June 1, 2019 by Tim Barton Leave a Comment

FOUR WAYS TO FUND A BUY-SELL PLAN

There are FOUR ways to fund a buy-sell plan at an owner’s death:

Cash Method
The purchaser(s) could accumulate sufficient cash to buy the business interest at the owner’s death. Unfortunately, it could take many years to save the necessary funds, while the full amount may be required in just a few months or years.
Installment Method
The purchase price could be paid in installments after the owner’s death. For the purchaser(s), this could mean a drain on business income for years. Besides, payments to the surviving family would be dependent on future business performance after the owner’s death.
Loan Method
Assuming that the new owner(s) could obtain a business loan, borrowing the purchase price requires that future business income be used to repay the loan PLUS interest.
Insured Method
Only life insurance can guarantee that the cash needed to complete the sale will be available exactly when needed at the owner’s death, assuming that the business has been accurately valued.

If you had died or become disabled yesterday, who would own and manage your business today?

June 1, 2019 by Tim Barton Leave a Comment

HEALTH SAVINGS ACCOUNTS

In attempting to purchase health care insurance, individuals face several problems:

In attempting to purchase health care insurance, individuals face several problems:

Cost
Due to the high cost of traditional health insurance coverage, it is difficult (if not impossible) for many people to purchase adequate health insurance protection at an affordable price. Without this protection, however, the financial impact of a severe injury or illness can be devastating.
Choice
While managed care has produced cost savings, people enrolled in managed care plans generally find their choice of doctors restricted. There is also increasing concern about the interference of bureaucracies in the doctor-patient relationship.
Control
Individuals who need little or no health care receive no financial reward under traditional or managed care plans, nor is there any financial incentive under these plans for individuals to exercise control over their health care expenditures.
By combining tax-advantaged personal savings with a high-deductible health insurance plan, the Health Savings Account (HSA) puts you in control of your own health care dollars, while protecting you and your family against the cost of a severe illness or injury.

April 30, 2019 by Tim Barton Leave a Comment

What is a Charitable Gift

A charitable gift is a donation of cash or other property to, or for the interest of, a charitable organization. The gift is freely given with the primary intention of benefiting the charity.

Whether given during lifetime or after death, charitable gifts are eligible for a tax deduction, but only if made to a qualified charitable organization. For example, you may have a relative who has fallen on hard times, someone you choose to help with gifts of cash. While benevolent intentions may motivate you in making these gifts, you cannot deduct them for either income tax or estate tax purposes.

In general, qualified charitable organizations include churches, temples, synagogues, mosques and other religious organizations, colleges and other nonprofit educational organizations, museums, nonprofit hospitals, and public parks and recreation areas. Gifts to these types of organizations qualify for a federal income tax deduction if made during your lifetime or, if made after your death, can be deducted from the value of your estate for federal estate tax purposes.

Why Consider a Charitable Gift?

People give to charities for a variety of reasons.

They give:

Because they have compassion for the less fortunate.
A belief that they owe something back to society.
To support a favored institution or cause.
The recognition attained by making substantial charitable donations.
To benefit from the financial incentives our tax system provides for charitable gifts.

April 30, 2019 by Tim Barton Leave a Comment

FIXING THE VALUE OF YOUR BUSINESS FOR ESTATE TAX PURPOSES

What Conditions Must Be Met to Fix the Value of Your Business for Estate Tax Purposes?

If certain conditions are met, a binding buy-sell agreement may fix the value of a business interest for estate tax purposes. The purchase price, whether a fixed amount or one determined by a formula, can be accepted as the estate tax valuation if these conditions are met:

1. The buy-sell agreement must create an enforceable obligation on the part of the estate of the deceased owner to sell and the buyer to purchase the business interest.

2. The buy-sell agreement must prohibit the owner from disposing of his or her business interest during lifetime without first offering it to the other parties to the agreement at a price not higher than the price (fixed or formula) specified in the agreement.

3. The buy-sell agreement must be the result of an “arm’s length” transaction, meaning that the price must be fair and adequate at the time of the agreement or any subsequent reevaluation.

Without a binding buy-sell agreement, there can be a great deal of additional detail and uncertainty as to the valuation of a business interest at the owner’s death, adding to the time and expense required to settle the estate, as well as making it difficult to predict and plan for any estate taxes that may become payable.

January 26, 2019 by Tim Barton Leave a Comment

THE OLD PERSON WHO WILL BE ME

I know that I’m going to meet an old person one of these days. It will be down the road in 10, 20 or 30 years. He’ll be waiting there for me; I’m catching up with him all the time.
What kind of person do you suppose I’m likely to meet? That’s a significant question; it seems. He may be an enthusiastic person who has grown old gracefully and is surrounded by a host of clients, associates, and friends who regard him as successful because of what his life and its work have meant to them and others. On the other hand, he may be a bitter, unsuccessful, even cynical old buzzard without a good thought about anything or anybody.
The kind of person I meet depends entirely on me. That old person will be me. He will be the composite of everything I do, say and think today and tomorrow. His mind will in a mold that has been fixed by my attitudes and actions. Every thought — positive or negative — goes into his makeup. That person will be what I make him — nothing more, nothing less. It’s all up to me, and I’ll have no one else to credit or blame. Every day and every way, I’m becoming more and more like that old person. That’s amazing, yet true. I’m getting to look like that person, think like that person, and talk like that person.
A good point for me to remember is that things don’t always tell immediately, but they do show up sooner than we think. The little things, like attitudes, beliefs, commitments, ambitions, dedication, and desire, are so unimportant now, but they all add up inside, where I can’t see them, crystallizing in my mind and heart. One day, they will harden into that old person, and nothing will be able to soften or change them.
It’s quite apparent to me that the time to take care of this old person is now — today, this week, this month, this year. I need to check on him carefully. I would be smart to work that person over while he still is plastic, yet in a formative position. One day soon, it will be too late to make any changes. Hardness will set in, the character will have crystallized, and that will be the last chance for him and me.

January 18, 2019 by Tim Barton Leave a Comment

The Sequence of Returns Can Make or Break a Retirement Portfolio

You’ve invested over the years and now you’re ready to retire and withdraw income from your retirement nest egg. How long will your money last? There are a number of variables at play, but one you should know is the sequence of returns. If you start taking income withdrawals from your portfolio in a down market, and continue that course without making adjustments, your money may not last as long as you need it to.

Early Negative Returns vs. Early Positive Returns Hypothetical Example

Jim, age 65, has $500,000 in savings invested in an index fund that mirrors the performance of the S&P 500®. He begins to withdraw 5% each year for income.

Compare the difference in his portfolio balance in the graph below. In each scenario, the average annual rate of return is 4.95 percent. But starting withdrawals in years with negative returns yields a very different portfolio outcome than when withdrawals begin in years with positive returns.

At age 83, Jim has only $20,134 left in account value (scenario A), when withdrawals began in a negative market. In scenario B, Jim has $477,147 in account value after 18 years, a difference of $457,013. More portfolio account value is preserved when withdrawals begin in years with positive returns. See the detailed annual account value charts on the reverse.

January 8, 2019 by Tim Barton Leave a Comment

9 Facts of Life Insurance

Interesting life insurance facts you can share with your friends and family

Some of the facts and statistics from a recent LIMRA report, “The Facts of Life and Annuities, ”¹ are real eye-openers and help tell the story of how important life insurance is.

Facts shared in the report:

Life insurance

Most individual life insurance policies in force are permanent rather than a term policy,
Permanent life insurance benefits Americans of all income levels, not just the affluent (those with a household income of $100,000 or more).
Ninety-five percent of life insurance beneficiaries are satisfied with the overall service provided by the insuring company.

The life insurance industry

Life insurers infused $63 billion into the U.S. economy in 2012 through death benefits paid to beneficiaries.
Life insurers infused $72 billion of annuity benefits into the U.S. economy in 2012.
The life insurance industry generates approximately 2.5 million jobs in the U.S., including direct employees, those who sell life insurance products, and non-insurance jobs supported by the industry.
One of every five dollars of Americans’ long-term savings is in life insurance and annuities.
Life insurers provide a significant source of funding to consumers and businesses. As of the end of 2012, life insurers held $322 billion in commercial and residential property loans.
Life insurers have $4.5 trillion invested in the U.S. economy, making them one of the most significant sources of capital in the nation.

January 8, 2019 by Tim Barton Leave a Comment

What is a Qualified Retirement Plan?

questions — What is a Qualified Retirement Plan?

A qualified retirement plan is a program implemented and maintained by an employer or individual for the primary purpose of providing retirement benefits and which meets specific rules spelled out in the Internal Revenue Code. For an employer-sponsored qualified retirement plan, these rules include:

The plan must be established by the employer for the exclusive benefit of the employees and their beneficiaries, the plan must be in writing and it must be communicated to all company employees.
Plan assets cannot be used for purposes other than the exclusive benefit of the employees or their beneficiaries until the plan is terminated and all obligations to employees and their beneficiaries have been satisfied.
Plan contributions or benefits cannot exceed specified amounts.
The plan benefits and/or contributions cannot discriminate in favor of highly-compensated employees.
The plan must meet certain eligibility, coverage, vesting and/or minimum funding standards.
The plan must provide for distributions that meet specified distribution requirements.
The plan must prohibit the assignment or alienation of plan benefits.
Death benefits may be included in the plan, but only to the extent that they are “incidental,” as defined by law.

Question	Why do employers comply with these requirements and establish qualified retirement plans?
Answer	To benefit from the tax advantages offered by qualified retirement plans.

Qualified Retirement Plan Tax Advantages:

In order to encourage saving for retirement, qualified retirement plans offer a variety of tax advantages to businesses and their employees. The most significant tax breaks offered by all qualified retirement plans are:

Contributions by an employer to a qualified retirement plan are immediately tax deductible as a business expense, up to specified maximum amounts.
Employer contributions are not taxed to the employee until actually distributed.
Investment earnings and gains on qualified retirement plan contributions grow on a tax-deferred basis, meaning that they are not taxed until distributed from the plan.

Depending on the type of qualified retirement plan used, other tax incentives may also be available:

Certain types of qualified retirement plans allow employees to defer a portion of their compensation, which the employer then contributes to the qualified retirement plan. Unless the Roth 401(k) option is selected, these elective employee deferrals are not included in the employee’s taxable income, meaning that they are made with before-tax dollars (see page 13 for information on the Roth 401(k) option).
Qualified retirement plan distributions may qualify for special tax treatment.
Depending on the type of qualified retirement plan, employees age 50 and over may be able to make additional “catch-up” contributions.
Low- and moderate-income employees who make contributions to certain qualified retirement plans may be eligible for a tax credit.
Small employers may be able to claim a tax credit for part of the costs in establishing certain types of qualified retirement plans.

The bottom line is that the primary qualified retirement plan tax advantages – before-tax contributions and tax-deferred growth – provide the opportunity to accumulate substantially more money for retirement when compared to saving with after-tax contributions, the earnings on which are taxed each year

December 27, 2018 by Tim Barton Leave a Comment

2019 Adjustments to Taxable Income

What Adjustments to 2019 Gross Income Are Available?

Once total or gross income from all sources has been determined, certain adjustments to income are available. These adjustments amount to a reduction in gross income and generally are granted to achieve tax fairness or in recognition of a desirable social objective. Adjustments to income are available regardless of whether a taxpayer itemizes deductions or takes the standard deduction.

The available adjustments to income include:
IRA Contributions. Eligible individuals can contribute and deduct up to $6,000 to an IRA; $12,000 for an eligible married couple, even if one spouse has no earned income. For workers age 50 and older, the IRA contribution limit is $7,000 for 2019.

Education Savings Account Contributions
Subject to income limitations, up to $2,000 per beneficiary (generally a child under age 18) per year may be contributed to an Education Savings Account and deducted; subject to income limitations.
Student Loan Interest Deduction
Up to $2,500 of the interest paid in 2019 on a loan for qualified higher education expenses may be deducted, subject to income limitations.
Health Savings Account Deduction
Contributions to a Health Savings Account, up to specified maximums, may be deducted.

One-Half of SelfEmployment Tax
Self-employed taxpayers generally deduct one-half of their self-employment tax, as determined on Schedule SE.

Self-Employed Health Insurance Deduction
Self-employed taxpayers can deduct 100 percent of the health insurance premiums (including long-term care insurance premiums) they pay for themselves, their spouses and dependents.

December 12, 2018 by Tim Barton Leave a Comment

Many Americans Want Convenient Way to Handle RMDs That Helps Offset Taxes, Leaves Legacy

November 12, 2018
Study Examines Views of Consumers Navigating the Necessities of RMDs
MINNEAPOLIS – November 12, 2018 – Required minimum distributions (RMDs) – which can be complicated, mandatory and challenging from a tax perspective – have come back into the spotlight due to potential government rule changes.
According to the new RMD Options Study* from Allianz Life Insurance Company of North America; A majority (88%) of high net worth consumers ages 65-75 are familiar with RMD rules on tax-deferred retirement plans. A full 80% of these respondents believe they will not need all of their RMDs for day-to-day living expenses; This can potentially leave these Americans feeling unsure of how to use this money and confused on how it may impact their finances, particularly their taxes.

The study, which asked these consumers about their opinions and behaviors with RMD payments, found that almost a third (32%) find it difficult to understand the impact RMDs might have on their taxes. Additionally, 71% said they are interested in using RMD payments to fund a financial product that could help offset the impact of taxes. The study also confirmed the vast majority (95%) of respondents believe it is imperative to reduce their taxes in retirement.
“For some consumers, RMDs have long been thought of as a necessary evil,” said Paul Kelash, VP of Consumer Insights, Allianz Life. “The government mandates that people take them, even though many find they don’t need the money for everyday expenses. So consumers face the challenge of managing the impact on their taxes while being unsure of how to use the leftover funds.”
Confusion over the impact RMDs can have on taxes leaves many Americans seeking methods to more efficiently handle their RMD payments. More than half (57%) of respondents in the study said they want the disbursement and tax payment to occur “without getting involved.”
In addition to determining their tax strategy with RMDs, these consumers also must decide how to use the funds left over after taxes, which tends to vary by age. While half of the study respondents said they are interested in leaving a significant portion of their savings to beneficiaries, older consumers in the study (age 71-75) are even more likely (58%) to want to leave a legacy.
“Different age groups within the study have different priorities for their RMDs,” said Kelash. “The 65-70 age group is most interested in tax-deferred growth of their RMD disbursements and may feel unsure about how to best use RMDs. In contrast, the 71-75 age cohort, who have already started taking their payments, is realizing they don’t need the additional money and are looking to leave a legacy – either to leave to family or another beneficiary like a charity.”
Overall, these Americans want to use RMDs to work with their financial goals – whatever they may be – with two-thirds wanting another way to use RMD payments to improve their financial situation. Further, 79% wish they could use RMDs in a way that allows their portfolio to grow.
Of those who work with a financial professional, 77% feel they have gotten good advice from them about managing their RMDs.
“For those who are taking RMDs or preparing to do so, working with a financial professional is a key way to finding a solution to more efficiently handle the taxes on their RMDs and use them in a way that works with their larger financial strategy,” said Kelash.

This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement.
About Allianz Life Insurance Company of North America
Allianz Life Insurance Company of North America, one of FORTUNE’s 100 Best Companies to Work For® in 2018, has been keeping its promises since 1896. Today, it carries on that tradition, helping Americans achieve their retirement income and protection goals with a variety of annuities and life insurance products. In 2017, Allianz Life provided a total of $2.7 billion in benefit payments that supported policyholders’ financial objectives. As a leading provider of fixed index annuities, Allianz Life is part of Allianz SE, a global leader in the financial services industry with 142,000 employees in more than 70 countries worldwide. More than 85 million private and corporate customers rely on Allianz knowledge, global reach, and capital strength to help them make the most of financial opportunities.

*Allianz Life Insurance Company of North America conducted an online survey. The RMD Options Study was conducted in February/March 2018 and included a nationally representative sample of 805 respondents ages 65-75 with retirement savings of $500,000 if single or $750,000 if married and who are the primary decision maker or share equally in decision making.

Safe Retirement Income

Tim Barton, Chartered Financial Consultant