Some Words About the Latest Stimulus Payment (Part 2)
In last week’s post I wrote about the latest stimulus payment. Eligibility is based on your income as reflected on your income tax return. What happens if you have not filed your 2020 income tax return? The IRS will use your 2019 income tax return in that case to determine qualification. And what happens if you have lower income in 2020 than you did in 2019 which would allow you to qualify for the payment (or a higher payment)? One option is to quickly file a 2020 return. Even if you don’t file before you receive your stimulus check, you can still file later and the IRS will make the adjustment after reviewing the 2020 return and send any additional amount you are entitled to. If it turns out that 2020 income is greater than 2019 such that you would not have been eligible or you would have been entitled to less of a payment there is no provision in the law to allow the IRS to take back the money. So it might be better to wait to file a 2020 tax return if you believe you won’t get a payment (or not as much of a payment) based on 2020 income. Keep in
Some Words About the Latest Stimulus Payment (Part 1)
This month Congress passed and President Biden signed into law a $1.9 trillion COVID 19 stimulus package. This new law includes, among other things, another immediate payment to millions of Americans in need. Like the first 2 stimulus payments (which were $1200 last year and $600 in January, 2021 for eligible persons), this latest payment is based on an income threshold of $75,000 per year for single individuals and $150,000 for married couples. The phaseout of these payments, however, has been shortened. Once you reach income limits of $80,000 ($160,000 for married couples) you get nothing. There are some other important changes from the previous rounds of payments. Children and adult dependents such as college students and older relatives are eligible for the full $1400. A married couple with 2 children now will receive $5600. We have already heard from clients who have received their payments. If the IRS has direct deposit information, payments will be made electronically which is the fastest way. This will typically be the case for anyone who has paid taxes or received refunds electronically. Where the IRS does not have this information, paper checks or debit cards will be issued. Those who received debit cards previously will get new cards. The old cards issued last year won’t be
How SECURE Act Changed Estate and Long Term Care Planning – Part 3
In the past 2 weeks’ posts I have been talking about the SECURE Act and how it has changed the tax laws with respect to retirement accounts such as IRAs and 401ks. With limited exceptions (as noted in my post last week), beneficiaries who inherit these accounts upon the owner’s death can no longer stretch the payments out over their life expectancy. From a tax planning perspective, the advice to withdraw only the minimum required in order to preserve tax deferred status and pass that on to children and grandchildren, becomes less relevant with the restriction of stretch provisions. When we look at long term care planning, however, the goal to keep as much as possible in these tax deferred accounts, is still a problem when we are faced with clients who have substantial long term care expenses that can be $150,000 a year or more. IRA - Individual Retirement Account acronym, concept on blackboard If these clients have no long term care insurance then they must pay privately until their assets are below the level needed in order to qualify for one of the government benefit programs that cover long term care, usually Medicaid or in the case of wartime veterans, the VA Aid
How the SECURE Act Changed Estate and Long Term Care Planning – Part 2
In last week’s post I reviewed the stretch provision of the tax laws that apply to retirement accounts such as IRAs and 401ks. These laws allowed tax deferred accounts to remain tax deferred for a longer period of time by allowing certain beneficiaries to “stretch out” the time within which they must withdraw funds and pay tax on the growth in these accounts. As I stated last week, as long as a beneficiary was a designated beneficiary (ie.an individual) the stretch provisions could be utilized. The SECURE Act which became law on January 1, 2020 changed all that. Stretch provisions were severely limited to a small group of individual beneficiaries. For all other formerly designated beneficiaries, a 10 year rule now applies. The 10 year rule says that for most designated beneficiaries distributions from an inherited retirement account must be made no later than the end of the calendar year which is 10 years after the death of the account owner. Failure to empty the account by that deadline carries a pretty stiff penalty - 50% of the amount that was supposed to be distributed but wasn’t. There is no minimum withdrawal requirement each year. You must simply “zero” out the account by the 10 year deadline. The SECURE Act
How SECURE Act Changed Estate and Long Term Care Planning – Part 1
At the end of 2019 Congress passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act which made some significant changes to retirement accounts - some positive and some negative. I wrote about it a bit when the law was passed (See posts 1/5/20 and 1/13/20). In the year plus since the law became effective as of 1/1/20, many people are aware of the positive change. The age at which an account owner must begin to take withdrawals (required beginning date or RBD) was extended from age 70 and 1/2 to age 72. Fewer know about the new limitations in using the “stretch” provisions that permitted children, grandchildren and other beneficiaries to extend the tax deferred benefits of inherited retirement accounts inherited by withdrawing the funds over their life expectancies. Before the law changed, if I inherited my parent’s retirement account I could roll it into an inherited IRA and stretch out the distributions. I could make those distributions over my life expectancy but needed to begin taking the first withdrawal within a year of my parent’s death. Being younger than my parent, of course, my life expectancy is longer so by utilizing the stretch provisions I could keep more of the balance in the tax
Another Word about QITs – Part 3
The past 2 weeks my blog posts have covered QITs. Last week I told you about a case in which the trustee initially transferred the correct amount to the QIT, the Medicaid recipient’s entire monthly Social Security, however, when that amount increased because of the cost of living adjustment, the trustee did not make the adjustment to transfer the higher amount into the QIT bank account. The caseworker approved the case but warned that if the mistake was not corrected it would result in a denial of Medicaid benefits when it came up for renewal in a year. In another case in another county, the caseworker decided not to let the mistake go. The trustee put the correct amount into the QIT for the first couple of months but then subtracted $50 from the Social Security amount received before transferring the rest into the QIT account. As I explained last week, all income must go to the nursing home with limited exceptions. So why did the trustee subtract $50? That’s because under Medicaid rules recipients can keep enough of their income to cover any health insurance premiums such as a Medicare supplement, commonly referred to as a Medigap policy. The recipient is also entitled to keep $50 each