The Pandemic, Your 2021 Benefits and Year-End Planning Tips

Posted by Haddad Nadworny on Tue, Nov 03, 2020 @ 06:00 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

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The Pandemic,Your 2021 Benefits and Year-End Planning  

2021-pexels-olya-kobruseva-5408689When making decisions and planning for 2021, it makes sense to consider the residual effects on your life and current circumstances created by Covid-19.  The degree to which life has changed since February 2020 will vary from person to person but the key thing is to look at your decisions for the future through the lens of your new reality.  

 Here are a few things to consider:  

It’s open enrollment period for employee benefits.   

open-enrollment-clipart-2 (1)In 2020, Covid-19 caused many doctors, dentists and other health providers, as well as dependent care programs, including programs supporting people with disabilities, to close their offices to all but emergency situations. Given the uncertainties of the current environment, be sure to consider how the pandemic may affect you and your family when reviewing and making decisions regarding your benefits elections for 2021 

Flexible spending accounts (FSAs)They are use it or lose it 

Many employers offer flexible spending accounts funded with pre-tax dollars from your paycheck that may be used to pay for qualified health (FSAs, HSAs), dependent care (DCAP) and commuting expenses The trade-off for being able to use these tax-free dollars is that you are required to spend them within a specified time period, most often the calendar year you are deferring in. If you do not use the funds, you will lose the money in the account (it reverts back to your employer).  

At this time imay make sense to: 

  • Change your elections to reflect your new or the situation you project for 2021. 
  • Check the remaining balances in your employee benefit accountsDepending on your plan, you may be able to carry-over up to $550 to next year (to be used by March 15, 2021) and this may bring about a change in your election amounts for 2021.  
  • If you have a balance you may use up your remaining FSA dollars to stock up on supplies you use on a regular basis. Here is a list of FSA qualified expenses. 

 Job change? It’s important thing to know:  

  • If you lose your job during a calendar year and do not elect COBRA, you will not be able to access the funds in your FSA after your employment is terminated.   
  • If you change jobs or leave your job, you will not be able to access the funds in your FSA after your employment is terminated.   

 

Step up the 401K election, if possible. There are many things in your budget that you probably did not get to do during the pandemic: travel for vacation, dine in restaurants, send your child to camp, or go to concerts, ballgames or conferences. As a result, you may have accumulated some cash in your accounts that can step in to cover an increased retirement plan contribution.  

If you are not already contributing the amount that is matched by your employer- this is in essence “free money”- this is a great time to up your contribution. If possible, max out your 401K contribution; for 2021 the maximum contribution is $19,500, or $26,000 if you are age 50 or over.  

Your taxes: It’s not too late to act for 2020 

 A charitable deduction for all.  

Everyone may take an “above the line $300 charitable deduction- This year, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides that all tax filers, whether they itemize or not, may take an “above the line” (meaning direct deduction) from their adjusted gross income or AGI,  of up to $300 in cash donations they make to qualified charities.  And if you can itemize, the tax benefits are even better. You can deduct all of your cash donations, up to 100% of your adjusted gross income (AGI). Normally, this limit is 60% of AGI.  

Retirement Accounts 

Consider contributing to an IRAYou can contribute a maximum of $6,000 to an IRA for 2020, plus an extra $1,000 if you are 50 or older. You will have until the filing deadline (right now, April 15, 2021) to make the IRA contributions, but the sooner you get your money into the account, the sooner it has the potential to start to grow tax-deferred. 

Is your current tax rate lower than your anticipated future tax rate? A Roth conversion may make sense for your IRA.   

Retired and want to convert your retirement savings to a tax-free legacy for your heirs? If you have space in your marginal tax bracket, it may make sense to convert some retirement savings to a Roth this year.  

Don’t need the $ from your RMD?  Don’t take it. Thanks to the CARES Act, let the money grow tax-deferred another year and it will not be added to your taxable income this year.  

 We hope you found this helpful and are here to answer questions and help you plan for the future.  

Contact us with questions about how these and other changes may impact your  planning. 

Sources:  

SHRM: Planning 2021 Benefits Changes for the Covid-19 era 

https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/howdoescobraapplytohealthflexiblespendingarrangements.aspx 

 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.  

 Investing involves risks including possible loss of principal. 

 Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. 

 Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. 

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. 

Affinia Financial Group, Special Needs Financial Planning, and LPL Financial do not provide tax advice. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tags: Retirement Planning, Taxes and special needs families, financial planning

January is Kickoff Time (even for us Patriots fans🙁)

Posted by Haddad Nadworny on Sat, Jan 11, 2020 @ 06:30 AM

The Special Needs Financial Planning Team John Nadworny, CFP, CTFA | Cynthia Haddad, CFP | Alexandria Nadworny, CFP,  CTFA

We are committed to presenting complimentary educational workshops to  organizations and parent groups. We are currently booking presentations for 2020. Please contact Alex Nadworny(anadworny@affiniafg.com / 781-365-8586) to  schedule a talk for your group. 

 

The Year in Special Needs Planning

Planning for the future is a process; there are many choices and options to learn about, think through, discuss and act upon.  Each month we will highlight a specific element of planning, along with a few possible action items, to help make the process more manageable.

The important thing is to get started!

January – Set Yourself Up

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  1. Set and prioritize your financial goals. A good way to begin might be to make a comprehensive list of goals and then rank them by urgency and achievability. 

 

               Here’s a hypothetical example:

      Need to do in 2020

     Will try to do in 2020.   

    Would be great to do in                     2020

    Replace the car that is          about to break down                    for good.         

    Put $100/month into a     college savings account                for each child.

        Max out my 401K.

 

  Pay down credit card debt.

      Save $5K more in a               retirement account.  

   Replace the deck on the                    house.       

        Make student loan                   payments.      

  Take a class to build skills      and work toward a job       change/promotion/raise.  

Save money for trip to Disney World. 

 

  1. Review your past year’s cash flow and construct your spending and saving plan.

    • Review 2019 cash flow

      1. Here’s why- It's a reality check; you’ve just listed what you want to do now look at what you did do. How in the world did you spend all that money at Target? Reviewing where and what you spent your money on is a great way to bring mindfulness to your spending.

      2. Here’s how- Most banks give account holders the ability to download their transactions and may even categorize the expenditures for you. Determine what was spent on filling needs- e.g. food, shelter, insurance, transportation and what was spent on discretionary items or wants - travel and entertainment, streaming services, the gym, restaurants- the things you choose to spend your money on but can keep calm and carry on without.

    • Build a spending & saving plan.

      1. A spending plan is a summary of how you project spending your money and provides a benchmark to check your actual spending against throughout the year. A general rule of thumb for making a spending & saving plan, also called a budget, is to aim for spending 50% of your after-tax income to pay for your needs, 30% to pay for your wants and 20% to pay yourself – your savings! We prefer to elevate the focus on saving and tweak this practice to be a 50/20/30 rule, when possible. This prioritizes paying yourself 20% before paying for your wants or discretionary expenses. If you know you are realistically unable to save 20% of your after- tax income, consider increasing your savings 1% per year until you get there.

      2. Be a Money Watcher. Keeping track of your money is a key action to help you stay on track and make mindful money decisions throughout the year. Just look at the decades of success subscribers to Weight Watchers have enjoyed. A key – maybe THE key- element of their program is tracking the points in what you eat against the points you are allotted in order to reach your goal weight. Without this tracking, no one will think about that extra half cookie they ate after lunch! The same is true of tracking your spending and keeping your budget and there is all manner of technology available to help you be a Money Watcher.

  1. Be sure your legal and estate planning documents are up to date and your key emergency contacts know how to access them. These documents would include:

    • Power of attorney

    • Health Care proxy

    • Wills & Trusts

  2. Special Needs Planning Focus

In addition to the planning documents above, for a child with a disability please include the following documents, when applicable:

    • Special Needs Trust

    • Guardians

    • Trustees

    • Advocates

    • Asset ownership

    • Beneficiary designations

And last but not least...

😍 Complete/Update a Letter of Intent. These are the details of your child’s daily life that will be an invaluable resource for those who will to carry on their care.  You may download a copy here.

You're on your way! 

landscape-photography-of-snow-pathway-between-trees-during-688660-1

This information is not intended to be a substitute for specific individualized tax or legal advice.  We suggest that you discuss your specific situation with a qualified tax or legal advisor.

 

 

 

 

 

 

Tags: financial planning

For Grandparents: Save for Retirement and Grandchildren’s Education

Posted by Haddad Nadworny on Sat, Jan 13, 2018 @ 07:36 AM

The Special Needs Financial Planning Team  Cynthia Haddad, CFP | John  Nadworny, CFP | Alexandria Nadworny, CFP  We are committed to offering educational workshops to organizations and parent  groups.  Please call Alex or click here to attend a workshop or discuss a presentation  to your group.


pexels-photo-355948.jpegA Roth IRA may be an option for grandparents to consider when saving for retirement and while also saving for their grandchildren’s education. The Roth IRA allows account owners to save with tax-free growth* and with the added flexibility to allocate and use the funds when they choose and for any purpose.

What is a Roth IRA:

 A Roth IRA is a retirement account funded with after-tax dollars. The contributions generally are not tax deductible but when you start withdrawing funds, qualified distributions are tax-free.

 Defining characteristics of a Roth IRA:

  • The money invested in a Roth grows tax-free*.
  • Contributions can continue to be made once the taxpayer is past the age of 70½, as long as he or she has earned income, which may be basically defined as W2 income.
  • Eligibility for a Roth account depends on taxable income.       Generally, in 2018 you are eligible if :
  • you are a couple filing jointly and your MAGI (modified adjusted gross income) is less than $189,000.
  • you file as an individual and your MAGI is $133,000.
  • Contribution amounts: In 2018 an individual may make an annual contribution of up to $5,500 to a Roth IRA. Individuals who are age 50 and older by the end of the year for which the contribution applies can make additional catch-up contributions (up to $1,000 in 2018). An individual may also establish a Roth IRA for their spouse with little or no income.
  • The taxpayer can maintain the Roth IRA indefinitely; there is no required minimum distribution (RMD) during the account holder's lifetime.

* Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.

Case Study

John and Alice (fictional names) are grandparents of 2 grandchildren, one of whom has special needs.  John and Alice have $10, 000/year to contribute toward their retirement savings should an emergency or unforeseen need arise. They also want the opportunity to put these funds toward the goal of funding their grandchildren’s educational expenses and don’t want to miss this opportunity to save for them should the unforeseen or emergency never happen.

 Their first thought was to establish a 529 plan & ABLE account for each of their grandchildren. However, while John and Alice feel saving for college is an important goal toward which they want to contribute, they need and want flexibility and control over these funds. Their grandchildren may opt not go to college or John and Alice may have an unforeseen need come along for which they would use this savings. 

In meeting with John and Alice and discussing this goal, we suggested another alternative: establishing and funding a Roth IRA. This alternative is open to John and Alice as they both have earned income, file taxes jointly and do not exceed the $189,000 combined household maximum income threshold for Roth IRA contributions. There is no age limitation on opening or contributing to a Roth IRA.

The benefits of saving the $10,000/year in a Roth IRA are tax-free growth, with no limitations on use of funds or withdrawal rules( with exceptions noted above- see *).  John and Alice may each contribute up to $5500/ year to a Roth IRA. Today they feel as though they can afford to give their grandchildren money for their futures, but ideally John and Alice would like the option to have the money available to them if there was an unforeseen need. Should they have additional grandchildren, having the money in the Roth IRA can make it easier to distribute the money amongst all grandchildren.

 Potential drawbacks to using this approach might occur if the funds were left in the account and John and Alice required nursing care. This savings would be considered in their assets and also, should they pass away, this account would be included as a part of their estate assets. To control disposition of the assets upon their death, they may designate their children or grandchildren as beneficiaries of the account.

When making the decision of how best to save for your grandchild’s future, recognize that every family’s situation is different and that will have an impact on the final decision regarding the best savings option to consider.    

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for individualized tax advice. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes. Please consult tax advisor regarding your specific situation.The Roth IRA offers tax deferral on any earnings in the account. Future tax law can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. The experiences described here may not be representative of any future experience of our clients, nor considered a recommendation of the advisor’s services or abilities or indicate a favorable client experience. Individual results will vary.

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MGA.pngGuardianship event: Contact the Massachusetts Guradianship Assocaiton for more information. for more information

  

 

Tags: Special Needs Financial Planning, Retirement Planning, financial planning, planning for college

January To- Do: Check Your Retirement Account Beneficiaries

Posted by Patty Manko on Sat, Jan 28, 2017 @ 08:00 AM

The Special Needs Financial Planning Team  Cynthia Haddad, CFP | John  Nadworny, CFP | Alexandria Nadworny, CFP  We are committed to offering educational workshops to organizations and parent  groups.  Please call Alex or click here to attend a workshop or discuss a presentation  to your group.Workshops Calendar

box_with_check.pngRetirement accounts like 401(k)s and IRAs represent a large portion of most people's savings. While these plans encourage saving by offering significant tax rewards, it is important to know and understand the possible consequences when a beneficiary or contingent beneficiary is a person with special needs and plan accordingly.

Most retirement plans require some form of distribution from the account once an account owner dies. Upon the account owner's death, the proceeds are distributed according to the beneficiaries listed on each retirement account and not your estate plan. Generally speaking, if you are married, your spouse is usually listed as the primary beneficiary. At the owner's death, the spouse will be able to transfer the assets into a spousal IRA rollover. This will enable the spouse to defer the taxes until the funds are withdrawn from the account.

If you are not married and your intent is for an individual with a disability to receive any portion of the IRA, you should consider having those proceeds paid to a trust that has special needs provisions. Please note that the language in the special needs trust must accommodate retirement plan distributions properly.  It is critical to work with a disability law attorney who can make sure your documents are up to date and protect your child’s eligibility for government benefits.

Planning tip: 

If a special needs trust is used as the beneficiary of a retirement plan account, the income earned in the trust will be taxed to the trust, usually at a higher tax bracket than an individual tax bracket. The proceeds from a Roth IRA are distributed tax free upon death of the owner. If an owner has a Roth IRA in addition to other retirement accounts, it may be advantageous to have the special needs trust named as beneficiary of the Roth IRA and the other children named as beneficiaries of the other IRA and retirement plan assets.

It is not recommended to have an individual with disabilities named individually as the beneficiary of the traditional IRA or Roth IRA*, because an account balance greater than or equal to $2,000 will disqualify him or her for government benefits. Instead, if the owner wants the value of all or a portion of the IRA to be received by a person with disabilities, that person's special needs trust should be named as one of the beneficiaries.

 
Here's an Example:

If you have more than one child and you intend to split your retirement account between all the children, including your child with special needs, you should direct his or her share in the beneficiary designation to the special needs trust. An example would be to have Adam Miller name his wife, Justine, as his primary beneficiary. He would then name two of his children, Kyle and Alyssa, as contingent beneficiaries, each to receive 33% of the retirement account; and he would name the special needs trust created for his third child, Alexia, as a third contingent beneficiary to receive the remaining 34% of the retirement account. Adam would list the special needs trust for Alexia on his beneficiary designation form by including the proper registration, "The Alexia Miller Special Needs Trust Dated January 1, 2007."

Questions? Talk with us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Tax laws and provisions are subject to change

* Roth RIA are distributed upon death of the owner tax free provided the account has been open for 5 years as of the date of death. Otherwise, taxes may apply to earnings distributed.

 

Tags: financial planning

How to Talk about the Money When Planning for the Future

Posted by Patty Manko on Thu, Sep 04, 2014 @ 09:24 AM

dad talk resized 600There are many ways to discuss your vision and your finances. It is often easiest to begin this process in a gradual manner and in an informal environment. Although it is important to have all family members in agreement, scheduling initial discussions in a formal meeting or large family setting is not always the best.

We recommend speaking to one child at a time, to get their feelings about their willingness to help. This will give them the opportunity to share ideas with you rather than you telling them what you hope will happen. Remember, caring for a family member with disabilities is a lifetime commitment that you do not want to force on anyone, yet it is important for them to know your intentions.

After everyone has had an opportunity to discuss their feelings and ideas in an informal way, you may wish to plan a discussion with everyone at once.  Since every family’s dynamics are unique, you will find the best way to communicate with your family.

The following steps should help to move the communication process along smoothly:

  • Share your vision
  • Talk about the amount of money you plan to have available to support your vision. You do not have to reveal all of your financial matters. You can choose to only mention the financial aspects that pertain to the needs of the family member with a disability.
  • Determine the best person to take on each role. For example, who is the best with finances? That person may be a good trustee or trust advisor of a Special Needs Trust. Who is most involved in the day to day life of the child? That person may be a good guardian.
  • Ask family members if they feel able to perform their roles independently. If not,design your plan to give them resources to work with. For example, let them know that they could hire an investment advisor to help with the trust management or a social worker to help oversee supports.

In our combined 30-plus years of planning, one of the biggest obstacles that we have encountered is that people do not feel comfortable talking about how much money they have. Even professionals in the field of providing services to families, including government agency employees that serve families, do not feel comfortable talking about money or the specific costs of providing services to individuals with disabilities. 

SNP STORY:

Although Charles is receiving all the benefits that he is eligible for and living independently, we feel that it is not enough for him to simply have what the government provides. We supplement his expenses by about $1,000 a month. This gives him the sense of self-worth and control to be able to do what he likes rather than do what someone else wants him to do. He has schizophrenia and his sense of self-worth is most important to his ability to function in life. In working with our financial planner and our attorney, we made arrangements for our other son to provide this supplement to support Charles’ needs without jeopardizing his government benefits when we are no longer able to. 

-- Charles’ father

Sometimes parents feel that they must treat all of their children equally. They feel that their children expect it. However, in many cases children without disabilities are more than willing to forego any type of inheritance to guarantee security for their brother or sister with  a disability. They understand the financial realities and would rather make sure their brother or sister is taken care of and would not expect that everything is shared equally.

One of the first steps that is required for you to be able to achieve financial security for your child is to overcome the reluctance to discuss the issues of money. We all know it takes money to provide services, staff, housing expenses, employment supports, transportation, education, health care services and the like. We also know that the government does not have an endless supply of money to fund these services.

So how do we determine how much money is needed? And how much is too much? Just as the educational needs of every child are unique, so are the long-term planning needs of every individual with special needs. Even two individuals with a similar medical and/or cognitive diagnosis, can have significantly different support requirements. With these varying requirements, costs will also vary. There is no clear answer; the best we can do is to maximize all resources and coordinate all of the Five Factors.That is why it is so important to have a comprehensive plan and to reevaluate it periodically.

Download our Special Needs Planning Checklist

Tags: Special Needs Financial Planning, five factors of financial planning, financial planning

Retirement Accounts and Special Needs Trusts

Posted by Patty Manko on Thu, Feb 20, 2014 @ 04:51 PM

 


Beneficiary Designations on Retirement Accounts


At the death of the owner of an IRA or company-sponsored retirement plan, the proceeds are distributed according to the beneficiaries that are listed when the application is signed. Generally speaking, if you are married, your spouse is usually listed as the primary beneficiary. At the owner's death, the spouse will be able to transfer the assets into a spousal IRA rollover. This will enable the spouse to defer the taxes until the funds are withdrawn from the account. If you are not married and your intent is for an individual with a disability to receive any portion of the IRA, it is recommended to have those proceeds paid to a trust that has special needs provisions. 

If a special needs trust is used as the beneficiary of a retirement plan account, the income earned in the trust will be taxed to the trust, usually at a higher tax bracket than an individual tax bracket. The proceeds from a Roth IRA are distributed tax free upon death of the owner. If an owner has a Roth IRA in addition to other retirement accounts, it may be advantageous to have the special needs trust named as beneficiary of the Roth IRA and the other children named as beneficiaries of the other IRA and retirement plan assets.

It is not recommended to have an individual with disabilities named individually as the beneficiary of the traditional IRA or Roth IRA, because an account balance greater than or equal to $2,000 will disqualify him or her for government benefits. Instead, if the owner wants the value of all or a portion of the IRA to be received by a person with disabilities, that person's special needs trust should be named as one of the beneficiaries.

Special Needs Planning Pointer

If you have more than one child and you intend to split your retirement account between all the children, including your child with special needs, you should direct his or her share in the beneficiary designation to the special needs trust. An example would be to have Adam Miller name his wife, Justine, as his primary beneficiary. He would then name two of his children, Kyle and Alyssa, as contingent beneficiaries, each to receive 33% of the retirement account; and he would name the special needs trust created for his third child, Alexia, as a third contingent beneficiary to receive the remaining 34% of the retirement account. Adam would list the special needs trust for Alexia on his beneficiary designation form by including the proper registration, "The Alexia Miller Special Needs Trust Dated January 1, 2007."

Read a Whitepaper from the Special Needs Alliance: Government Benefits and Special Needs Trusts

Tags: Retirement Planning, Special Needs Trusts, financial planning

Special Needs Financial Planning Steps for Birth - Age 3

Posted by Patricia Manko on Thu, Mar 22, 2012 @ 01:48 PM

down syndromeA loving parent once said to us, "The birth of a child with disabilities will probably change the course, but the destination is the same: creating opportunities for our children, and providing long-term security for our families."

Some parents may have known about their child's special needs in advance of the birth, but regardless of how much advance notice we receive, we are never quite prepared. Whatever the cause, whether or not there are answers, you still have a new baby to cherish.

Just as every child is unique, the way each parent approaches their planning is unique. Below are a few basic planning points that are unique in planning for your child from birth to age 3.  (These steps are in addition to the comprehensive Planning Points outlined in our book, The Special Needs Planning Guide: How to Prepare for Every Stage of Your Child's Life.)

~ Ask your pediatrician about Early Intervention services in your area.

~ Identify local support agencies that specialize in providing information and services for your child's specific needs.

~ Do not assume that the government will fully provide for your child's lifetime needs. Begin learning how to advocate for your child's services.

~ Maintain a balance in your overall planning to include needs for other children as well as your own needs (both personal and financial).

~ Determine an adequate amount of life insurance needed in the event of a premature death of a caregiver or primary wage earner.

~ Do not establish savings or investment accounts in your child's name. These include custodial accounts of Uniform Gifts to Minors Accounts (UGMAs) or Uniform Transfer to Minors Accounts (UTMAs). You should save in accounts in the name of the parent(s) that could be "earmarked" for the child.


 
SPECIAL NEEDS PLANNING POINTER 
Gifts from family and friends should not be made directly to the child, to custodial accounts (i.e., UTMAs), or college savings accounts (i.e., 529 Plans) in the name of the child. If a grandparent or other family member or friend is expressing interest in making a gift to your child, first say thank you!  Then contact us to help explore the best options for your family's situation.
 
 

Tags: Special Needs Financial Planning, financial planning