Build a Financial Map for your survivors

As part of your estate planning and letter of last instruction, every adult needs to build a financial map for their survivors and estate executor. The best description I've seen is available at https://humbledollar.com/2021/01/for-their-sake/. 
 

Financial expert Adam M. Grossman describes why and how he built a "financial map" for his wife:
"A FEW YEARS BACK, I found myself in the emergency room, thinking I had a serious condition. As I sat there, I worried about my family, including my wife and young children. If I didn’t come home, would my wife have a clear picture of our finances?"

"Financial map. If you’ve prepared an estate plan, that’s great. But don’t stop there. Put yourself in your family’s shoes. Would they know where to find the original, signed documents? Would they know how to contact your attorney and what steps to take first? I recommend drawing up a simple, one-page summary—what I call a financial map—that will tell your heirs where to find important documents, vendors and the other information that I describe below."

Contact list. 

Balance sheet. 

Further commentary. "In most cases, a simple balance sheet is sufficient. But if you have any unusual holdings—an annuity, a pension, employee stock options or stock in a private company or partnership—you should write up brief descriptions for each." 

Assets under the radar. "Do you have assets that would be hard to find—a safe deposit box, for example? I’ve seen more than one person hide cash around the house, stashing it in books and filing cabinets."

Easily accessible funds. "When someone dies, banks and brokers move quickly to freeze the deceased person’s assets. That’s why you want to be sure to hold at least some assets in a joint account with a spouse or other family member."

Letters. "To complement their formal estate plan, many people write letters to provide further guidance to guardians, trustees or executors. These letters can articulate some of your more personal wishes..."

Passwords. 

Subscriptions. 

Arrangements. pre-paid funeral arrangements and your desires for final good-bye ceremony.

Full details at: https://humbledollar.com/2021/01/for-their-sake/

 

      

 

Paying taxes on tax-deferred retirement accounts

"Q: My wife has a 403(b) account. We have read that if we were to withdraw money to, say, pay off our mortgage, the government will tax the withdrawal. Is this true, and if so, why is there a tax on those funds, especially for seniors?

A: I get this question quite a bit.

People have saved for decades in tax-advantaged retirement plans such as a 401(k) or 403(b) looking forward to the time they can tap the money. But it’s a rude awakening when they realize the taxes that are owed. It seems unfair because what’s on paper is not what they will net.

But that’s the bargain you agreed to when you were allowed to invest pretax money into such plans. Eventually, the IRS will want its cut. This is also why there are required minimum distributions or RMDs.

“You cannot keep retirement funds in your account indefinitely,” the IRS reminds taxpayers.

If you don’t take any distributions, or if your RMD is not large enough, you may have to pay a 50 percent tax on the amount not withdrawn as required.

As the IRS explains it, your required minimum distribution is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from your retirement plan account or IRA when you reach 72. It used to be 70 ½. Roth IRAs do not require withdrawals until after the death of the owner.

Here are the retirement accounts that fall under the RMD rules:

— Employer-sponsored retirement plans, including profit-sharing plans and 401(k), 403(b) and 457(b) plans.

— The Thrift Savings Plan (TSP), the federal government’s version of a 401(k).

— Roth 401(k). Even though you don’t have to pay income tax on the withdrawal, you still have to take an RMD. A Roth IRA does not require withdrawals until after the death of the owner.

— Traditional IRA.

— Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE).

But there are always exceptions and caveats in tax law. The IRS has an FAQ page if you need additional information.

So, yes, as frustrating as it may be, your withdrawals will be included in your taxable income."

Thanks to Michelle Singletary, author of "Color of Money" column in The Washington Post.

 

Re you rich? Are you wealthy? How do you rank in terms of income and net worth?

Are You Rich? This Income-Rank Quiz Might Change How You See Yourself
https://www.nytimes.com/interactive/2019/08/01/upshot/are-you-rich.html?referringSource=articleShare

Are You Rich? Where Does Your Net Worth Rank in America?
https://www.nytimes.com/interactive/2019/08/12/upshot/are-you-rich-where-does-your-net-worth-rank-wealth.html?referringSource=articleShare 

Check out these interactive websites that show how your income and wealth compare to other Americans. 

Unemployment compensation is taxable: Stimulus payments are NOT taxable

 Unemployment insurance payments are taxable by the federal government and states. Recipients can opt to have taxes withheld from their payments. If you failed to do so, you need to prepare now for the tax impact. You won’t, however, owe Medicare and Social Security taxes on jobless benefits as you would with paycheck income.)

The good news is that you don’t have to pay income tax on the stimulus checks, also known as economic impact payments. The first payment in April was for up to $1,200 per person, plus $500 for each child. The second stimulus in December was up to $600 per person, plus $600 for each child.

"Individuals with income of up to $75,000 ($112,500 for individuals filing as “head of household,” typically single parents) and married couples filing jointly with income up to $150,000 qualified to receive the full payment. People with higher incomes got smaller payments or nothing if their income exceeded certain caps."

"If you were eligible for the payments but didn’t receive them for some reason — or didn’t receive the full amount — you can still get the money by claiming a “rebate recovery” credit on your 2020 tax return. You must file a return, even if you’re not otherwise required to do so, to claim the credit."

President Biden has proposed a third round of stimulus payments of as much as $1,400.

Thanks to Ann Carrns of The New York Times.