Posts Tagged ‘taxes’

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Grandchildren and College: College Tuition Help from Grandparents

Saturday, April 14th, 2012

Have you always planned to help your grandchildren pay for college? With the price of college nowadays, college tuition help from grandparents matters more than ever. There are several ways you can help them with college expenses and save on your tax bill at the same time.

Here are three tips to help grandchildren pay for college.

College Tuition Help from Grandparents

1. Write a Check to the Child

Just as in 2011, you can give a grandchild $13,000 in cash a year — or $26,000 if your spouse joins in the gift — without incurring gift tax implications. Write the check and give it to your grandchild. Still have time before college? Set up a custodial account at a bank, mutual fund or brokerage firm. The money can be used for tuition or other college-related expenses.

2. Give Stock

College tuition help from grandparents can also take the form of appreciated stock or other investments. If you give appreciated stock or other investments to your college-bound grandkids, your family can potentially cut the capital gains tax bill. Let’s say you want to sell stock you’ve owned two years to free up some cash for tuition. You will probably pay 15 percent capital gains tax rate on the profit. But you can give a certain amount to your grandkids at a lower tax rate.

Keep in mind that if your child is under age 19, or age 24 if a full-time student, the Kiddie Tax rules may apply.

college tuition help from grandparentsIf a child affected by the Kiddie Tax rules receives “unearned income” above a $1,900 threshold in 2012 (unchanged from 2011), the excess is taxed at the top tax rate of the child’s parents. In other words, a portion of your child’s earnings could be taxed at a rate of up to 35 percent. If the threshold is not exceeded, the Kiddie Tax doesn’t apply for that year. If it is exceeded, only unearned income in excess of the threshold gets taxed at the parents’ higher rates.

3. Pay Tuition Yourself

Tuition can be paid directly to a financial institution with no gift tax implications, under current tax law,  but the money cannot pass through the hands of grandchildren (or their parents) first. It has to go right to the university. This approach might be appealing if you’re worried about the youngsters spending it frivolously.

This tax break applies only to tuition and can’t be used to pay room, board and other college expenses. However, you can still give your grandchild a cash gift of up to $13,000 in 2012 (unchanged from 2011) to cover those other expenses ($26,000 if your spouse joins in the gift) and not incur any gift tax implications. College tuition help from grandparents: the gift that keeps on giving.

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2012 Tax Update: Maine Tax and Medicaid Law

Monday, January 23rd, 2012

Learn how to avoid “cracks” in your nest egg at a free seminar for seniors Wednesday, February 8, from 10 a.m. – noon at the Knights of Columbus Hall in Brunswick, 2 Columbus Drive.

The workshop has been especially planned for seniors. John Nale, an estate planning attorney, and Bruce Macomber, a national speaker on retirement issues, will be joining retirement planning specialist Jac. M Arbour in discussing a 2012 update of estate tax laws, medicare and medicaid issues, and nursing home costs. The two hour discussion on asset preservation will cover lots of information on taxes, probate and Wall Street risks. The organizers say that nothing will be sold at this workshop.

To make reservations or learn more, call 207-620-7265.

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Rich Vs. Poor in America: now it’s the seniors fault

Monday, November 7th, 2011

An Associated Press article that ran in this morning’s Portland Press Herald is titled Wealth Gap Widest Ever Between Young, Old and goes on to have what I think is an amazing subhead: young adults bear the brunt of the economic downturn while the federal safety net buoys retirees. Really, you have to read the article. Let me know if you’re as completely annoyed as I was!

Essentially, the article states that the huge and growing gap between wealth held by those over 65 and wealth held by those under 35 is somehow the fault of our seniors, because they held jobs, saved money, and paid off their mortgages.

The wealth difference was highlighted in a recent report. From the article: 

The report, coming out before the Nov. 23 deadline for a special congressional committee to propose $1.2 trillion in budget cuts over 10 years, casts a spotlight on a government safety net that has buoyed older Americans on Social Security and Medicare amid wider cuts to education and other programs, including cash assistance for poor families.

“It makes us wonder whether the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them,” said Harry Holzer, a labor economist and public policy professor at Georgetown University who called the magnitude of the wealth gap “striking.”

Like all averages, the average in the article is deceptive. To get a median net worth in households of people 65 and over of $170,494, there have to be lots of people below that level. And to be honest, a median net worth of $3,662 in households headed by 35 year olds probably does reflect college debt and sometimes upside-down mortgages, but those debts are choices made on on the premise that jobs would be available and housing would increase in value.

What’s really scary is that senior care in Maine costs around $6,500 a month on average in assisted living. So even if your household does have a net value of $170,000, that’s only a few months over two years of senior care. $170,000 is just not that much!

And as far as the federal safety net buoying seniors, many of those programs have been cut repeatedly in the past few years, and MaineCare (Medicaid) hasn’t paid the full cost of care for years now, leaving doctors, nursing homes, private pay residents and hospitals to cover the gap.

In all, the article is a bit inflamatory, somehow making seniors the bad guys, the fat cats, the selfish horders. Untrue and unfair.

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Reverse Mortgages in Maine

Wednesday, October 19th, 2011

Check out this great article on reverse mortgages from the April issue of Maine Ahead. Author Sharron Eastman makes some simple points: understand how reverse mortgages work, don’t be ruled by myths, look for an FHA guarantee and ask how the money will be used.

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Maine nursing home care: Maine’s elderly will lose as Congress gambles on Medicare cuts

Thursday, October 6th, 2011

Richard Erb, president of the Maine Health Care Association, writes about balancing the budget on the backs of our nation’s elders in today’s editorial section of the Portland Press Herald.

Although we think of Medicaid as a program supporting the poor, about 75% of seniors in Maine nursing care communities depend on Medicaid (MaineCare) for payment. Maine is the oldest state in the nation, so this figure is not likely to go down, and if Medicaid and MediCare budgets are slashed, a primary payment source for  Maine’s needy elders will be drastically reduced.

Sometimes the newspaper doesn’t keep articles on-line long, so you can read Maine’s elderly will lose as Congress gambles on Medicare cuts here. 

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Turning Your Savings into Real Protection for Long Term Care

Monday, August 15th, 2011

by Kerry Peabody, Long Term Care Insurance specialist

You’re a saver. You’ve saved diligently (something more people should do) and now you’ve got some money tucked away “just in case.” It’s your rainy day fund. It’s money that you don’t plan to use for anything, and if you can pull it off, it would be nice to leave it to your grandchildren. But, you don’t have any protection against long term care. So, no matter how much you’ve saved, there is still a risk you might need to spend it all for long term care. What if you could keep control of that money, but still use it to protect yourself? “Asset-based” long term care plans will do just that.

Let’s say you’re 65 year old woman, and you have $100,000 in CDs, money market accounts, savings, etc. If you needed long term care, this is the first money you’d need to spend to pay for services. But, with nursing homes costing about $100,000 per year, that may not be enough. Using one of these plans, here’s what you can do.

You could move $75,000 of that money into an asset-based long term care plan. Then, the insurance company would agree to pay up to $158,000 in benefits if you needed long term care services, or if you passed away! So, you’ve  kept $25,000 in savings for emergencies, and you’ve turned your $75,000 into $158,000 – more than double your money. If you were to use $50,000 for long term care, and then pass away, the remaining $108,000 is still paid out as a death benefit. If the money is paid out to you as long term care benefits, there’s no tax. If the money is paid to your granddaughter, as a death benefit when you pass away, there’s no tax. No matter which one happens, you’re guaranteed to get more than double your money out of this insurance policy. But, that’s not the best part.

Something happens a few years down the road and you change your mind. Perhaps they find a definitive cure for Alzheimer’s disease, or a family member desperately needs cash, and you want to help. At any time, for any reason, you can go to the insurance company and get your $75,000 back. This product has  a built-in “return of premium” feature. So, you’re not giving up control of your money; you can still get to it if you need to. Of course, if you take the money back, your long term care protection goes away, so hopefully you won’t have to do that.

There are several of these products available today, so if traditional long term care insurance doesn’t appeal to you, perhaps this will. Let’s face it, you need to have some sort of plan for care, and that boils down to having the money to pay for it. If you’re writing the checks, you’re calling the shots.

Have a great week! Next time, we’ll talk about what long term care insurance plans can pay for.

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Senior Money: Deferred Annuities Part II, Immediate Annuities

Wednesday, July 13th, 2011

Kerry Peabody, Long Term Care Insurance Specialist at Clark Insurance

We’re talking about “deferred annuities” this week, in a three part series. Here’s Part II: Immediate Annuities.

We’ve talked about “deferred annuities,” which are tax-advantaged savings & growth tools. Now let’s take a look at the other way annuities can be used – to create a guaranteed lifetime income. A pension is simply an annuity. If you don’t happen to have a pension from an employer (and we know that far fewer of us have these than used to) you can actually “buy” one, using an immediate (income) annuity.

An immediate annuity takes a lump sum and converts it to a guaranteed stream of income. The amount of income created is based upon the amount of the lump sum and the age of the annuitants, and how long you want the annuity to pay.

For instance, let’s say that Ted is 70. He’s collecting social security of about $1,600 per month, and he takes $1,000 per month of income from his IRAs. Combined, his monthly income is $2,600. He has $150,000 in CDs. He’d like to have a little bit more money to spend every month, but he’s hesitant to start drawing from his savings accounts, because he’s afraid he’ll spend them all down.

Ted decides to purchase an income annuity with $75,000 of his CD money. At age 70, this would result in $535 per month, every month, for the rest of his life, no matter how long he lives. If Ted lives to 110, that check will still be coming, every month, guaranteed. He’s giving himself some extra income, he’s still got $75,000 in savings for emergencies, and he’s guaranteed that this check will never stop coming, no matter what.

The downside to a “life only” annuity is that Ted might step in front of a bus before the entire $75,000 is paid back to him. If that’s a concern for Ted, we can fix that by adding a “period certain” to the annuity. For instance, we could say that we want Ted’s annuity to pay for the rest of his life, no matter how long he lives, or for at least 15 years. In that scenario, Ted’s monthly check would be $464 per month. If he passes away before the 15 year period certain ends, the check would go to his beneficiary every month. So, he’s guaranteed to get at least $83,520 out of the annuity – no matter what.

Also, when the money’s being paid from the annuity, only a portion of it will be taxable. For instance, in the Life Only version above, a portion of the monthly check is Ted’s money, and a portion is the growth within the annuity. In this scenario, only $145 of the $535 per month is considered taxable income.

So, once again, annuities offer guarantees, tax-advantages, and the flexibility to make your money do what you need it to do. If you have money that’s sitting idle in savings, CDs, or money market accounts, or in retirement accounts that you don’t want to leave at risk of market losses, then you can use annuities to create guaranteed savings and income for life. By combining the benefits of both deferred and immediate annuities, you can build a guaranteed, bulletproof income stream that you and your spouse cannot outlive.

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Senior Money: Part 1 Indexed Annuities

Monday, July 11th, 2011

Kerry Peabody, Long Term Care Insurance Specialist at Clark Insurance

Let’s talk a little bit more about “deferred annuities” this week, in a three part series. Here’s Part I: Indexed Annuities.

A deferred annuity is a tax-advantaged savings & growth tool. As we said before, you agree to leave a portion of your money with an insurance company, for a pre-determined period of time. In return, the company promises to pay you a minimum return. While the money grows inside the annuity, you’re not taxed on any of that growth each year, as you would be in a CD. Over time, this means that you benefit from faster growth.

Deferred annuities typically pay a higher return than CDs will. While the difference may not be huge, when you add in that your money grows tax-deferred, it can make a significant difference over time.

Usually, the longer the annuity period – the amount of time you agree to leave your money with the company – the higher your guaranteed return will be. For instance, today, 5 year annuities will guarantee anywhere from 2.15% to 3.25%, depending on the company you choose and the amount you deposit. A 10 year annuity would pay anywhere from 3.05% to 4.25% per year.

There are also annuities that give you the opportunity to make even more, by “indexing” your returns to the stock market. These are called fixed, indexed annuities. It’s important to understand that your money is not in the stock market, and it’s not subject to market risk. The carrier is taking the market risk with an indexed annuity, not you.

Here’s how a fixed, indexed annuity works: You put your money with the insurance company, but instead of a guaranteed, flat rate, you choose an “index,” such as the S&P 500. If the S&P 500 goes up, your money goes up. If the S&P 500 goes down, you’re guaranteed not to lose any of your money. So, you go up when the market goes up, but you don’t go down when the market goes down! This is the best of both worlds. “But,” you say, “this sounds too good to be true. How does the insurance company do this?” It’s actually quite simple.

An indexed annuity also has a “cap.” The cap is the maximum you can earn if the market goes up. For instance, today, you could purchase a 7 year indexed annuity with a 6.5% cap. If your index goes up this year, you’d go with it all the way to 6.5%. If it goes up more than that, you still get “just” 6.5% return. The carrier keeps anything above that. If it goes up less than 6.5% – let’s say it goes up by 4% – you’d get the full 4%. If it goes down, you don’t lose anything.

So, by “indexing” the returns, you now have the potential to make more, but you’re still protected against the dips in the market. Not a bad deal.

Most indexed annuities also offer you a fixed option, and you can usually change your allocations every year. For instance, if you feel that the upcoming year is going to be a bad year for the market, you could change to the fixed, guaranteed option, and know that you’d make a minimum return. If the next year looks better, you could switch to the index option, to take advantage of the market’s ups, without any risk of downs.

As always, you should only put money into a deferred annuity if you’re fairly confident you can leave it alone for the entire annuity period. You will be penalized if you pull it all out early, because you agreed to leave it there. Keep in mind, though, that many annuities will let you pull some money out early – often as much as 10% per year – without penalties, as part of the contract.

Next time, we’ll look a bit more closely at “immediate annuities,” and ways to use both deferred and immediate annuities to strengthen your retirement security.

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Your Retirement Safety Net: LTC Insurance

Monday, March 28th, 2011

by Kerry Peabody, CLTC

Congratulations, you’ve made it! Retirement is right around the corner, and you’re ready to breathe a big sigh of relief. You’ve saved wisely and made good investments… but now there’s one more thing to take care of. You have to make sure that your family and your retirement plan are protected against the need for long term care.

You’re going to spend a long time in retirement, and your money needs to be there for you. Imagine if a few years from now, you suddenly need to start writing checks for $5,000, $6,000, even $10,000 a month to pay for long term care services? Where will that money come from? What will it mean to your spouse? Your family? What will it mean to you if you recover? Most of us would be financially devastated by an unexpected long term care need, and the majority of us will use long term care services at some point in our lives. You may know someone this has happened to, perhaps a family member. If so, then you understand that you need to be ready. If not, then talk to friends, neighbors, and co-workers who have experienced it, and see how it affected their families. Ask your family attorney about the risks. You’ll quickly realize that you need a safety net.

The secret to removing the physical, financial, and emotional burden from your loved ones is having the resources to pay for your care. Today, there are good quality home health care agencies springing up all around the area. Assisted living facilities are booming, and adult day care is now available. These are all excellent sources of quality care, but they all depend on your ability to pay.  Medicare covers only very limited long term care, usually less than a month. Medicaid, or MaineCare, will only help after you’ve spent down your own assets, and then you may not be able to choose where you receive care.

Today, just about anyone over the age of 50 is familiar with long term care insurance. These policies cover home care, adult day care, assisted living facilities, and nursing homes. They are flexible and affordable, with discounts for good health, couples, and domestic partners. New claims data from the industry has given us insight into sensible plan designs and coverage options. This coverage offers a good solution for many families, but it can be a difficult decision to make. You need to consider several things before you choose a plan:

  • Have you compared several companies? One company isn’t always the right answer, so be sure that your agent helps you consider plans and prices from a few quality carriers.
  • What kinds of care does the plan cover, and where?
  • How does your Elimination Period, or deductible, work?
  • Does your plan have Inflation Protection? Without it, you may not have adequate benefits when you need them.
  • Is the company you’re considering financially strong?
  • Is the company experienced in long term care, or new to the industry?

These are a few of the things to keep in mind when choosing a plan, but you also must consider your age and health. If you’re fifty or older, then the best time to do this is now. You will not save money by waiting until you’re older to put this in place; in fact, you’ll pay far more over the long run by putting it off. And remember, you will need to be medically underwritten to get a policy. This means that the company will review your health history, so apply while you’re young and healthy. It’s not uncommon for people in their 40s to purchase long term care insurance.

Right now you’re self-insured for long term care. That means that the first place you’ll turn to pay for care is your own money. Can your retirement plan support a cost like this? If not, then explore your options. Talk to your elder law or estate planning attorney and CPA, find a long term care insurance specialist, and explore your options. Don’t walk the retirement tightrope without a safety net.

Kerry Peabody, CSA, CLTC

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Shades of Gray, Part 1:Maine’s Aging Workforce Presents Challenges for Employers

Wednesday, August 18th, 2010

This article is reprinted with permission from MaineBiz. Derek Rice, author. First of four parts.

It should come as no surprise to anyone that the current economic climate has created a number of unexpected challenges for employers, employees and job seekers.

Aside from companies’ hesitation to add employees in an economic downturn, perhaps the most visible challenges revolve around Maine’s 55-plus population. According to the Maine Department of Labor’s Local Employment Dynamics Program, the number of workers aged 55 and over has increased in every sector from 2001 to 2009. On the low end of the spectrum is the accommodation and food services sector, which saw an increase of just 1.8% in that time. Leading the way is utilities, with a 12.2% jump.

An unfortunate case of bad timing for Maine’s baby boomer population is the most likely reason behind these increases, says Rick Dacri of human resources consulting firm Dacri & Associates in Kennebunkport. In the last few years, they’ve seen declines — some significant — in both their retirement accounts and home values. Factor in the increased health care older people require, and many are forced to make last-minute changes and re-evaluate their retirement plans.

read contract webFor those who are approaching retirement age, that may mean staying in a job longer than they intended or returning to the work force to make ends meet. Either scenario, while unavoidable in a downturn, presents Mainers with a unique set of challenges.

When employees stay on longer, that can potentially create problems with advancement, Dacri says.

“Delayed retirement creates significant problems in the workplace,” he says. “It really impacts younger workers, who can’t move upward. Those employees are going to look for another organization where there are more opportunities for advancement.”

However, having older workers stay on longer can also benefit companies. According to the Department of Labor, of the annual average of 704,000 Mainers who participated in the work force in 2009, 159,000 (about 23%) were 55 or older. That means nearly a quarter of the work force is either eligible for retirement today or will be within the next 10 years. With this in mind, employers are aware that they’ll be facing a labor supply issue in the very near future. The longer a retirement-age employee stays on the job, the more time the company has to recruit and train a suitable successor.

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