Senior Strategies

The Pitfalls Awaiting the Seniorsenior-strategies

 

The DRK Associates Team prides itself in having a good understanding of the issues that affect our older clients. It is our mission to help the senior meet his or her goals, while avoiding the many pitfalls that lay-in-wait in this complex modern era. We strive to always have the most up to date information regarding pending legislation and changes that have occurred over the past few months. Some of the areas of concern are:

v  Medi-Cal qualification under the new rules—many Californians will not qualify

v  Medi-Cal Estate Recovery—what assets will the heirs need to pay to the State?

v  VA benefits for assisted living

 

Tax Strategies for Seniors

Income tax & planning issues for seniors

 

Certificates of Deposit and Interest Bearing Instruments

v  Usually has safety of principal, but

§  Receives no tax reduction treatment granted to other investments such as capital gains from sale of stocks, mutual funds and real estate.

§  No deferred taxation, such as granted annuities and IRAs

§  No tax-free treatment, such as granted ROTH IRAs and Municipals

 

Treasury Instruments

 

v  Taxable on Federal returns, but not States

v  Usually has safety of principal is held to maturity

 

Municipal Bonds

 

v  Planning is important since municipal interest over certain amounts can increase the amount of Social Security that is taxable (85%, 50% or zero)

v  Not taxable on Federal returns, but the State issuer has a right to tax

v  The issuing State often does not tax their residents, but do tax non-residents for example:

§  California Municipal Bonds are not taxed to California residents

§  Other State Muni-bonds are taxable to California residents.

 

Annuities

 

v  Often Annuities are tax deferred until distributions are taken

§  Partial distributions are taxed as interest first, then as return of basis

§  Total distributions are taxed on amount greater than basis

v  Fixed Annuities allow safety of principal

v  Indexed Annuities protect against loss of principal, while allowing some participation in current market gains.  They also have an additional benefit of protecting all previous gains from loss.

 

Life Insurance

 

v  Life insurance (individual policies—not group policies)

§  Death benefit is non-taxable

§  Catastrophic payments are non-taxable

§  Distributions taken as a loan are non-taxable

 

Social Security benefits

DRK Vision Statement 

What you should expect from your consultant. 

Our mission at DRK Associates is to be an advocate for our clients. We strive to put our clients' interests first while  providing value  added services at competitive costs. Our  goal is to take a proactive approach to finding solutions to  our clients' problems and pre-empt possible pitfalls.

Our focus is to be the complete financial resource for our  clients in this constantly changing world. We view issues from  a life-long perspective not only covering the more familiar  areas of asset accumulation, protection and distribution, but  also the often neglected human element of planning - the  aresa of client care.

DRK has assembled a multi-faceted team of professionals to  provide as array of integrated services that allow our clients  to  legally reduce taxes, protect assets and limit liability,  while helping them to pursue their financial goals with the  same high standard of integrity and honesty as you have  come to expect from DRK Associates 

YOUR NEEDS ARE IMPORTANT TO US.

WE LOOK FORWARD TO BEING YOUR 

COMPLETE FINANCIAL AND CARE RESOURCE

 

v  Effected by municipal interest

§  Municipal interest earned on other investments can increase the amount of Social Security that is taxable

v  Percentage of SS benefit taxed can be 85%, 50%, or zero

v  Social Security benefits while employed

§  If regular SS retirement age

§  If early retirement

o   Payback of benefits if income too high

v  How to earn SS quarters when you/spouse are short of the 40 quarters

v  If prior marriage lasted 10 years—ex-spouse benefit may be greater

v  If early retirement—will need careful planning so that income is not too high—to prevent a payback of benefits

 

IRA distributions

 

v  Traditional IRA

§  Generally fully taxable unless basis can be established

o   Basis: many seniors have IRA basis due to changes in IRA rules and / or no tax benefit on contributions, if determined could reduce taxes on distributions. 

§  Minimum required distributions can reduce taxes

o   Calculate on joint life if Spouse is 10 yrs younger

§  Charitable giving from IRA

o   Better than reporting income, claiming deduction

·         No increased AGI to limit other deductions

·         Contribution not limited to 50% of AGI

v  Roth IRA

§  Distributions generally non-taxable

§  No minimum required distributions

 

Long Term Care benefits

 

v  Generally non-taxable unless benefit is greater than the LTC expense

v  Qualified Long Term Care Insurance

§  Deductible under same terms as a medical expense

 

Estate Planning & Tax Issues

 

v  Unlimited transfers for educational and medical expenses

§  709 Gift Tax return filing not required

§  Not considered a gift for purposes of gift tax if provider paid directly

o   Includes payment of medical insurance premiums to provider

§  Reduces Estate and Gift taxes (good)

§  Included as transfer for Medi-Cal spend-down look-back (bad)

§  Does not count against 529 Plans, Qualified Tuition Programs, or Cloverdale Educational Savings Accounts, which are limited regarding the gift exclusion.

 

Effect of capital gains at death

 

v  Holding appreciated capital assets until death eliminates capital gains due to the step-up in basis.

v  Community property gets a step-up in basis for each half to the surviving spouse and another step-up in basis at the second death.

v  Capital Loss Carryovers are lost at death