Inherited IRA – Learn About Your Choices as a Non-Spouse Beneficiary

Contributed by: Laurie Renchik, CFP®, MBA

During a recent meeting with a client (let’s call her Anne), we discussed the options available to her as the beneficiary of her brother Jim’s IRA. This is an important discussion because there are certain tax benefits that come with inheriting an IRA, but the rules differ depending on whether you are a surviving spouse or what is called a non-spouse beneficiary. In this case Anne is considered a non-spouse beneficiary because she is the sister of the original account owner, Jim.

Here are the options available to Anne:

1. She can rollover the assets directly into an Inherited IRA for her benefit. With this option Anne will take distributions over her lifetime and enjoy the benefits of tax deferred growth.     

2. Anne can take a lump-sum distribution. With this option, there is an immediate tax impact. The value of the distribution is taxed as ordinary income in the year it is withdrawn. Because the IRA is inherited Anne can take the lump sum prior to age 59 ½ and not be subject to the 10% penalty that is usually applied for distributions before age 59 ½. 

3. The third option is that Anne does not have to take the inheritance. She can disclaim all or part of the inherited assets. If this option is chosen the assets pass to the next eligible beneficiaries.  If Anne considers this option she wants to be sure all of the legal requirements are met.

When handled correctly, Anne as a non-spouse beneficiary can enjoy the continued potential for tax-advantaged growth of these assets while avoiding the immediate income taxes.

Our discussion also highlighted some common mistakes to avoid:

1. A non-spouse beneficiary cannot move the inherited IRA into his or her own IRA. An inherited IRA must be kept totally separate from other IRA’s Anne may have and no new contributions can be deposited into the account.

2. Beneficiaries named on an IRA account supersede instructions provided in a will or trust. Since the IRA account information takes precedence it is important to make sure the designated beneficiaries named on the inherited IRA are up to date. 

3. No 60-day rollover. With this rule, you can take a distribution from your own IRA as long as you put the money back in the same account within 60 days, you won’t have to pay income taxes or a penalty. Unfortunately, you can’t do this with inherited IRAs. There is no 60 day rollover rule for inherited IRAs. If you withdraw the money, it’s taxed.

4. If you inherit an IRA, whether it’s traditional or Roth, the IRS requires you take at least some of the account balance each year. It’s called a required minimum distribution and must be taken annually, regardless of your age, beginning the year following the year-of-death of the original account owner. If you don’t take the distribution, the penalty ends up being 50% of the amount you were required to take.

If you are faced with decisions regarding an inherited IRA and have questions feel free to give me a call or send me an email.  I’ll be happy to review your options with you and make sure the choice works in harmony with the rest of your financial plan goals and objectives. 

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc.® In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Laurie Renchik and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

5 Tips for Budgeting Post-Graduation

Contributed by: Clare Lilek

Graduation season can be a whirlwind of exams, parties, job interviews, parties, endless nights fueled by caffeine, and more parties. Once the adrenaline and celebration subsides, however, and when reality comes hurtling towards you at full speed, it’s helpful to have your finances in order. Life after graduation can be exhilarating, partly due to the uncertainty, but don’t let uncertain finances take the fun out of adult life.

Here are 5 simple tips to keep in mind when creating your post-college budget, as you prepare for a *hopeful* increase in monthly income:

1. Whether you’re working at a fast food chain or a Fortune 500 company put 10% of your salary away into what I like to call a “No Touch Savings.” This is a savings fund for emergencies only—in case you lose your job, or your car needs major repairs, or just for when life happens unexpectedly.

2. Divide your bank accounts into sub folders: Emergency, Travel, Bills, Fun Money, etc. Put money away each month into the various buckets and don’t dip into other buckets. Pro Tip: Make sure you’re allocating the appropriate percentage of funds to each bucket—your fun money bucket probably shouldn’t have a higher deposit rate than your bills bucket (well not yet at least).

3. Cut out unnecessary spending. When you’re first starting out on your own and creating a budget, it behooves you to be as frugal as possible. If you’re buying coffee and breakfast every day, cut that out of your spending and try to do your early morning routine at home. See how far your salary actually takes you each month first and then add in luxuries, as long as your savings do not suffer.

4.  Write it out. When drafting up a budget, with your subfolders, savings, and planned spending, write it out on paper. It helps to physically write out your spending and saving goals. For the first few months under your budget, make sure to write out your actual spending and saving as well. See how closely your goals align with your spending reality and make adjustments as necessary. It helps to physically see how much you’re spending to know where you can eventually save.

5. Set spending priorities. Watch out for superfluous spending on items or experiences that aren’t really important to you, but don’t be afraid to splurge on the things that truly matter. Save as much as you can, but remember to find joy in what you choose to spend your money on, or better put, spend money on items and experiences that truly give you joy.

When creating and following your budget, use the method that best suits you and your style of living. Some people prefer paper and pen (including myself), others excel spreadsheets, and more recently, a growing number of people are using applications and websites. If you need a larger system to help you create and stick to a budget, I suggest Mint. It’s a website and an application that helps you track spending by linking to your bank account. Find what works best for you and stick to it! Consistency is key.

Joining the adult world can be an amazing experience but comes with a rather large learning curve. As you, your children, or your grandchildren begin professional careers post-graduation and start to receive an increase in monthly earnings, remember to take it slow and follow some simple guidelines. You never want to end up over your head, fresh out of college.

Clare Lilek is a Challenge Detroit Fellow / Client Service Associate at Center for Financial Planning, Inc.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Clare Lilek and not necessarily those of Raymond James.

Something Cool is Coming Your Way from Raymond James Investor Access!

Contributed by: Amanda Toia

We would like to introduce you to Vault -- our online content management and file sharing platform available to those clients enrolled in Investor Access. This free service offers an easy way to upload secure information that you and your Financial Planner may view from any internet connected computer or mobile device. Vault fosters collaboration with easy file sharing and the ability to comment on uploaded information. It is safe, secure, and super user friendly.

While you have the ability to add virtually any document you would like stored, some of the most common items clients have placed in their Vaults are:

• Insurance policies

• Outside information such as your 401(k) statements

• Tax returns

While there is a file limit of 200MB there is no storage limit, meaning you can store as many documents to your personal Vault as you want. Most file types are accepted although there are some exceptions: .exe, .bat, .pif, .pi, vbs, etc. are not currently compatible with this platform.

Both clients and planners can upload a multitude of documents that will not be deleted by Raymond James, however, you may delete any file you personally upload. There is also a file sharing feature available for authorized representatives such as your CPA, attorney, or eligible family members.

Getting started is easy. Just log in to your Investor Access account and click on the “Vault” tab. Once you have accepted the terms and conditions, you will be able to begin using this feature. If you are not using Investor Access, please sign up by visiting our webpage and click the Investor Access tab at the top to enroll.

Amanda Toia is a Registered Client Service Manager at Center for Financial Planning, Inc.

BREXIT—What the Separation Means for You

Contributed by: Nicholas Boguth

In case you missed it, Great Britain voted to leave the European Union yesterday. Here’s a recap of why this vote took place, what the arguments were on each side, and what the vote means for you, the U.S. investor.

It costs Great Britain nearly $10 billion to be a member of the European Union. What does a country like Great Britain gain from the $10B membership fee? The EU spends its budget on economic stabilization, job creation, and security for European citizens. Its members also get the benefit of being a part of the largest trade bloc in the world.

This vote took place now because David Cameron, Prime Minister of Great Britain, campaigned on the promise that he would negotiate better terms of Great Britain’s membership to the European Union. Great Britain has been at a divide for the past few years when it came to key issues related to the European Union. Proponents of leaving the EU cited issues such as the price tag of membership, weak borders as a result of the EU’s immigration and free movement of people policies, and the limit of business growth because of strict general lawmaking. The argument of those who wanted to remain in the EU was centered on the economic benefit of the trade bloc that allowed for free trade between Great Britain and the other members.

Now that Great Britain has voted to leave the EU, they will begin a two year negotiation to determine the details of the separation - the largest of issues being the details of trade between the now independent Great Britain and the remaining EU member countries.

This vote contributed to investor uncertainty in the previous months, and the decisions that are made over the next couple years will undoubtedly contribute to investor uncertainty as media outlets continue to make noise as they do all too well. The key for investors is to be able to filter through the noise to make well informed decisions. Events such as Brexit are great examples of systematic risk that contributes to volatility and risk in portfolios, something that we continually monitor in our portfolios here at The Center. 

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc. and an Investment Representative with Raymond James Financial Services.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Boguth and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Millennials Matter: Paying Down Debt While Saving for the Future

Contributed by: Melissa Parkins, CFP®

If you missed it, last month I began a monthly blog series geared towards millennials, like me, with topics that are important and relevant to us. Chances are you are going to have debt at some point in your life—student loans, credit cards, new cars, or perhaps a mortgage—and let’s be honest, most of us millennials are drowning in student loan debt these days! Let’s say you finally have a steady income stream and want to start building your net worth… but have enormous student loan debt and maybe some credit cards to think about too. If you are like me, a big question on your mind is probably, “with extra money in my budget over my necessary expenses, do I pay down more debt, or invest more for the future?” The decision can be overwhelming and definitely not easy answer-- how do you decide the right mix of paying down debt and saving for the future?

Things to Consider:

• First, make sure you are able to at least make the minimum payments on your debts and cover all your other necessary monthly expenses. Then, determine how much extra cash you have each month to work with for additional loan payments and to invest for the future.

• Have an adequate emergency reserve fund established (the typical emergency fund should be 3-6 months of living expenses). If you don’t have a comfortable emergency fund, start building one with your extra monthly cash flow now.

• Take advantage of your employer’s 401(k) match, if they offer one.*  If there is a 401(k) match, contribute enough to get the matching dollars. You are not only saving for the future, but it’s extra money invested for retirement too!

• Make deductible IRA contributions – who doesn’t like saving for the future while saving on taxes? If you have earned income and are not covered by a retirement plan like a 401(k) through work, you are eligible to make deductible IRA contributions up to the annual limit. If you are covered by a retirement plan at work, the deduction on IRA contributions may be limited if your income exceeds certain levels.

• Make high interest rate debt a priority. Take inventory of your debts and their corresponding interest rates and terms. It is a good idea to pay more than the minimum due on high interest rate debt so you are reducing your interest paid over the life of the loan. You can do this by increasing your monthly debit amount or by making more than one payment a month. Also, check with your lenders for discounts for enrolling in auto payments – many offer a small rate reduction when payments are set to be automatically debited each month.

• Remember that interest you pay on some debt is tax deductible, like student loan interest (if your income is below certain levels) and mortgage interest (if you are itemizing your deductions). So at least some of the interest payments you are making on your loans go towards saving on your taxes.

• Lastly, don’t forget to consider what short-term goals you have to pay for in the next 1-2 years. Are you looking to buy a home and need a down payment? Wedding to pay for? New car? Or maybe you have just been working hard and want to treat yourself to a vacation! Lay out these larger short-term goals with amounts and time frame, and see how much of your monthly extra cash should be going to fund them.

Ideas and Tools to Help

• Technology – Consider the use of budgeting apps like Mint or Level Money to keep your spending in check and your goals on track

• Social Media – Look to your Twitter feed for inspiration and helpful tips (personally, I like to follow @Money for motivation).

• Do you receive commissions, bonuses or side income above your normal pay? Instead of counting on that as typical cash flow, each time it comes in put it towards paying off high interest rate debt (I do this and I promise, the feeling is rewarding!). You can also do this with your tax refund each year.

• When you receive a pay increase at work, instead of increasing your spending level, use it to increase your savings (have you read Nick’s blog on his “One Per Year” strategy?)

• Call us! We are here not only as financial planners, but also as behavioral coaches to help you effectively achieve your goals!

Ultimately, how do you feel about debt? Your balance between paying down debt and saving for the future will depend on your personal feelings about having liabilities. It is a good idea to start saving as early as possible because of the power of compounding over the long term. But that doesn’t mean you can’t be aggressively tackling your debt as well. Create a plan that you are comfortable with, review it often to make sure you are staying on track, and make adjustments as your cash flow changes over time.

Continuing on with the topic of debt… read next month about student loans and what you can  be doing to be more efficient with them. Don’t forget to look for more info on our upcoming webinar in July as we’ll be going into more details about student loans!

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.

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*Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor or your retirement

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Melissa Parkins and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.

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Are Your Aging Parents a Roadblock in Your Retirement Planning?

Contributed by: Sandra Adams, CFP®

As the meat in the so-called “sandwich generation,” the baby boomers are approaching retirement at a record pace. As we work with clients and client couples to get their financial and non-financial “ducks in a row,” it is becoming more and more common to discuss issues surrounding the assistance of one or both sets of parents and aging/long term care issues. If this sounds familiar, here are the possible roadblocks that this can cause for your retirement planning and some suggestions about what you can do to prevent them.

What are the Roadblocks?

• Providing assistance/caregiving often limits the time you can work; you may be forced to take family leave time to provide care, go to part time work, or even take early retirement.

• Working less reduces earnings, providing less Social Security earnings, and less in retirement savings for future retirement.

• Stopping work prior to age 65 may mean a need to bridge a health insurance gap when that was not the original plan.

• Caregiving can be stressful, especially if you are trying to continue to work and also have responsibilities with adult children and/or grandchildren, so your own health can become a concern.

• With so much going on, just being able to keep your “eye on the ball” and concentrate on your own retirement goals can be a challenge.

What Can You Do to Make Sure To Stay On Track?

If you find yourself in the position of assisting aging parents, now or in the future, do not assume that all is lost. There are things that you can do to make sure that your own retirement will stay on track:

• Have conversations with your parents and plan ahead as much as possible to make sure that their long term care is funded; have a conversation to discuss if they are willing and able to have non-family members provide care if and when the time comes (at least until you retire); have a professional moderate the planning conversation if it’s not a talk your family is comfortable having on their own.

• If you do end up leaving work to care for an aging parent, discuss having a paid caregiver contract drafted or determine if your parent’s Long Term Care insurance policy has the ability to pay you for your services as a caregiver.

• Make sure others take their turn and spread the responsibilities amongst others (see my recent blog on Family Care Agreements); take breaks and take care of yourself (caregiver stress is a real thing!).

• Continue to meet with your financial planner on an annual basis to keep yourself focused on your own goals along the way—continue to save for retirement as you are able and make progress.

We all have roadblocks that slow our progress towards our goals; aging parents might be one of yours.  The love and care we have for our family—especially our parents—is not something we would ever deny, however frustrating it might be when it delays that ultimate freedom we call retirement. But if we plan ahead, and coordinate with our families and professional partners, we can hope to make the roadblock more of a speedbump.  Contact me if you have questions about how your financial planner can be of assistance.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sandy Adams and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Center for Financial Planning, Inc. Named to 2016 Financial Times 300 Top Registered Investment Advisers

Contributed by: Center for Financial Planning, Inc.

Center for Financial Planning, Inc. is pleased to announce it has been named to the Financial Times 300 Top Registered Investment Advisers, as of June 16, 2016. The list recognizes top independent RIA firms from across the U.S. This is the second year The Center has been on the list.

This is the third annual FT 300 list, produced independently by the Financial Times Ltd. in collaboration with Ignites Research, a subsidiary of the FT that provides business intelligence on the investment management industry.

The “average” FT 300 firm has been in existence for 22 years and manages $2.6 billion in assets.

More than 1,500 pre-screened RIA firms were invited to apply for consideration, based on their assets under management (AUM). Applicants that applied were then graded on six criteria: AUM; AUM growth rate; years in existence; advanced industry credentials of the firm’s advisors; online accessibility; and compliance records. Neither the RIA firms nor their employees pay a fee to The Financial Times in exchange for inclusion in the FT 300.

The 300 top RIAs hail from 34 states and Washington, D.C.

The FT 300 is one in series of rankings of top advisers the FT produces in partnership with Ignites Research, including the FT 401 (DC retirement plan advisers) and the FT 400 (financial advisers from traditional broker-dealer firms).

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This award is bestowed by an independent third party organization not affiliated with Raymond James.

Center Stories: Timothy Wyman, CFP®, JD

Contributed by: Timothy Wyman, CFP®, JD

If video had been around before the English idiom “a picture is worth a thousand words,” was first uttered, the phrase just might have been “a video is worth a million words.” 

A successful financial planning relationship is very personal, and for it to be truly successful it has to not only be personal but also worthy of trust. While education and credentials are important and the written word or professional bios provide a great medium to learn more about our backgrounds, trying to find out if a planner or firm might be a good fit is difficult to ascertain from words alone. Therefore, if we haven’t had the privilege of meeting yet I hope this video allows you to see, feel, and hear why I am passionate about helping folks make good financial decisions – it’s what I love to do.

If you feel that we might be a fit, please feel free to reach out. And if we decide to work together, you can be assured that I will do my best to stand in your shoes and use my roughly 25 years of experience to your benefit.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Insurance Basics: Property and Casualty

Contributed by: Nick Defenthaler, CFP®

Over the last several months, I have touched on the various forms of insurance that are typically most important within a well-rounded financial plan. As we wrap up with my 5 part blog series on insurance basics, I’d like to discuss property and casualty (P&C) insurance and discuss some items that should be on your radar when reviewing your coverage. 

Auto Insurance

Living in Michigan (one of the most expensive states in America for car insurance) we are all aware of how pricey coverage can get, especially if you have younger drivers in your household. As such, many of us (myself included) are solely focused on getting our premiums as low as possible and we often times don’t realize what we are sacrificing by doing so. There are several components to your auto policy and liability protection is critical. As a rule of thumb, we like to see clients maintain a minimum of $250,000 in bodily injury coverage per person and $500,000 per occurrence. This level of coverage could be more, however, based on your income. In most cases, coverage amounts are not at this level. One way to potentially increase coverage but maintain affordability of coverage would be to increase your policy’s deductible. 

Homeowners Insurance

If you have a mortgage on your home, homeowners insurance is required by the lender. If you own your home free and clear, however, you technically aren’t required to carry insurance, but going without coverage is something we would never recommend. On average, the annual premium for a typical home in Michigan will run approximately $700 – $1,000, and similar to auto, the lowest cost coverage should not be your main focus.

Here are some items you want to consider on your own policy:

Liability Coverage

• Typically we recommend at minimum $350,000 in protection, ideally closer to $500,000.
• This coverage will protect you from lawsuits from things like a dog bite or having someone trip and fall on your property.

Flood Back-Up

• Will provide coverage under certain circumstances if you have water in your home.

Jewelry, Art, Collectible, etc. Endorsements

• This will provide coverage on items like wedding rings, even if they are lost, stolen, or they fall down that dreaded bathroom sink!

Umbrella Insurance

As financial planners, one of our primary roles is helping you accumulate assets. Helping you protect those assets, however, is equally important in our opinion. An umbrella policy is designed to provide additional liability coverage above and beyond the limits of your homeowners and auto insurance policies in situations such as:

• Injuries on your property
• Damage to property
• Liability coverage on rental units
• Certain lawsuits, slander, libel, false arrest, malicious prosecution and other personal liability situations

Unfortunately, we live in an extremely litigious society, so employing the proper protection for your assets is crucial. For approximately $150/year, one can purchase a $1M umbrella liability policy, which is often a sufficient back-stop of liability coverage at a very reasonable cost.  

Like most of us, you probably only speak to your P&C agent once every few years (if that) and, as mentioned previously, chances are the main focus is on cost as opposed to the liability protection the insurance provides. We encourage clients to reach out to their agent at least once a year to check rates and make sure the proper coverage and protection is in place for their given situation – especially if you’re a small business owner or own rental properties. We realize this is an area that is many times over looked. To help navigate through this we have decided to host a small, in-office seminar to discuss this extremely important topic in greater detail. Click here for more details and to register – we hope to see you there!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

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This information does not purport to be a complete description of the Property and Casualty Insurance products referred to in this material. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Opinions expressed are those of Nick Defenthaler and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Insurance guarantees are based on the claims paying ability of the insurance company.