retirement

Article Dean Dorton

The Department of Labor (DOL) issued a final rule on May 21, 2020 that establishes a new voluntary safe harbor for retirement plan administrators who want to use electronic media, as a default, to furnish covered documents to covered individuals, rather than sending potentially large volumes of paper documents through the mail. Retirement plan administrators who comply with the safe harbor will satisfy their statutory duty under ERISA to furnish covered documents to covered individuals. The new safe harbor permits the following two optional methods for electronic delivery:

  • Website Posting. Plan administrators may post covered documents on a website if appropriate notification of internet availability is furnished to the electronic addresses of covered individuals.
  • Email Delivery. Alternatively, plan administrators may send covered documents directly to the electronic addresses of covered individuals, with the covered documents either in the body of the email or as an attachment to the email.

The new safe harbor is effective 60 days after its publication in the Federal Register (July 20, 2020). Plans that rely on the new safe harbor will be able to eliminate significant materials, printing, and mailing costs associated with furnishing printed disclosures. In addition, the DOL as an enforcement policy, will not take any enforcement action against a plan administrator that relies on this safe harbor before that date, which provides flexibility and may reduce administrative burden on employers and pension plan service providers during this unprecedented time.

DOL Final Rule

Article Dean Dorton

By: Matt Parks | mparks@deandortonwealth.com

The SECURE (Setting Every Community Up for Retirement Enhancement) Act, recently passed, includes significant retirement savings changes for individuals and for businesses sponsoring retirement plans. This article highlights and summarizes some of the Act’s key provisions.

Opportunity to Defer Starting Retirement Distributions Until Age 72

Prior to the Act, most individuals were required to begin taking minimum distributions (called “RMDs”) from their IRAs and qualified employer plans for the year they turned 70 ½. The SECURE Act now allows you to wait until age 72 to begin taking RMDs, provided you turn age 70 ½ after 2019. For those not yet needing to draw upon their IRAs and qualified plan monies, this change provides additional time for account balances to grow tax-deferred. For those who had already reached age 70 ½ by December 31, 2019, the old rules still apply.

The Elimination of “Stretch” IRAs

Under prior law, a non-spouse IRA beneficiary was permitted to use that individual’s own life expectancy when calculating RMDs on an inherited IRA. Since most IRA beneficiaries are younger than the original account owner, this enabled beneficiaries to “stretch” the RMDs out over a longer period (sometimes a much longer period), allowing them to capture additional tax-deferred benefits. The new law requires that most inherited IRAs for non-spouse beneficiaries be distributed within 10 years of the original IRA owner’s death. Exceptions to this new rule apply to disabled or chronically ill beneficiaries, beneficiaries fewer than 10 years younger than the decedent, and children of the decedent under age 18 (once they reach age 18, the new 10-year provision applies).

To minimize the impact of this change, it will be important for non-spouse beneficiaries to time the distributions during the new 10-year payout period in a way that minimizes their overall income tax consequences. The law does not provide a set schedule for distributions; it simply states that the account must be fully distributed by the end of the tenth year.

Increased Savings Opportunities for Older Workers

Until the Act’s passage, a working individual over age 70 ½ was not eligible to contribute to a traditional IRA even if he had earned income. The new law now allows contributions to be made to a traditional IRA up to the maximum IRA limit (or the earned income level, if less) for as long as the individual is still working. For individuals attempting to maximize retirement savings in the latter part of their working years, this affords an opportunity to continue making use of a tax-deferred arrangement.

Retirement Benefits for Part-Time Workers

Under old law, a part-time employee was usually excluded from participation in her employer’s 401(k) retirement plan unless she worked more than 1,000 hours per year. The SECURE Act reduces the annual threshold to 500 hours, provided the employee works that much for three consecutive years. Thus, as long as the individual will be age 21 by the end of those three years and works more than 500 hours per year, she will be eligible to participate in the employer’s 401(k) plan and make elective contributions to the plan. (The law does not require that these part-time employees receive employer matching contributions, but an employer may choose to include them when making such contributions).

New Tax Credits for Employers

For some time now, a small business has been able to take advantage of a $500 tax credit for the first three years it has a 401(k) plan. The SECURE Act increases this amount to as much as $5,000, depending on how many non-highly compensated employees are eligible to participate in the plan. Additionally, the new law creates a new credit of up to $500 per year for employers who establish a 401(k) plan that includes an automatic enrollment feature. Thus, the tax credit for offering a new 401(k) plan can now be as high as $5,500 per year, for up to three years.

New Pooled Employer Plans for Small Businesses

The cost of sponsoring a 401(k) plan has often been a financial challenge for smaller companies which want to offer competitive benefits to their employees. The SECURE Act establishes Pooled Employer Plans (PEPs), a type of Multiple Employer Plan that any employer can join. Because the costs of administering the plan are spread among several employers, the financial hurdle should be easier to overcome. In addition, concerns about compliance and regulatory burdens are handled by outsourcing fiduciary responsibility to the Pooled Plan Provider. The goal is to make the 401(k) plan a more common benefit at small businesses which may have previously opted for a SIMPLE IRA with lower contribution limits.

Dean Dorton’s tax advisors or Dean Dorton Wealth Management’s wealth advisors would be pleased to assist you in understanding and applying these new provisions in a way that is most advantageous for you. Feel free to reach out to your primary contact at Dean Dorton, or contact David Parks of Dean Dorton Wealth Management at 859.425.7782 or dparks@deandortonwealth.com.

Article Dean Dorton

As the population of elderly Americans with retirement savings grows, so does the opportunity for financial fraud against this often vulnerable group. To compound the problem, technology allows fraudsters to share lists of seniors who have succumbed to fraud, so the same person can be scammed repeatedly.

Kentucky statutes require all citizens to report reasonable suspicion of financial exploitation against adults. Such exploitation can be difficult to detect; it sometimes is perpetrated by family members or close advisors against victims who may be unaware of the exploitation or embarrassed to report it.

Relatives and caregivers can take advantage of the elderly in multiple ways. For example, they may take money or other valuables, without permission, for themselves or to give away to others. They may “borrow” money without repaying it, misuse debit or credit cards, or cash pension or social security checks.

Signs of financial exploitation against the elderly include:

  • Unpaid bills
  • Lack of essential items like food and medicine
  • Unusual bank account activity, including expenditures inconsistent with history, and large unexplained withdrawals
  • Use of ATM withdrawals, if inconsistent with typical transaction activity
  • Changes to wills or other legal documents, especially if they change fiduciaries or beneficiaries
  • Missing valuable items (silver, electronics, art)

Current scams against the elderly, typically perpetrated by strangers, include:

  • Prizes or sweepstakes – A victim is required to send money to cover taxes, shipping, or processing.
  • Investments – Pressure to maximize returns makes seniors vulnerable to persuasion to invest in assets which promise unrealistically high rates of return.
  • Charitable contributions – Fraudsters solicit donations to nonexistent charities or religious organizations.
  • Repairs to home or automobile – Advance deposits may be required, but repairs may not be completed or may be performed at a substandard level.
  • Health, funeral, life insurance – Fraudsters sell policies that duplicate current coverage, or are bogus.
  • Loans and mortgages – Unscrupulous lenders give loans with very high interest rates and hidden fees.

Many agencies are charged with protecting seniors. Federal agencies include the FBI, Postal Service, and Secret Service. State and local police may be involved in investigating consumer fraud. State social service agencies are charged with protecting seniors. In Kentucky, this includes these agencies, among others: Cabinet for Health and Family Services, various Ombudsman programs, Kentucky State Police, Area Agencies on Aging, Office of the Inspector General, and Office of the Attorney General.

Block Insets

Tips to avoid becoming a victim of elder financial abuse:

  • Do not provide your SSN over the phone, unless you initiated the call and know the party you call can be trusted.
  • Do not click on any links in an email from an unknown sender.
  • Do not give others access to your computer or provide security information. If someone contacts you requesting such information and claims to be from your bank or credit card company, for example, hang up and call a verified number for the organization.
  • Check your credit report regularly to ensure that fraudulent new accounts have not been set up in your name.
  • Secure your smartphone and your computer with strong passwords.
  • Shred documents showing your personal information and lock your mailbox; do not leave your wallet in your car.

For more information on how Dean Dorton can help you identify fraud, follow the link below:

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Article Dean Dorton

Yes, there’s still time to make 2016 contributions to your IRA. The deadline for such contributions is April 18, 2017. If the contribution is deductible, it will lower your 2016 tax bill. But even if it isn’t, making a 2016 contribution is likely a good idea.

Benefits beyond a deduction

Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years.

This means that, once the contribution deadline has passed, the tax-advantaged savings opportunity is lost forever. So it’s a good idea to use up as much of your annual limit as possible.

Contribution options

The 2016 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2016). If you haven’t already maxed out your 2016 limit, consider making one of these types of contributions by April 18:

  1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2016 tax return. Account growth is tax-deferred; distributions are subject to income tax.
  2. Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits, however, may reduce or eliminate your ability to contribute.
  3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.

Article Dean Dorton

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, most of the limits remain unchanged for 2017. The only limit that has increased from the 2016 level is for contributions to defined contribution plans, which has gone up by $1,000.

Type of Limit 2017 Limit
Elective deferrals to 401(k), 403(b), 457(b)(2), and 457(c)(1) plans $18,000
Contributions to defined contribution plans $54,000
Contributions to SIMPLE IRAs $12,500
Contributions to IRAs $5,500
Catch-up contributions to 401(k), 403(b), 457(b)(2), and 457(c)(1) plans $6,000
Catch-up contributions to SIMPLE IRAs $3,000
Catch-up contributions to IRAs $1,000

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2017. And if you turn age 50 in 2017, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2017, check with us.

Article Dean Dorton

Most assets of which we are the sole owner pass at death according to the terms of our will and beneficiary designations of retirement plans and life insurance.

In a real example from a dispute that went all the way to the U.S. Supreme Court, a daughter had an “unpleasant” outcome when her father passed way. Her father’s ex-wife was awarded $400,000 from his retirement plan even though she had waived any interest in the plan in the divorce and property settlement agreement.

What happened? The father failed to update his beneficiary designation form to name his daughter as beneficiary. When he died seven years after the divorce, his former wife was still named as the beneficiary upon his death. The employer’s plan document stated that beneficiaries could only be changed by submitting the required form. The Court held that the administrator of an ERISA-covered benefit plan need only look to the governing plan documents to determine the proper plan beneficiary.

This case reminds us of some very important points:

  • Do not rely on documents such as a divorce decree, property settlement agreement, or a will to name beneficiaries of life insurance policies, retirement plans, 529 college savings plans, and annuities. Determine the currently named beneficiary for all such assets and, if you want the designation to be changed, obtain the proper forms to change your beneficiary designation and complete and properly submit the forms. Keep copies of the completed forms with your will and other testamentary documents.
  • Divorce is not the only situation where failing to update your beneficiaries can cause problems for intended heirs. You may want certain benefits to go to specific children. Their financial or medical situations may have changed. Remind yourself to do an annual “check-up” to review beneficiaries. This should include primary and contingent beneficiaries. It is important to include a secondary beneficiary in case the primary beneficiary predeceases you.
Please contact Missy DeArk at mdeark@deandortonstg.wpenginepowered.com if you have questions about this important topic.