|Medicare’s annual open enrollment period begins October 15 and ends December 7. During this time, current Medicare beneficiaries have the option to adjust their coverage for the coming year. Any changes to your plan will go into effect on January 1, 2022.1|
This is an opportunity to reassess your current coverage and identify potential areas for improvement. Maybe you’ve recently changed medication, find yourself underutilizing coverage, or are in need of additional benefits.Before open enrollment begins, you’ll receive a report outlining your current coverage. Review your elections carefully, especially if you haven’t updated coverage in the last few years.
Medicare offers a Plan Finder tool to help compare other offerings if you’re considering making a switch.Your health insurance coverage in retirement should work to protect your financial wellbeing.
I’m happy to help navigate your questions around ensuring your retirement plan has you set up for success and well being. Feel free to reach out with any questions, or to schedule a meeting to talk.
|1. Centers for Medicare & Medicaid Services, February 2, 2020|
|The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.|
Research suggests that 70% of married millennial couples argue about financial decisions more than any other topic. This could explain why some experts say financial problems are one of the top reasons marriages fail.1,2
Fortunately, when couples work together to address their finances, they may be able to mitigate many of the problems money may cause in a marriage.
10 Tips for Newly Married Couples
- Communication – Couples should consider talking about their financial goals, memories, and habits, as each partner may come into the marriage with fundamental differences in experiences and outlooks driving their behaviors.
- Set Goals – Setting goals establishes a common objective that both partners become committed to pursuing.
- Create a Budget – A budget is an exercise for developing a spending and savings plan that is designed to reflect mutually agreed upon priorities.
- Set the Foundation for Your Financial House – Identify assets and debts. Look to begin reducing debts, while building your emergency fund.
- Work Together – By sharing the financial decision-making, both spouses are vested in all choices, reducing the friction that can come from a single decision-maker.
- Set a Minimum Threshold for Big Expenses – While possessing a level of individual spending latitude is reasonable, large expenditures should only be made with both spouses’ consent. Agreeing to a purchase amount should require a mutual decision.
- Set Up Regular Meetings – Set aside a predetermined time once or twice a month to discuss finances. Talk about budgeting, upcoming expenses, and any changes in circumstances.
- Update and Revise – As a newly married couple, you may need to update the beneficiaries on your accounts, reevaluate your insurance coverage, and revise (or create) your will.3
- Love, Trust, and Honesty – Approach contentious subjects with care and understanding, be honest about money decisions you know your spouse might be upset with, and trust your spouse to be responsible with handling finances.
- Consider Speaking with a Financial Professional – A financial professional may offer insights to help you work through the critical financial decisions that all married couples face.
1. NPR.org, February 10, 2020
2. Marriage.com, June 8, 2020
3. When drafting a will, consider enlisting the help of a legal, tax, or financial professional who may be able to offer additional insight, especially if you have a large estate or complex family situation.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
Copyright 2021 FMG Suite.
Experiencing a divorce is rarely something couples expect to face. Yet, inevitably, some marriages do unravel, affecting each partner’s financial life in the process. While divorce overall has been steadily decreasing, it’s still common in the U.S. In fact, among those 50 and older, the divorce rate has doubled since 1990, and tripled for those over 65. 1
Your financial situation can be one of the most important elements to understand as you navigate a divorce. One often-overlooked aspect of divorce is the decrease in income all parties suffer. On average, men typically see a 25% decrease in income following a divorce, while women can experience a decrease of over 40%. With this in mind, it’s no surprise that women often experience greater financial hardships following a divorce than men. Additionally, those who go through a so-called “grey divorce,” splitting up after age 50, are nearly 9 times as likely to have financial challenges at age 63 than their continuously married peers. 2,3
With the right strategies and guidance, you may be able to help control the setbacks that many people experience during a divorce. Regardless of what your current financial standing is, your post-divorce life should start with identifying all of your personal assets and searching for any potentially hidden assets. These details include everything from loans in your name to investments held in both spouses’ names. By doing so, you’ll be better able to claim the finances that are yours (separate property) while divvying up the ones you share (marital property). From there, you can start the process of organizing your financial life.
Navigating a divorce is rarely simple. However, with this whitepaper, you may be able to take some of the complexity out of the equation. 4
Money – Cover Expenses and Support Your New Single Life
Divorce can be expensive. Not only do you need to afford your new lifestyle without your spouse, but you also need to pay for the divorce process itself. In fact, the average cost of a divorce is $15,000 for each person, which includes court fees, attorney fees, and taxes, among other expenses. Furthermore, the costs continue even after the divorce is final. People typically need their income to increase by 30% after a divorce to support their standard of living. For people divorcing who are 50 years and older, the change can be even more drastic, with wealth often decreasing by 50%.5
From splitting bank accounts to identifying your net worth, how well you manage your money plays an important role in setting up your new life stage. Here are some ways to help you address money issues during a divorce.
You should have started the divorce process by listing out which assets are considered marital property and which are separate property. These details come back into play when you’re addressing your money. You’ll need to clearly know what you own versus what you share, and from there, you can divide them up accordingly.
CREATE YOUR NET-WORTH STATEMENT
By knowing what assets you own personally and jointly, you’ll begin to create a picture of your financial worth. You’ll need to capture these details in a net-worth statement that subtracts your liabilities from your assets. Keep in mind that this statement reflects where you are in your financial life today, not tomorrow. So, as you unwind your finances, focus on actions that move you forward with a stable foundation.6
SEPARATE YOUR FINANCES
Next, you need to go through the process of separating your money. Remember, assets that you had before your marriage remain yours after a divorce, which includes anything you may have bought with an inheritance. Here are some key finances to address:
BANK ACCOUNTS: Separate any joint accounts you share. If you don’t have one, you’ll need to open up a new bank account in your name only. 7
CREDIT CARDS/LOANS: List every credit card and loan you and your spouse have. From there, identify what designates you as a co-owner of the debt, or simply as an authorized user, and take steps to remove yourself from any joint relationship. 7
Untangling Your Investments
While you and your spouse were married, you may have built part of your financial life together through investments. Those assets contribute to your net worth, what you each own separately and together, and what investments you need to split. A variety of details can affect how you split your investments. Here are some questions to consider:
SHORT-TERM VERSUS LONG-TERM NEEDS: Do you
need money now to help you both transition to this new life stage? Or, can you let some investments continue to increase in value?
DELAYED EARNINGS: Did you invest in something that started earning only after you were married? Or, did your investments accrue value before marriage?
BEST FIT: Is receiving an investment during settlement the right financial fit for your needs? Or, would other financial options help you transition better? 9,10
REINVESTED SETTLEMENT MONEY
The hope is that after your divorce is finalized, you’ll have a cash settlement that’s large enough to help support your immediate living costs. However, an important detail to consider is that after a divorce, individual living costs can be as much as 50% more than expenses for a couple. As a result, ensuring that you have enough income for both today and the future is important. Assuming your income meets your needs, one way you can use your settlement money strategically is by reinvesting. By doing so, you may be able to grow money for your future needs while also supporting your current quality of life.2,11
SAFEGUARD YOUR LIFESTYLE IN RETIREMENT
Retirement accounts often hold a significant portion of people’s assets, especially if they’ve been accruing for years. When divorcing, it’s critical to negotiate how you will split these accounts. Your choices largely depend on the state you live in, so make sure to work with your financial professional and legal counsel before making any moves.12
From defined-benefit plans to pensions, separating retirement savings in a fair manner can be complex. With thoughtful consideration, however, it’s possible to soundly address them and minimize complexity.
As you move to divide retirement accounts, here are some details to keep in mind:
TAXES: How will taxes affect your retirement accounts either now or in the future? Do you need to roll money over into something like an IRA?
PRENUPTIAL AGREEMENT: Do you have a prenup in place that defines how you must handle your retirement assets?
FINANCIAL STABILITY: If your retirement account is being split or transferred, how will this change affect you financially? On the flip side, if you’re receiving these funds in a settlement, how well do they support your retirement—and do you have gaps that need to be filled?
CURRENT LIVING NEEDS: Do you have enough money to cover daily living expenses? If not, will you need to access money from a retirement account to help you?
ALIMONY FOR RETIREMENT INVESTMENTS: Today’s tax laws don’t recognize alimony as earned income, so you can no longer use alimony payments to fund retirement accounts like IRAs and Roths. How will this change affect your financial strategies for retirement?13
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
A QDRO is a court order typically used for divorce agreements that states how much an ex-spouse needs to receive from the individual’s retirement accounts. This amount is often 50% of the asset’s value, accruing from the marriage’s start through the divorce. A QDRO may benefit a spouse who earns less income, and individuals can list other family members as beneficiaries to the QDRO, such as their children. These orders are only applicable for IRS tax-qualified plans covered by the Employment Retirement Income Security Act (ERISA).14
Having a QDRO isn’t required for all types of retirement accounts. However, it can protect your financial interests more than your divorce agreement alone by requiring this financial relationship when splitting retirement assets. Your specific financial needs and goals will help determine whether a QDRO is suitable for your divorce agreement. Keep in mind that for the QDRO to be officially recognized, both the Plan Administrator and the court must approve the order.15
Managing Tax Liabilities
Taxes will almost certainly play a role in your finances during the divorce process. From splitting investment accounts to managing alimony, paying attention to how taxes may affect you will help maximize your settlement outcomes.
Keep in mind that this article is for informational purposes only, and not a replacement for real-life divorce tax- preparation advice. Also, tax rules are constantly changing, and there is no guarantee that the tax treatment will remain unchanged in the years ahead. A legal professional may be able to address your specific questions.
Here are key areas to include in your strategizing.
FILING JOINT TAX RETURNS
If you filed taxes jointly, then it’s important to know that the IRS considers you still married if you haven’t finalized your divorce by December 31. As a result, separated couples—even if you’ve already filed for divorce—may be required to file joint returns in that tax year.16
If you never filed a joint return and have a dependent, you may be able to file as “Head of Household,” depending on whether the IRS recognizes you as “unmarried.” Your tax professional can help you identify the steps you need to take.16
PAYING AND RECEIVING ALIMONY
Thanks to a tax law change in 2019, alimony paid to an ex-spouse is no longer tax-deductible, and those who receive alimony will no longer pay taxes on it. Legal fees paid to an attorney due to alimony arrangements may also not
be tax-deductible anymore. If any of these items were listed in a pre- and/or post-nuptial agreement, they may be nullified as a result of these tax changes.17
ADDRESSING CHILD SUPPORT
If you have children when you divorce, then child support is likely part of your settlement. For the person paying child support, it’s important to note that these payments aren’t tax-deductible, nor is the received income. Also, no one will pay taxes on child support money. These standards apply to divorces finalized after Dec. 31, 2018.18
CLAIMING THE CHILD TAX CREDIT
If you have children who live with you for the majority of the year, then you may be able to claim the Child Tax Credit,worth a $2,000 deduction per child. For other dependents over 16 years old, you can claim up to $500 per child. Parents who don’t have custody can only claim this credit if the other parent signs a waiver allowing them to do so.19
PAYING CAPITAL GAINS TAXES
Property that transfers during a divorce isn’t taxable during the settlement. However, capital gains taxes may apply later if you sell the property. Since the tax basis shifts during the divorce settlement, you may need to pay tax on the value it accrued before and after the divorce. 19
UPDATING YOUR ESTATE STRATEGY
Your estate includes more than your retirement account. It also includes your home, car, art, and antiques. Essentially, everything you own factors into your estate. Protect your assets by going over your estate strategy with a fine-toothed comb with the aid of your financial professional and attorney. 20
Protect Yourself With Insurance
Your insurance policies also need to be reviewed during the divorce process. From removing your spouse from accounts to revising your policies, pay close attention to insurance during the divorce process. Connect with your insurance professional to make sure that all your policies have been updated.21
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder may also pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments. 21
If your former spouse is a beneficiary on your insurance accounts, a finalized divorce is a good time to update these details. Sometimes, a court may order you to keep your spouse listed as a beneficiary; in these cases, you must follow court orders. But, if you have no limitations—and you have children—then updating your beneficiary information to remove your spouse and add your kids can be a helpful strategy. 22
HERE ARE SOME DETAILS TO KEEP IN MIND:
Designating your estate as the life insurance beneficiary could cause your heirs to go through probate, which is an expensive process. Designating children who are minors is complicated, and your best option could be to set up a trust in their name as the beneficiary instead. 22
Going through a divorce is rarely a simple or inexpensive process. You can help protect yourself and make the most of your opportunities by working closely with a financial representative and other divorce professionals. It may help decrease complexity, remove uncertainty, and improve fairness for all parties involved.
Footnotes & Disclosures
Julie M. Murphy, CFP®, CLU®, ChFC®, MBA
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Sequoia Wealth Management LLC, a registered investment advisor. Sequoia Wealth Management LLC and JMC Wealth Management, Inc are separate entities from LPL Financial.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, broker/dealer, or investment advisor and should not be construed as investment advice. Neither the named representative nor the named broker/dealer or investment advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Remember, if you have any financial questions, we can help you navigate a complicated landscape and collaborate with your legal and tax professionals. Your happiness is our ultimate concern, and we’re here for you at every step.
- ThinkAdvisor.com, February 11, 2020
- Investopedia.com, March 30, 2020
- AARP.com, February 14, 2020
- TheStreet.com, April 3, 2020
- TheStreet.com, April 3, 2020
- BusinessInsider.com, February 27, 2020
- NerdWallet.com, July 2, 2020
- SSA.gov, 2020
- Forbes.com, January 7, 2020
- Investopedia.com, July 26, 2020
- USNews.com, May 18, 2020
- Money.com, April 15, 2020
- TheBalance.com, July 31, 2020
- Investopedia.com, August 2, 2020
- Kiplinger.com, March 6, 2020
- TheBalance.com, May 7, 2020
- USAToday.com, February 10, 2020
- IRS.gov, January 3, 2020
- Kiplinger.com, March 6, 2020
- Investopedia.com, August 18, 2020
- Forbes.com, April 1, 2020
- Kiplinger.com, May 19, 2020
- Powerful information that could potentially save you thousands in taxes andfees
- Tips to help put you one step ahead in your retirementpreparations
- Critical mistakes that cannot be corrected (and how to avoidthem)
HAVE YOU EVER SWITCHED JOBS?
Research shows that the average American employee switches jobs 12.3 times before retiring.1
Job changes can mean that many Americans have old 401(k) plans, which may not be allocated properly to help them prepare for retirement.
Every time you change jobs, you have some choices to make about your old 401(k). Generally, there are four basic options:
- You can leave the assets in your former employer’s plan ifpermitted.
- You can rollover the assets into your new employer’s plan if one is available.
- You can roll the assets over into an Individual Retirement Account(IRA).
- You can take a cash distribution (and deal with the potential taxconsequences).
Each of these options has advantages and disadvantages to consider. In this special report, we’ll help you hopefully avoidcommon(andexpensive)mistakesandshowhowyoucanuseyour401(k)asa tool to help with your retirementpreparations.
1. Roll Over Your 401(k) to Access More InvestmentChoices (That Benefit YOU)
Every investor is different, and volatile markets make customized strategies important when pursuing your financial objectives. Workplace retirement strategies often offer limited investment options that may not be right foryour financial situation. In contrast, IRAs can hold nearly any type of investment, which allows for flexibility in your investment strategies. By rolling over your 401(k) savings into an IRA, you open up a universe of investment options that you can use to build an investment strategy aligned with your long-term goals.
Under the 2019 SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Also, once you reach age 72, you must begin taking required minimum distributions from a Traditional IRA. Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Under the SECURE Act, you may continue to contribute to a Traditional IRA past age 70½, as long as you meet the earned-income requirement. The CARES Act has allowed some one-time exceptions to distributions and penalties in 2020. These rules can be difficult to understand. So, please, contact us, and we will provide the most up- to-dateinformation.
2. Understanding Expenses
401(k)s and other workplace retirement accounts come with administrative fees and expenses, which may take a big bite out of your investment gains. IRAs also have fee structures that include various fees and expenses.
As independent financial professionals, we’re committed to making certain you understand what costs are associated with your IRA. We believe in being completely transparent about the costs and fees associated with any investment we recommend. We work with each of our clients to find investments that are best suited to their needs and long-term goals.
3. Don’t Be Tempted to CashOut!
When our clients come to us for guidance on rolling over a 401(k) or other workplace retirement strategy, we walk them through the four options previously discussed.
One of those options is liquidating your old plan and receiving the money directly. While it can be tempting to see your savings as a quick source of cash, cashing out can be a big mistake that may cost you thousands in penalties and taxes,and it may prohibit you from years of future growth.
If instead, you decide to take a distribution from your old plan or don’t roll over the assets within the 60-day window, you will trigger an IRS reporting,and potentially, saddle yourself with a big tax bill.Taking a check from your old plan administrator will require an automatic 20% withholding tax and be reported to the IRS.2,3
If you delay moving the assets to your IRA account, you could miss your 60-day window and be forced to pay penalties and taxes on your entiredistribution.
One of the best arguments in favor of rolling over your old retirement plan is that it can help simplify your life. In our experience, investors tend to lose track of accounts that aren’t right in front of them. Life gets busy, and failing to modify your investment strategies to keep up with your needs can undermine your long-term financial success. Putting your assets in one place can help ensure that your investments are reviewed regularly and remain consistent with your financial goals. As a former employee, dependent on the plan, you may not be abletomakechangestoyourinvestments,preventingyou from adjustingyourallocationstofit yourcurrentcircumstances and long-term goals.
Why Work with a Financial Professional?
One of the benefits of working with a firm like ours is the comfort of knowing that you have a team of professionals continuously monitoring your investments and keeping you on track.
Investments are just one piece of your overall financial picture. As professionals, we take every aspect of your financial life into consideration when building customized strategies for your retirement. To take one example, many investors fail to consider how taxes may affect their investment returns.
By not taking taxes into consideration, a hypothetical $150,000 portfolio could lose nearly
$500,000 to taxes over 30 years.4Tax-efficient investing strategies can help you manage your tax burden.
Please remember: this hypothetical example that’s used to illustrate one potential situation. It’s not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your strategy if you’re concerned about your total tax obligation over time.
What Should You Do Next?
Whether you’re leaving your job to pursue other opportunities or on the wrong side of the economic downturn, the transition can be a stressful experience. Discussing your situation with a financial professional who specializes in working with executives can help you relax and explore all your options.
RESERVE YOUR FREE FINANCIAL STRATEGY SESSION TODAY
Fill out the form to the right, and in our complimentary session, we’ll take a look at your current financial situation and present you with strategies that make the most sense for you and your financial future.
WE’LL TEACH YOU:
- How to negotiate the best settlement or compensationpackage
- What to consider if you own companystock
- The dangers of holding too much companystock
- How to prevent job losses or money emergencies from derailing your financialfuture
We developed this session format after helping hundreds of clients manage their finances during critical life transitions.
To schedule your no-obligation session, please call our office at 312.275.1900
FOOTNOTES & SOURCES
Bureau of Labor Statistics, August 22, 2019
Please discuss taxation issues with a qualified tax specialist.
IRS.gov, February 6, 2020
Calculation assumes initial investment of $150,000, a 7% compound annual return over 30 years with a 2% loss to taxes, and no contributions or withdrawals. Example excludes the effects of interest, dividends, fees, and inflation. This hypothetical example is not representative of any specific investment. Your results may vary.