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Living Trust or Will

Revocable living trusts and wills both allow you to name beneficiaries for your property. Beyond that, they are useful for different purposes. For example, most people use living trusts to avoid probate. But living trusts are more complicated to make, and you can’t use a living trust to name an executor or guardians for your children. You need a will to do those things. 

Name beneficiaries for property. The main function of both wills and trusts is to name beneficiaries for your property. In a will, you simply describe the property and list who should get it. Using a trust, you must do that and also “transfer” the property into the trust. (See “Transfer of property into the trust,” below.) 

Leave property to young children. Except for items of little value, children under 18 cannot legally own property. When you leave property to a minor, that property must be managed by an adult – at least until the child turns 18. 

When leaving property to a minor using a living trust, the trustee manages the property until the child reaches an age determined by you. Also, you should name an adult to manage the property. Or, use your will to set up a testamentary trust for young children or name a custodian under the Uniform Transfer to Minors Act. 

Most people need a will, but not everyone needs a living trust. Whether or not you need a living trust depends on your age, how wealthy you are, and whether you’re married. Even if you decide that you need a living trust, you should also make a will to name an executor, name guardians for minor children, and take care of any property that doesn’t end up in your trust. 

401k Rollover

If you’re leaving your job for a new employer, it’s important to address rolling over your 401(k). The wrong decision could cost you.

Rolling over a 401(k) with a high expense ratio into a fee-free individual retirement arrangement (IRA) could save you a substantial amount of money. According to the Department of Labor, a 1 percent increase in fees could reduce your retirement account balance by 28 percent.

This choice isn’t the perfect one for everyone. But if it is the right fit for you, how do you get the money from your 401(k) to an IRA? It’s called a 401(k) rollover.

A 401(k) rollover is when you direct the transfer of the money in your retirement account to a new plan or IRA. The IRS gives you 60 days from the date you receive an IRA or retirement plan distribution to roll it over to another plan or IRA. You’re allowed only one rollover per 12-month period.

There’s a right way to roll over your funds from a 401(k) and a wrong way. You don’t want the 401(k) provider to cut a check in your name, and you don’t want to cash out your balance. In both scenarios, you’re at risk of owing up to a third of your balance to the IRS.

Take these four steps to roll over your funds without incurring any unpleasant tax surprises:

  1. Decide on a Roth or a traditional IRA. If you roll into a Roth IRA, you’ll owe taxes on the rolled amount. If you want to roll over your funds without incurring taxes, stick with a traditional IRA.
  1. Open a rollover IRA account. Check out our detailed list of the best IRA accounts to find a provider that aligns with your needs, or simply see the next section for more context on this process.
  1. Ask your 401(k) plan for a “direct rollover.” These two words are important: They mean that the 401(k) plan will cut a check directly to your new IRA account, not to you personally.
  1. Choose your investments. The 401(k) funds will enter the IRA as cash, so you’ll need to invest the money. See the sections below on hands-off investing and active management.

IRA – Traditional / Roth

What are the differences between a Roth IRA and a Traditional IRA? 

Traditional IRA 

Withdrawals—when are they IRS penalty free? 

Withdrawals prior to age 59½ have a 10% penalty. The 10% penalty does not apply to distributions made to a beneficiary upon death of the owner; attributable to a disability; medical expenses that exceed 7.5% of an individual’s AGI; payment for health insurance for unemployed individuals upon certain conditions; made to pay for qualified higher education expenses for the taxpayer, taxpayer’s spouse, child or grandchild; qualified first-time home buyers; made in a series of substantially equal periodic payments for the life or life expectancy of the owner or of the owner and his beneficiary. 

Maximum Deduction Qualifications 

To qualify for the maximum tax deduction, your adjusted gross income (AGI) for 2015 must be: 

Single and head-of-household taxpayers – less than $61,000 

Married taxpayers filing jointly (both filers have a plan) – less than $98,000 

Married taxpayers filing jointly with nonactive participant (one filer has a plan) – less than $183,000. 

How are withdrawals taxed? 

If tax-deductible IRA, contributions and earnings are taxed as ordinary income when withdrawn. If a non-deductible IRA, when a withdrawal is made, earnings are taxed as ordinary income. 

Roth IRA 

Withdrawals—when are they IRS penalty free? 

Same as traditional IRA, but taxes and penalties paid only on interest earned. 

Additional penalties if Roth has not existed for at least 5 years. 

Maximum Deduction Qualifications 

To qualify for the maximum deduction, your adjusted gross income (AGI) for 2015 must be: 

Single and head-of-household taxpayers – less than 


Married taxpayers filing jointly – less than $181,000 

Married taxpayers filing separately should check with their tax adviser. 

How are withdrawals taxed? 

Earnings on the Roth IRA are tax free if the policy has been open 5 years and the owner: 

Attains age 59½, 


Qualified first-time home buyer, 


Estate Planning

What is Estate Planning 

Estate planning is the preparation of tasks that serve to manage an individual’s asset base in the event of their incapacitation or death. The planning includes the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law. 

BREAKING DOWN Estate Planning 

Estate planning involves planning for how an individual’s assets will be preserved, managed, and distributed after death. It also takes into account, the management of an individual’s properties and financial obligations in the event that s/he becomes incapacitated. Assets that could make up an individual’s estate include houses, cars, stocks, paintings, life insurance, pensions, and debt. Individuals have various reasons for planning an estate, such as preserving family wealth, providing for surviving spouse and children, funding children and/or grandchildren’s education, or leaving their legacy behind to a charitable cause. The most basic step in estate planning involves writing a will. Other major estate planning tasks include: 

  • Limiting estate taxes by setting up trust accounts in the name of beneficiaries 
  • Establishing a guardian for living dependents 
  • Naming an executor of the estate to oversee the terms of the will 
  • Creating/updating beneficiaries on plans such as life insurance, IRAs and 401(k)s 

  • Setting up funeral arrangements 
  • Establishing annual gifting to qualified charitable and non-profit organizations to reduce the taxable estate 
  • Setting up durable power of attorney (POA) to direct other assets and investments 

Tax Deferred Annuity

Permanent life insurance not only helps to protect your beneficiaries, it also allows you to build cash value that can potentially be used in a tax-advantaged manner. 

Strategies to Save For Retirement 

After Tax Strategy – when you set aside a portion of your after tax income into an account earmarked for retirement. Taxes are paid annually on any earnings. An example of this type of savings is a Certificate of Deposit.  

Tax-Deferred Strategy – when you set aside a portion of your after tax income for retirement, earnings on the account grow tax-deferred. When retirement income is taken, taxes are due on the tax-deferred gain. A Non-Deductible IRA or an annuity is an example of this type of savings.  

Pre-Tax Strategy – might include an Employer sponsored qualified plan, like a 401(k) and 403(b) plan. You don’t pay current taxes on contributions made to the plan and earnings grow tax-deferred. Later when you take retirement income the benefits are income taxable.  

Tax-Free Strategy – is similar to the Tax-Deferred Strategy: you set aside a portion of your after taxincome, and earnings grow tax-deferred. Retirement income is received income tax-free. A Roth IRA is an example of this type of savings. Another type of financial vehicle is permanent life insurance. 

Pension Maximization

Achieve financial protection while maximizing your pension benefits 

Pension maximization using life insurance is a way to gain needed death benefit protection while helping you get the most out of your defined pension benefits. If you are a participant in a traditional pension plan (also referred to as a “defined benefit plan”), you have a plan that is designed to provide you with monthly income payments upon retirement. First, however, you must make an irrevocable choice. Typically, your employer will give you two options for how the benefits will be paid—Life Only Benefit or Joint and Survivor Benefit. The Life Only option pays you the maximum monthly benefit, but upon your death, your spouse does not continue to receive payments. The Joint and Survivor option pays a reduced benefit, but your spouse will continue to receive benefits when you die. The pension maximization strategy using life insurance is designed to be a way to receive the higher life only pension benefit while also providing funds for your spouse in the form of a death benefit. 

Who can benefit? 

If you’re married, participate in a defined benefit pension plan, and are willing to allocate a portion of your retirement funds to a life insurance policy, it may be worth considering the pension maximization strategy using life insurance. In most situations, it may be ideal if you are within five years of retirement when deciding on the strategy. 

As mentioned earlier, the Joint and Survivor option will continue to pay your spouse monthly benefits after your death, but the Life Only option pays a larger monthly benefit. Generally, the Joint and Survivor benefit payment is reduced by one-third to one-half compared to the Life Only option. With the pension maximization strategy, the idea is to select the Life Only benefit and use a portion of the higher benefit amount to purchase a life insurance policy with your spouse as the beneficiary. 

The death benefit proceeds from the life insurance policy would provide your spouse with the financial support to help protect his or her financial future. The goal is to receive the higher benefit amount from the pension, while still providing your spouse with the same financial protection as would have been received with the Joint and Survivor option. 

How does it work? 

Here is how life insurance can be used to maximize pension benefits. 

The participant in the defined benefit pension plan purchases a life insurance policy to replace lost income after the participant dies. The death benefit should be an amount that can provide the spouse the same monthly payment amount as the Joint and Survivor option. The spouse is named as the beneficiary of the life insurance policy. 

Upon election of pension benefits at retirement, the Life Only benefit is selected rather than the Joint and Survivor benefit. 

Upon death of the participant, the life insurance death benefit is paid to the spouse. The pension benefits stop. 

The life insurance death benefit is then used to provide income for the surviving spouse.