Posts Tagged ‘Roth IRA’

Retirement Planning: New Year, New Rules

Saturday, January 21st, 2012

 

A plethora of legislative change became effective on the first of the year. Some of these changes will affect individuals planning for retirement as well as those already retired.

Here, is the short list:

 

1. Social Security checks will be getting larger. Recipients can expect to see their gross check increase by 3.6% with only small increases in their Medicare Premiums.

 

2. Standard Medicare Part B coverage will increase to $99.90 for 2012. This is an increase of $3.50 per month. For Part B enrollees who signed up in 2010 or 2011 and were charged an initial premium of $110.50 or $115.40, their premiums will decrease to the standard $99.90.

 

High Income recipients will continue to pay a higher portion of their Part B premiums with their rates being anywhere from $40.00 to $219.80 per month higher than the standard rate. (High Income Recipients are defined as: an individual with Adjusted Gross Income over $85,000 or couples with Adjusted Gross Income over $170,000.)

 

3. The Part D donut hole gap is shrinking. The biggest complaint about the Medicare Part D is the fear of hitting the donut hole where coverage is limited severely versus coverage prior to and after the hole.

 

Previously, drugs were discounted by 50% for brand name and 7% for generics while in the donut hole. These percentages are rising to reflect a 50% discount for brand name and 14% for generics in 2012. Eventually the donut hole is scheduled to be phased out.

 

4. Income subject to Social Security Taxes will increase. For 2012, Social Security will be incurred on earned income of up to $110,100, up from $106,800 in 2011. However, at least for January and February, Social Security withholding rates for the employee will continue to be 4.2%.

 

5. 401(k), 403(b) and Federal Government Thrift Plan contribution limits will increase. The 2012 limit will be $17,000, up from $16,500. The catch up provision available for employees 50 and older remains $5500.

 

6. IRA contribution limits will remain the same but the threshold for income to make these deductible contributions will increase. Contributions of up to $5000 or $6000 if aged 50 and older, will be fully deductible if the modified adjusted gross income is under $58,000 for individuals or $92,000 for couples.

 

A phase out occurs between $58,000 and $68,000 for individuals and $92,000 and $112,000 for couples where only a portion of a contribution will be deductible. For individuals without a retirement plan at work, the income limits are set at under $173,000 for full contribution to fully phased out at $183,000.

 

7. Roth IRA income limits will also remain the same with contributions of up to $5000 or $6000 for aged 50 and older. However, these will also see an increase in the income limits that will be able to participate. Individuals with adjusted gross incomes of up to $110,000 will be able to fully contribute to a Roth for 2012.

 

There will also be a phase out of the amount of contributions that can be made until no contribution can be made if income exceeds $125,000. For couples, the thresholds are income under $173,000 and phased out until income reaches $183,000 where a Roth IRA will not be a viable option.

 

8. Qualifying income limits for the Saver’s Credit will increase for 2012. This credit which can amount up to $1000 for individuals and $2000 for couples, will now be available to individual taxpayers with an AGI under $28,750, for Heads of Household with an AGI under $43,125, and for couples with an AGI under $57,500. The credit will apply to contributions to retirement plans whether individual or employer based.

 

This overview may provide changes which could affect your planning for this year and beyond. The uncertainty of anyone’s future, combined with changing laws and financial environments, dictates the need for dedicated and diligent review.

 

Kurt Rusch CLU, ChFC

 

Pension Plans: Who’s Funding Who?

Wednesday, September 7th, 2011

 

According to studies by the Government Accountability Office (GAO), a growing number of DFP’s (Defined Benefit Plans, better known as pension plans) are funding their obligations by purchasing Hedge Funds and Private Equity Funds. While the prevalence of this usage funding is constituted in larger pension funds, their usage is not forbidden in smaller plans.

 

So, you might be thinking, “Thanks for the tidbit Kurt, who cares?” I’ll tell you exactly ‘who’: anyone. This affects any and every person who has a pension plan.

 

Hedge & Private Equity Funds

 

Stories of hedge fund disasters are regular features on the news, the most notable of which involved the former head of NASDAQ, Bernie Madoff. This is not to say that every Hedge Fund and Private Equity Fund are being run fraudulently, because the vast majority are ethical and well run. However, the valuation issues stemming from the lack of a regular market for these issues, combined with the challenge of transparency further magnifies their unpredictable nature.

 

Due to the rapid increase in the usage of these types of investments, (60% of large pension plans used hedge funds in 2010 compared to only 11% which used them in 2001), further scrutiny of their attributes is necessary. Private Equity Funds, which typically provide working capital for expansion, product development and restructuring to other entities, were utilized by 92% of large pension funds in 2010, up from 71% in 2001. This is a trend that shows no signs of reversing anytime soon.

 

Equally prevalent in the news these days are the horror stories regarding underfunded pension plans. Scads of separatist managed plans for fire, police and even now, teachers, are coming to light as being incapable of living up to the payout demands promised to their populations. And that is, scary – very scary.

 

The lack of transparency and illiquid nature makes overseeing these kinds of investments also more laborious (and perhaps neglected?) versus the management of stocks, bonds, cash and other easily valued asset portfolios in kind. Hedge Funds and Private Equity Funds often fly under the radar.

 

Diversify, Diversify, Diversify!

 

Today, perhaps more than ever before, alternative pension planning is imperative. We need to plan for the possibility that full pensions may not be received as expected whether due to fund performance, mismanagement or any other unforeseen factors. Alternatively, look to the following: 1) Additional funding to an IRA, Roth IRA, annuity or any other tax qualified product. 2) Investing additional funds in stocks, bonds, mutual funds, CD’s, etc.

 

There is safety in diversification. If you count on your pension 100% and it is no longer there or not to the extent expected, you will have serious problems. If, on the other hand, there are problems with your pension but you have done alternative planning with provisional investments in other asset classes, the impact will be lessened.

 

Kurt Rusch CLU, ChFC