15,000 plus the
excess over
$75,000 ($25,000) will be considered this year’s gift. The
$25,000 in excess will
applied against