How to potentially increase the wealth you leave your heirs

People born in the 1930s and 1940s enjoyed the many benefits of a robust economy when they entered the workforce, says Mark C. Pagni, ChFC, CLU, a Financial Consultant at AXA Advisors, LLC.

“They enjoyed solid wages and cradle-to-grave, employer-paid benefits including pension plans and health insurance plans,” Pagni says. “They also enjoyed strong government benefits like Social Security, and Medicare, both programs that are likely going to be reduced or postponed to later ages, for our young children or grandchildren.”

Today, the economic climate has changed dramatically. Many company benefits are being trimmed or discontinued, and pensions are becoming more and more uncommon. In the midst of these changes, legacy planning might make a real difference in the quality of life that our survivors enjoy someday.

Smart Business spoke with Pagni about the value of legacy planning and how to potentially increase the wealth you leave your heirs.

Who should be looking at legacy planning?

Your first concern should be to make sure that you have put away enough money through saving and investing to secure your own retirement and financial well-being.

One of the first steps is to identify extra money in your retirement and investment accounts, which you will likely never need. I refer to it as junk money. If that extra money isn’t there, continue your efforts to secure your own future before you worry about what you’ll be able to pass on to your heirs.

Once you have addressed your own retirement needs and you’re in a position to do some legacy planning, you will want to pay attention to how your assets will transfer at death. In order to provide a smooth transfer of wealth, you may need to do some basic estate transfer planning, using trusts and proper titling, to minimize delays and unnecessary tax consequences. The advice of a good estate attorney could make a lot of difference here.

How can life insurance be a good wealth transfer tool in the legacy planning process?

One of the simplest and safest ways to help ensure an inheritance for your heirs is to purchase life insurance, assuming you are insurable. Joint life insurance policies, for married couples, may provide a higher death benefit per dollar of premium, as compared to single life policies. Consider using unneeded assets to fund the premiums, such as the annual Required Minimum Distributions from IRAs or other pre-tax plans, or the interest and dividends from your other investments. Even just setting aside a half of one-percent of your liquid net worth each year may be a relatively pain-free way to better secure a meaningful inheritance for your family.

What are some of the potential benefits of using life insurance in legacy planning?

One potential benefit would be to better secure your financial legacy. Your net worth will be subject to market forces, and may go up and down in value over time. Life insurance, looked at as an asset rather than insurance, may provide portfolio stability for your heirs, through the predictable, contractually guaranteed, and generally income tax free death benefit. Guarantees are backed by the claims paying ability of the issuing company. Another potential benefit might be to indemnify your heirs for the income taxes that they will be responsible to pay, when you leave them with substantial IRA or other qualified plan funds. Although there are various settlement options available to IRA beneficiaries, those accounts will never escape eventual income taxation. The result of this strategy may be to significantly increase the net after tax inheritance received by the heirs.

Consider using life insurance if you are concerned that your estate value may be diminished by the need for long-term care. It could be used to restore your estate values that were spent on your long-term care, after your death. The odds of any of us needing long-term care someday, although significant, are not as certain as dying is.

*Mark Pagni offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC. Annuity and insurance products offered through AXA Network, LLC. AXA Network conducts business in CA as AXA Network Insurance Agency of California, LLC, in UT as AXA Network Insurance Agency of Utah, LLC, in PR as AXA Network of Puerto Rico, Inc.

AXA Advisors and AXA Network do not offer tax or legal advice. You should consult with your professional tax and legal advisors regarding your particular circumstances. AGE 113200 (4/16) (Exp 3/18)

Insights Wealth Management is brought to you by AXA Advisors, LLC

Understand, commit to a portfolio strategy to avoid the noise

Too many investors focus on the day-to-day noise coming from the markets, scrutinizing the minute-to-minute data points and economic news, often to their detriment.

“At the end of each day, headlines will proclaim which factors moved the market up or down — ‘profit taking’ or supposedly hungry investors ‘buying the dips,’” says Daniel Roe, Chief Investment Officer at Budros, Ruhlin & Roe, Inc. “The fact is, on most days it’s impossible to pinpoint precisely what types of investors were buying and selling, and why exactly the market moved one way or the other.”

For long-term investors, he says such volatility is simply noise that contributes nothing to the conversation about successful investing and building a durable long-term portfolio strategy.

Smart Business spoke with Roe about overactive investors and implementing strategies that make more sense in the long run.

What should investors consider as they develop an investment strategy?

In managing a portfolio to meet investment goals, there are certainly more than a few strategies that can work to achieve the desired objectives.

The single most important feature of a strategy is that it will be durable over long periods of time, meaning the investor can stick with it during good and bad times. For example, investors who bailed out of whatever strategy they were using in 2008 after equity markets fell more than 50 percent likely missed out on the dramatic rise that occurred after the first quarter of 2009.

A portfolio’s exposure and allocation to higher risk investments that offer higher return potential, like stocks and private investments, should be relatively static over a period of many years, subject to true changes in the investor’s personal circumstances. That might be described as a 60/40 allocation, or perhaps as a range of allocations, say 50 to 70 percent, depending upon the relative valuation and opportunity offered over time.

When stock valuations are relatively low, a portfolio strategy might command a higher weight to these riskier, higher returning investments. However, when valuations are relatively high, then the riskier allocations might be brought down.

When it is difficult to discern whether stock valuations are on the high side or low side, investors can keep exposures close to the middle of the range, or at a neutral allocation. Such a valuation-based, risk-sensitive approach to a portfolio strategy can be made durable over time, as it does not require an investor to determine whether or not one day’s worth of news or a 1 percent movement in stock prices is worth reacting to.

The noise from a few days of activity can largely be ignored. If those days multiply, like they have in 2016, providing movements of 10, 20 and up to 50 percent in some sectors, then further consideration of assets’ valuations should be assessed once again.

When should a strategy be established and how will investors know it’s the right strategy for them?

An investment strategy is determined as a portfolio is established; at any transition point in life, such as retirement or divorce; or simply at the beginning of a new relationship with an adviser. Review the performance results over a period of a few years and compare them to the goals set at the start. If performance meets expectations, there’s probably no need to change.

How can investors keep from making knee-jerk investment decisions?

Investors who find they’re trading because of a headline or market move, or calling their adviser because of what happened over a day or two, are letting emotion guide their decision-making and that leads to trouble. It’s better to review performance on a quarterly basis and make larger portfolio decisions at unemotional times.

The investment strategy should be revisited annually. Think about the asset allocation and risk in the context of what’s changed relative to job, income and balance sheet wealth and make adjustments where appropriate. This is a multiyear decision, so don’t make it based on a week of market performance.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

Why due diligence is essential to avoid tax problems in retirement

Nobody likes to think or talk about taxes, but they need to be part of the conversation when you’re assessing your retirement savings strategy, says Carmen Trivisonno, CRPC, vice president at AXA Advisors, LLC.

“Take a client who has most, if not all of his or her savings wrapped up in a 401(k) plan or another pretax qualified retirement plan,” Trivisonno says. “When the time comes for distribution in retirement, this person might not have the flexibility to take larger withdrawals without having to deal with the tax consequences.”

Diversification is one of the hallmarks of an effective strategy to save money for retirement along with asset allocation and rebalancing, but taking these steps does not guarantee a profit or protection against loss.

“You put some money into this bucket for this purpose and you put some money into another bucket for a different purpose,” Trivisonno says. “When you take a more diversified approach, the goal is to be more capable of dealing with the tax changes that may come in the future.”

Smart Business spoke with Trivisonno about how to develop a strategy that gives you a better chance to avoid negative tax consequences in your retirement.

How can you put yourself in a better tax position with your retirement strategy?

The spacing and timing of distributions can make a big difference. If you know you need X amount of dollars and you need to draw that money from a pretax plan that will be taxable to you and you can space it out over two years, that’s always beneficial. Take as much of the withdrawal as you can without crossing into a new marginal tax bracket.

For instance, if the top of the 15 percent tax bracket is $78,000, you would want to withdraw just enough money by the end of December to get up to that $78,000. Whatever is remaining that you still may need should be deferred to the next year so you can space the liability over a couple years. If you’re already into your retirement and all your assets have been saved into a pretax vehicle, you can still use something like a Roth conversion or the partial conversion of a traditional IRA. You do that very strategically up to the top of the tax bracket so that you can start to build in more flexibility, even if you didn’t have a chance to do it in preretirement. The suitability of this strategy will depend upon individual circumstances, so you should consult with a professional tax advisor before taking action. You should also resist the urge to take a large withdrawal to pay off a big expense like your mortgage. Consider structuring it over the course of four or five years and minimize your tax burden while still paying off the mortgage in a reasonable time frame.

What if you’ve made some mistakes in your savings strategy?

Some decisions are difficult to reverse. You may have a real estate investment trust that has no liquidity or a long-term surrender charge on a variable annuity product where it just wouldn’t make any sense to take a withdrawal or rollover because of the penalties that would ensue. It’s difficult when there are product rules to navigate. But often when it’s a situation where you just don’t know why you have a particular product in your portfolio, you can make changes and put yourself in a better position.

What is the best way to plan for an uncertain future?

By being aware of how you’re saving money from a tax perspective and understanding how those investments work, you’re going to do better than somebody who is not paying attention to those things. As we look to the future, there is the potential that tax rates will go up. But it’s hard to say when that will happen or by how much they will increase. If circumstances allow, consider saving some money pretax and some aftertax that will become tax-free.

Insights Wealth Management is brought to you by AXA Advisors, LLC

Carmen Trivisonno offers securities through AXA Advisors, LLC (NY, NY, 212-314-4600), member FINRA, SIPC, offers investment advisory products and services through AXA Advisors, LLC, an investment advisor registered with the SEC, and offers annuity and insurance products through AXA Network, LLC. AXA Advisors and AXA Network do not provide tax or legal advice. Please be advised that this article is not intended as legal or tax advice. Accordingly, any tax information provided in this advertisement is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or the marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. AXA Advisors, LLC and AXA Network, LLC do not provide tax advice or legal advice. AGE-111121(2/16)(exp.2/18)

Ignorance isn’t a defense for improperly running your retirement plan

Plan sponsors and trustees always ask “Am I paying too much for my plan?” “Are my funds outperforming the markets?” “Do you give advice to my participants?” These are great questions, but first they need to ask: “Do I know what my duties are as a retirement plan fiduciary?”

Few business owners, managers or executives appreciate the most important part of running a retirement plan. As a plan sponsor, or steward, you have a legal duty to act in the best interest of the person and organization that has entrusted you with the management and control of their retirement assets. This includes investment choices, fees, provider choices, participant education, risks, conflicts of interest and more.

“Not enough plan sponsors take this seriously, let alone understand the scope of their duties and responsibilities,” says Robert Yelenovsky, vice president and manager of Retirement Plan Advisors at Fragasso Financial Advisors. “Although these duties can be shared, they can never be abdicated. Ignorance or being too busy is not a viable defense.”

Smart Business spoke with Yelenovsky about your fiduciary duties.

What do fiduciaries need to be doing?

First, accept your legal responsibility for overseeing someone else’s retirement plan assets. Whether you’re the owner, trustee, plan sponsor, board member or investment committee member, you are a fiduciary.

Then, take time to understand your duties and responsibilities. You’re expected to provide services according to five principles:

  • Prudence, focuses on the process for making fiduciary decisions.
  • Loyalty to those you are entrusted to represent.
  • Exclusive purpose. This is ignored the most. Fiduciaries are expected to act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them. You might be comfortable with your former fraternity brother being paid from the plan assets, but is he really the best person for the job?
  • Diversification of plan assets with reasonable plan expenses.
  • Adherence, where fiduciaries understand and follow the plan documents. It’s wise to document decisions and the basis for those decisions.

How can fiduciaries find where they are not fulfilling their duties?

Start with a self-assessment and gap analysis. What should our organization be doing? What is it not doing? What gaps carry the most consequence, risk or liability? Make a plan. Take action. Typically the highest risks have to do with the provider, fund choices and what those selections cost, as these generate the most lawsuits. Next is the lack of participant education and advice.

Use fiduciary audit checklists to help in this gap analysis. A checklist might have 30 items, so it can be overwhelming. Your financial adviser can help you prioritize and create a calendar to get you back on track.

These exercises take time and energy, but ignore or put them off at your peril. Not only do you expose yourself to lawsuits or Department of Labor penalties, you may cost plan assets from the very employees who help build and maintain your business. This happens through misunderstanding fees and who gets paid from them, reluctance to switch providers or adviser, or disinterest in employee education because it takes time or you think no one is interested.

Where does a co-fiduciary come in?

You can hire an experienced prudent professional who has a legal share in the outcome. The trustee or plan sponsor ultimately makes the decisions but the co-fiduciary is paid to provide the advice.

The most common, the paid 3(21) fiduciary investment adviser, provides investment selection and monitoring, provider analysis and selection, uncovers fees and benchmarking to help determine whether they’re reasonable, establishes and delivers a participant education program, and provides guidance for starting and maintaining a qualified retirement plan.

It’s a good idea to find a financial adviser who helps owners, directors, trustees and committee members understand their role as a fiduciary. Does your adviser take on this role and level of responsibility or do they outsource it? If they say they do, is it in writing? Take the time to get this right. You are trusted to do so.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

Follow this plan for a more secure retirement

Considering the recent market volatility, those approaching or who are in retirement may be concerned that they’ll be withdrawing money from a portfolio that has experienced flat to negative returns. What can one do to make sure the amount withdrawn today won’t jeopardize one’s future financial independence?

“Withdrawing 4 percent has long been touted as the safe amount that can be pulled from a portfolio in the first year of retirement, increasing by inflation each year, with a less than 10 percent probability that one will run out of money,” says Daniel L. Due, CFP, Senior Wealth Manager at Budros, Ruhlin and Roe, Inc.

He cautions, however, that starting with a rule of thumb is helpful, but shouldn’t be followed blindly.

Smart Business spoke with Due about ways to safely manage retirement spending.

What is the 4 percent safe withdrawal rate based on?

The original study looked at historical data over a 30-year period and determined that, even in the worst scenario, 4 percent could be withdrawn from a portfolio and the individual would not run out of money. Under this rule, there is a high probability that a retiree will have a portfolio worth more than his or her starting principal at the end of a 30-year time horizon.

There are no set savings or income amounts, which makes the 4 percent rule applicable to most retirees. One caveat is that the investor’s savings are in a portfolio with at least 50 to 60 percent in U.S. stocks and the rest in U.S. long-term bonds.

The sequence of returns and inflation rate matter. The correlation between the first year return and the safe withdrawal rate is very low, so one must look at returns over a longer time period. One must also consider inflation rates over those time horizons and focus on real rates of return.

How does one determine how much can be safely pulled out of one’s portfolio?

Diversification is an important consideration. The original study was based on an asset allocation of approximately 60 percent in U.S. large-cap stocks and 40 percent in U.S. long-term bonds, rebalanced annually. Subsequent studies have shown that additional allocations into other asset classes such as U.S. small-cap stocks, as well as stocks and bonds of non-U.S. companies, provides greater diversification and can result in increased withdrawals. Other sources of income, such as a pension or Social Security that kick in at a later time, must also be taken into consideration.

Receiving an inheritance at some point is something else to consider, but carefully assign the probability of receiving one and be conservative in regards to the amount so that too much weight isn’t placed on that one assumption.

Don’t forget to take taxes into consideration when determining how much you’ll need from your portfolio. For example, once someone begins pulling from assets like an IRA, 401(k) or 403(b), these withdrawals are taxed as ordinary income and the tax should be budgeted for.

How can one be assured that their retirement nest egg will last?

First of all, avoid some of the mistakes that many retirees make that can lead to having less money than they hoped. Top among them is not paying attention to what you are spending. Take the time to outline a budget of annual expenses and don’t forget to account for one-time expenses such as bigger vacations and home maintenance/remodeling projects. Those who have a better handle on what they spend find it easier to make adjustments and decrease withdrawals in a down market.

Stick to an asset allocation strategy, rebalance at least quarterly and don’t increase your spending just because the market experiences a banner year. Establish a cash reserve strategy by setting aside the cash you’ll need to withdraw from your portfolio over the next 18 to 24 months. That will provide peace of mind that the funds are there to weather any storm and reduce the need to sell in a down market, thus locking in short-term losses.

If an investor was disciplined and made good decisions during his or her working years to generate a portfolio that’s sufficient for retirement, prudent decisions will continue to be made that avoid trouble.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

Useful IRA charitable rollover, made permanent, helps donors plan

The news that the IRA charitable rollover has been made permanent comes as a relief for the charitably inclined. Enacted in 2006, Congress has had to extend it annually. And every year they wait until the last minute to renew it, so it has always been somewhat of a gamble whether or not to plan to take advantage of it. Now donors know it’s always there.

“The IRA charitable rollover is designed for someone who is motivated to make a gift to a charity,” says John Schuman, Chief Planning Officer at Budros, Ruhlin & Roe, Inc. “You don’t do this to make money, but if you’re committed to making donations then you can take the money out of your IRA and donate it directly to charity under this provision. The donor gets to give the full gift without incurring any negative tax consequences.”

Smart Business spoke with Schuman about the IRA charitable rollover and how it can be used to a donor’s benefit.

How might knowing the IRA charitable rollover is permanent affect a person’s giving strategy?

Of the various assets that could be used for charitable purposes, the best asset to use as a means of donating to charity is an IRA. While it is exposed to the highest tax bracket and its mandatory deductions are taxed as ordinary income, all of that can be avoided when it’s used to make donations directly to a qualifying charity.

When an individual decides to take a distribution from his or her IRA and donate it to charity, the money withdrawn will be taxed at 39.6 percent. Without the charitable rollover, donating from an IRA meant it would first be counted as income and subject to tax before the remainder could be gifted.

For instance, let’s say a person takes $100,000 out of his or her IRA, which would be counted as income. There is the opportunity to take a $100,000 federal tax deduction for giving it to charity, but adding that amount to a person’s taxable income could mean other itemized federal deductions, such as those designed to offset health care costs, get phased out, so he or she wouldn’t get a dollar-for-dollar deduction. Ohio-based income doesn’t allow itemized deductions, so that $100,000 donation from an IRA to charity also meant that the donor would move into a higher tax bracket in the state as well.

Those at or above age 70 1/2 are required to take minimum distributions from their IRAs. Fortunately for them, a donation counts as a minimum distribution. And by giving it to charity it’s not taxed. Using this method of charitable donation also means that the donor will stay below the phase-out thresholds and likely not move into a higher tax bracket since the distribution never gets counted as ordinary income.

What charities qualify to receive donations through this method? Which don’t?

Any charity is eligible to receive donations from an IRA, including community foundations. One restriction, however, is that money can’t be given to a donor-advised fund as it allows the donor to continue to control that gift.

There’s a lot of flexibility regarding the way distributions can be disbursed. It’s interesting to note that a donor doesn’t have to give all of the distribution to one charity, but can split it among as many as he or she likes.

Giving through an IRA has become a useful mechanism for charitably inclined individuals. For charities, it’s a preferred method of receiving donations and an easy way to solicit gifts from donors. It’s a great tool to make it easy for people to give larger gifts to charity. And, thanks to recent legislation, it’s a method that’s with us forever, which makes planning much easier than it had been.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

As you work to build your business, don’t forget to secure your future

Nancy Kropko has seen too many stories of self-employed individuals who have incredible passion for their work but fail to make the same commitment to their own future.

“Being self-employed doesn’t mean that you have an eight- or nine-hour job every day and then you go home and have leisure time,” says Kropko, a financial professional at AXA Advisors, LLC.

“You dedicate your life to your business and you put everything else on the back burner to help that business grow and succeed. But when you don’t make the time to plan for your own future, you put both you and your family at great risk.”

Time is often cited as a reason for not making these critical plans. Business is booming, customers have urgent needs and there just isn’t any time to think about the next phase of your life. But those safeguards you put in place to protect your business and its customers against the unexpected are just as important for your own well-being.

“Self-employed people need to call somebody, and sooner is always better than later,” Kropko says. “It’s just not worth the risk to wait.”

Smart Business spoke with Kropko about how to help secure your own future when you’re self-employed and seemingly short on time.

Where is a good place to start your financial planning effort?

Most self-employed people, especially if they have a business, believe that their business will be their retirement. That’s usually the furthest thing from the truth. You don’t save any money, you don’t open any retirement accounts and you believe that you’ll be able to sell your business for a dollar figure commensurate with all the work you put into it. But that’s often not the case, and you’re left with far less than you need to retire. The first step to avoiding that fate is making a phone call to schedule an appointment with a financial professional. Once you meet with the professional, you’ll come away with a list of items and/or information you’ll need to collect for the next meeting when you can start making formal plans. Now you have a timeline to keep you on task.

For those who do have investments, it is often ineffective to manage them on your own. A professional can help maximize your earning potential by finding ways to potentially reduce your taxes through tax-advantaged investments. They can provide references to professional tax and legal advisors. Some people don’t think of these things on their own, especially if they’re self-employed and focused on running their business.

Another common risk when you’re self-employed is failing to buy disability income insurance. Business is good, and it’s easy to feel invincible. But you’re relying on the good times to continue so you have that income to support your business and your family. If something happens where you can’t work anymore, you might be able to get Social Security disability, but it might not pay out for two years, if it pays out at all. A financial professional can help you put protections in place to help mitigate this scenario and other unexpected events that could occur.

How do you find the right professional to meet your needs?

A good place to start is with referrals. Ask other self-employed individuals who they have worked with to do financial planning. Choosing someone who is a certified financial planner (CFP) can be a good way to go, but it doesn’t need to be mandatory. There are many financial professionals who are not CFPs, but do the right thing by their clients. It’s more important that you find somebody you can trust and that takes time. Interview a couple of professionals and get an idea of how they work. It has to be your plans, your goals and your objectives, not those of the professional. If you find a professional who has helped another person align his or her goals and objectives and developed a trusting relationship, that’s worth its weight in gold.

Insights Wealth Management is brought to you by AXA Advisors, LLC

Nancy A. Kropko offers through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC, offers investment advisory products and services through AXA Advisors, LLC, an investment advisor registered with the SEC, and offers annuity and insurance products through AXA Network, AXA Network, LLC does business in California as AXA Network Insurance Agency of California, LLC and, in Utah, as AXA Network Insurance Agency of Utah, LLC.  AXA Advisors and AXA Network are affiliated companies and do not provide tax or legal advice. GE 109460 (11/15)(Exp 11/17)

Recent legislation closes once-beneficial loopholes in Social Security

On Nov. 2, 2015, President Barack Obama signed the Bipartisan Budget Act of 2015 into law. While the act’s primary purpose was to raise the federal debt ceiling, it also contained provisions that will affect millions of Americans entering retirement who are entitled to Social Security benefits.

“The act moves to simplify the Social Security system while closing inadvertent loopholes that were signed into law on April 7, 2000, by former President Bill Clinton,” says Shawn Ballinger, CFP, a wealth manager at Budros, Ruhlin & Roe, Inc.

“It effectively eliminates a married couple’s ability to use the well-known Social Security claiming strategies ‘file-and-suspend’ and ‘restricted application’ for spousal benefits. Fortunately, the act does not impact those currently receiving benefits, and allows those who are at full retirement age, or will reach it by April 29, 2016, to file for benefits under what are now the old rules.”

Smart Business spoke with Ballinger to learn more about this change and its impact.

What limitations does the change to the Social Security system bring?

The first strategy, file-and-suspend, allowed the first spouse to file for Social Security retirement benefits but then immediately suspend them. This allowed the first spouse’s benefit to continue to grow while the second spouse filed a restricted application to receive one-half of the first spouse’s benefit. The important point here is that a spousal benefit could not be received unless the first spouse had actually filed for his or her benefit. The process of file-and-suspend enabled the second spouse to receive a current benefit on the first spouse’s record while the suspended benefit of the first spouse accrued an 8 percent increase each year it was delayed from age 66 to age 70, a potential 32 percent lifetime increase in benefits.

The second strategy, filing a restricted application, allowed the second spouse to claim a spousal benefit on the other spouse’s record, but then switch over to his or her own benefit at age 70. The impact of one spouse filing-and-suspending his or her benefit and the other spouse filing a restricted application was that both spouses could effectively delay receiving their benefits until age 70 and still receive one spousal benefit while they waited.

Under the new rules, when either spouse now files for benefits, he or she is deemed to file for both individual and spousal benefits, which will require the individual to receive benefits on his or her own record, or the spouse’s record if higher.

The question to ask is, ‘How will this affect those nearing the age that Social Security benefits can be claimed?’ That answer depends on the person’s age and whether or not he or she is grandfathered under the old rules or subject to the new legislation.

At what age will someone be impacted by the changes?

In essence, the act created three sets of rules based on an individual’s birthday:

  • Those born on or before April 30, 1950.
  • Those born on or before Jan. 1, 1954.
  • Those born on or after Jan. 2, 1954.

Individuals born before April 30, 1950, or who will turn age 66 by April 30, 2016, will be largely unaffected by the changes as long as they identify their optimal claiming strategy and file for benefits before the April 30, 2016, deadline.

Those who will be age 62 during 2015 — or born on Jan. 1, 1954, or earlier — will still be able to file a restricted application on their spouse’s benefit as long as the other spouse is receiving benefits, or is grandfathered under the old rules and has filed but suspended their benefit. This nuance will become especially important for married couples where one spouse will reach age 66 by April 30, 2016, and the other will not.

Lastly, those individuals born after Jan. 2, 1954, will be subject to the ‘deeming’ rule that will require, upon application for benefits, claiming all benefits for which they are entitled. This eliminates a spouse’s ability to claim a spousal benefit while earning delayed credits for his or her own record.

Even with the limitations imposed by the new legislation, working with a Certified Financial Planner to analyze the timing around receiving Social Security benefits will continue to be an important facet of maximizing the planning opportunities available.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

Important financial moves investors should consider prior to year’s end

While many set out at the beginning of the year with a list of financial goals, most procrastinate and miss big opportunities to take advantage of rules to reduce income taxes or transfer wealth.

Smart Business spoke with Aaron T. Armstrong, a senior wealth manager at Budros, Ruhlin & Roe, Inc., about financial moves to consider making before the end of the year.

How can gifts benefit an investor?

Each year the IRS allows individuals to make annual exclusion gifts up to $14,000 for any purpose without using their lifetime gift tax exemption. While these gifts by themselves will not have a significant impact on the donor’s estate in any given year, there can be significant wealth transferred to the next generation over time by pursuing an annual gifting strategy.

Further, making a gift to a trust for the child’s benefit is a great option for those who want to provide future capital to their children, but whose children are not yet ready to manage that new responsibility.

Investors who hold education in high regard and have a goal to fund children’s or possibly grandchildren’s college educations have a great vehicle to help achieve their goal in the Qualified Tuition Programs. Better known as 529 plans, they allow contributors to accelerate five years of gifts into a single year. To take advantage of the 2015 annual exclusion, a gift must be completed prior to Dec. 31.

What should donors consider before making charitable gifts?

While no decision to fund a charity should be made unless there is a charitable goal supporting the decision, making a charitable contribution can provide a significant tax benefit to the donor.

To maximize the benefit, an individual should consider completing the gift by transferring highly appreciated securities, which have been held for at least 12 months, to the charity. By making the gift with securities, the investor will avoid the gain he or she would have realized on the sale while receiving an income tax deduction equal to the fair market value of the securities being used to make the gift.

As a 501(c)(3) organization, the charity will pay no income tax on the sale of the gifted securities. Gifts must be made prior to Dec. 31 to provide an income tax deduction for this year.

In what situations should investors accelerate tax payments or income?

The timing of state and local tax, estimated income tax payments and property tax payments can impact income tax liability from year to year. Taxpayers who expect to be in a higher income tax bracket this year than next year should consider accelerating these payments by making them before Dec. 31 to qualify for a higher 2015 income tax deduction. The prepayment of these expenses will lower their income tax liability and possibly their marginal tax rate.

Alternatively, if individuals expect their income tax rate to increase next year, they should consider waiting until January to make the payments.

The timing of the payments will get more complicated if the individual is subject to the Alternative Minimum Tax (AMT). State and local income and property taxes are considered preference items and provide no deduction against the AMT.

Similarly, while it often makes sense to defer the realization of income to postpone paying income taxes, there are some cases in which individuals should choose to accelerate income and the payment of the resulting income tax.

Transferring value from an IRA to a Roth IRA is a great way to take advantage of the lower income tax brackets after retirement, but before required minimum distributions begin from IRAs at age 70½. Choosing to accelerate income to pay taxes at a lower rate in the current year will not only lower a taxpayer’s average income tax rate during retirement, but it also provides a great source of income tax-free capital in the future.

While it is important to consider these and other strategies individually, the real benefit can come in implementing some of these ideas together. For example, large contributions to charity can be used to offset the income tax from Roth conversions. The results can be the completion of a goal and better positioning for income taxes in the future.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

Potential pitfalls and risks of saving and drawing on your retirement

Many people put off saving for retirement, thinking there’s just not enough money at the end of the month, or often focusing on current lifestyle.

“They tell themselves they’ll start putting something away for the future as soon as there’s extra,” says Chad Vavpetic, Regional Vice President at AXA Advisors, LLC.

“The problem is, it never gets easier. Demands on your money will always expand to consume your full income, if you allow it to happen.

“It’s common for young professionals starting out now to have tens of thousands of dollars in student loan debt. They often feel like, ‘Retirement is 40 years off, I can’t start thinking about that now. I have to pay off these loans, buy a car, get my own place.’ That’s a huge challenge. Time is everything when it comes to accruing sufficient retirement assets, and starting early is key, even if you start saving a relatively low percentage of your income initially.”

Smart Business spoke with Vavpetic about the common risks and pitfalls related to retirement planning.

What are some mistakes people make when projecting how much money they will need in retirement?

The first mistake for most is failing to understand that saving for retirement is no longer the responsibility of your employer or union through a defined-benefit pension plan. It often now falls completely on you. Many are not saving enough in defined contribution 401(k) or 403(b) plans to make up for the reduction or absence of that traditional pension.

Even those who are committed retirement savers may not be adequately prepared for two of the primary risks facing financial security in the golden years, inflation and longevity. While inflation has averaged 3.18 percent over the last century (, many financial professionals believe that the fiscal policy the federal government has employed since 2008 will likely result in the devaluation of the dollar, growing the cost of living at a faster-than-normal rate in coming decades. That means more retirement dollars will be required just to maintain preretirement lifestyle, not to mention the added expense of traveling to visit the grandchildren or that winter home in Florida. Couple inflation risk with increased life expectancies, and the possibility of outliving retirement assets becomes a very real concern.

What about tax liability?

Tax liability is one of the biggest deterrents to accumulating retirement assets; you need a strategy that is conscious of that. Traditional pretax and Roth retirement contributions are very simple and powerful ways to save on a tax advantage basis. There are also more advanced strategies, often used when IRAs and employer-sponsored options are limited or have been phased out due to income level. Saving on a tax-advantaged basis is essential.

Tax liability is also a major concern at distribution time. For example, cashing in a big chunk of your retirement to pay off low-interest debt like a mortgage in lump-sum fashion could have big tax implications and may not be the most advantageous decision. As you transition into retirement, it’s more about cash flow than assets and liabilities. Having a sound distribution strategy is extremely important.

Is it possible to successfully plan your retirement on your own?

Retirement planning is no longer a do-it-yourself endeavor. Markets are as volatile as ever, as has been evident in recent weeks. Tax laws and regulations are more complicated than ever. Financial products are increasingly advanced, as the industry continues to innovate in response to the changing economic environment.

Somebody has to be knowledgeable of all of this. You can either become an expert, or work with someone who has that knowledge. The need for qualified professional advice has never been greater.

A good adviser can help you design a strategy that serves your individual goals and addresses your concerns, while seeking to both protect and maximize your retirement income.

Insights Wealth Management is brought to you by AXA Advisors, LLC

Chad Vavpetic offers securities through AXA Advisors, LLC (NY, NY, 212-314-4600), member FINRA, SIPC, offers investment advisory products and services through AXA Advisors, LLC, an investment advisor registered with the SEC, and offers annuity and insurance products through AXA Network, LLC. AXA Advisors and AXA Network do not provide tax or legal advice. 107310 (09/2017)