Taking a closer look at the Roth IRA

Wouldn’t it be nice to have an account available to you where you can put money in and:

  • Earn a higher interest rate than a traditional bank savings account
  • Pull your money out when you need it without [IRS] penalties
  • NOT be forced to have to take the money out when you’re 70 ½ (and still be able to contribution after 70 ½)
  • AND….Be TAX FREE to you in retirement and/or when passed along to your beneficiaries at your death?

If you’re looking for any of these options, then a Roth IRA may be your best option!

Roth IRA Basics:

  • Contributions are made with after-tax funds and a not deductible (like Traditional IRAs)
  • You can make contributions after 70 ½ (so long as you have earned income)
  • There is not Required Minimum Distributions on Roth IRAs, so you can leave amounts in your account as long as you live
  • Qualified Distributions are Tax-Free!

Now, not *everyone* can contribution to a Roth IRA. However, if your AGI is less than $193,000 and you’re filing Married Filing Jointly, OR less than $122,000 and you’re filing Single, Head of Household, or Married Filing Separately and did NOT live with your spouse at any time during the year, than you can contribute the full limit of $6,000 ($7,000 for those 50 and over) for 2019.

Over these limits you will either have a reduced amount you can contribute OR not be able to contribute at all. Also, contributions limits to Traditional IRAs and Roth IRAs are aggregate, so you can only do a TOTAL of $6,000 ($7,000 for 50 & over) between IRA and Roth if you happen to be contributing to both types of plans. (check out IRS publication 590-A for further information)

What makes a Distribution a “Qualified Distribution”?

  • Distributions made after the 5-year period from the first taxable year in which a contribution was made to set up a Roth for your Benefit. (Note: the clock starts ticking then and does not restart if you change/switch accounts or open another Roth IRA somewhere else)
  • The payment/distribution is:
    • Made on or after age 59 ½
    • Made because you are disabled (defined by the IRS)
    • Paid out as a Death Benefit to your Beneficiary(ies)
    • Meets the requirements listed by the IRS under their First-Time Home buyer exception (up to $10,000 per buyer)

If your distribution does not meet any of the options listed above, the GAINS on the Roth IRA are taxable and assessed a 10% pre-mature distribution penalty by the IRS. One very important thing to note is the taxation and subsequent additional 10% tax penalty is on the GAINS of your Roth IRA only. Contributions are NOT TAXABLE to you because you’ve already paid taxes on them. Additionally, those contributions are what come out FIRST when you take a distribution, so you are able to withdraw funds from your Roth IRA if you need to UP TO your total contributions with no tax consequences or IRS penalties.

Setting up a Roth IRA is Simple and Easy!

You do not have to contribute the entire $6,000 to establish a Roth IRA. You can start a Roth IRA for as little as about $50 per month. (That’s $12.50/week or about the cost of a Dunkin Donuts Coffee per day!) You have a ton of account options to choose from, so you can find the investment that fits your individual need. Plus, setting it up for automatic contributions each month will help you to “set it and forget it” and stay on track for your retirement goals!

Here’s to a Tax-Free Retirement!

5 Key Factors of Your Credit Report

  1. On-time Payments: Showing a good history of paying your bills on time is important. That’s a given, right? Keep in mind that even 1-2 late payments can take your credit score down.
    • TIP: Set your monthly bills up on Auto-Pay for at least the minimum amount due – you can always adjust the amount to pay before the payment hits for a larger payment or make an extra payment to pay it down/off faster, but this way you at least know you have stream-lined the payment to be paid on time each month.
  2. Credit Utilization: This is the Percentage of your available credit that you are using. Ideally, this percentage should only be between 10-30%.
    • TIP: Paying down debt is a great way to lower your credit utilization, but it takes extra money you may or may not have. Look also to expand capacity – the easiest way is to ask your current credit card company(ies) for a credit line increase (and then DO NOT USE it). You can also try applying for another credit card with no annual fee, etc. that you do not intend to use*(see #4 below)
  3. Having a Mix of Credit
  4. Not Actively “Looking” for a Bunch of Credit and/or Applying to More than One Credit Line at time: Too many inquiries in short period of time can lower your score.
    • TIP: If you’re looking for a credit line to use or to expand capacity – Do Your Research! Look at various cards and offers before applying for anything. Use a source like www.cardhub.com find cards that also fit within your credit score for a better chance of approval.
  5. Length of Credit Relationships: The longer the relationship the better.
    • TIP: Think twice before closing out a credit card after you pay it off, especially if you have had it for a long time. If there is no annual fee and no cost to keep it open at a $0 balance, then keep it open. Another idea to keep it open and active (especially if there is some kind of rewards on the card you want) is to pay your monthly bills with it – and pay it off at the end of each month. However, if you think you would be tempted to “run it back up”, then cut the card up so you can’t use it.

Kara Stanley Earns Retirement Income Certified Professional® (RICP®) Designation

FOR IMMEDIATE RELEASE:

Kara Stanley Earns Retirement Income Certified Professional® (RICP®) Designation

Pembroke, NH – October 1, 2016 – Kara Stanley of Kara Financial, LLC has earned the Retirement Income Certified Professional® (RICP®) professional designation from The American College of Financial Services, Bryn Mawr, PA.

Candidates for the RICP® designation must complete a minimum of three college-level courses and are required to pass a series of two-hour proctored exams. The must also have three years of experience, meet stringent ethics requirements, and participate in The College’s continuing education program.

The RICP® educational curricula is the most complete and comprehensive program available to professional financial advisors looking to help their clients create sustainable retirement income. The rigorous three-course credential helps advisors master retirement income planning, a key focus area not fully covered in other professional designation programs. Fore retirement portfolio management techniques and mitigation of plan risks to the proper use of annuities, employer-sponsored benefits and determining the best Social Security claiming age, the RICP® provides a wealth of practical information for advisors.

Using the most current techniques, RICP® identify retirement income needs and objectives and evaluate a client’s current situation relative to those goals. Individuals who earn a RICP® can provide expert advice on a broad range of retirement topics including income needs and objectives, estate issues and other risks to the retirement income planning, Social Security, health insurance and housing decisions, and income taxation.

Kara has over 20 years of experience and expertise in the field of Insurance, Annuities, and Planning. She has a specialty in the 403(b) market, Future Planning for Families with Special Needs Children, Estate Planning, and Small Business Retirement Planning. She also achieved the designation of Chartered Retirement Planning Counselor® (CRPC®) from the College for Financial Planning in February, 2001. Kara spends time volunteering in many aspects of her community, both professionally and personally. She is a Past President of the NH Chapter of the National Association of Insurance and Financial Advisors (NAIFA-NH) and currently serves on Family Support Council for Lakes Region Community Services. Kara is also a Coach of her local Special Olympics team, the Winnipesaukee Warriors.

The American College is the nation’s largest non-profit educational institution devoted to financial services. Holding the highest level of academic accreditation, The College has served as a valued business partner to banks, brokerage firms, insurance companies and others for over 86 years. The American College’s faculty represents some of the financial services industry’s foremost thought leaders. For more information, visit TheAmericanCollege.edu

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17 Outstanding Reasons for Permanent, Cash Value Life Insurance

You’d have to be living under a rock to not have heard “Buy Term and Invest the Difference!” that a few famous “Financial Gurus” tout. While I agree that Term Insurance and Investing has its place in a family’s overall financial plan, that is not entirely sound advice for most people. Term insurance is, by all accounts, a “Rented” policy. It expires after the set term length, and if you’re not healthy enough (or too old) to requalify for another term, you’re out of luck. Not to mention having nothing to show for all those premiums you paid over the years. When the term is up, your death benefit is gone, and so is all that money you paid into the policy. And guess what? The majority of people that have term insurance outlive it.

Don’t get me wrong here, Term Insurance has its place within a sound financial plan, (i.e., covering protection needs that may disappear over time like mortgages, college expenses, etc.) but it should never be the “be all-end all” when it comes to protecting your family and your financial plan.

As far as “investing the difference” what exactly will you be investing in? Investing wisely is a key factor here. Stocks, Bonds and Mutual Funds are options, but also carry risk where you could LOSE money.  Bank CDs are at an all-time low in interest rates, so while an option for the more risk adverse, you won’t be earning much, let along keeping up with inflation. Fixed and Fixed-Indexed Annuities are a good option, but there are penalties if you withdraw funds before 59 ½ because they are considered savings for retirement, not to mention the interest earnings are taxable as ordinary income.

So all of this brings us to today’s Blog topic: Permanent, Cash Value Life Insurance. Commonly known as Whole Life or Universal Life Insurance. There are MANY aspects and benefits that should not be over looked with Permanent, Cash Value Life insurance. Need to protect your family in case of an early death? You got it. Want to supplement your retirement in a tax free way? It can do that. Want to BECOME YOUR OWN BANKER to pay for college expenses, a new car, or whatever else you might to go a bank for? YES!!! That is possible!!

Here are 17 Outstanding Reasons for Permanent, Cash Value Life Insurance:

  1. TAX FREE Death Benefit
    It is LIFE Insurance after all, so it protects your family against early death. However, unlike Qualified Plans, IRAs & Annuities that are taxable to your beneficiaries, the death benefit is Tax Free. In fact, the benefit can be used to help pay the income taxes on those plans, as well as Estate Taxes that maybe due upon your death.
    It can be used in replacing lost Social Security and/or pension income to your spouse. Again, TAX FREE.
  2. TAX FREE Accumulation
    The Cash Value on these plans accumulate on a tax-deferred basis, and if withdrawn from properly, will be tax free to you.
    Speaking of which, that brings me to:
  3. TAX FREE Distributions
    WITHDRAWALS (up to the cost basis) are Tax Free to you. The Cost Basis is based on the amount you have put into the policy. These funds can be used to give you tax free income in retirement.
    POLICY LOANS are tax free as well. While outstanding loans will lower the death benefit upon death, they are a great way to “Be your own Banker” and give you an extra Liquid Emergency Fund
  4. TAX FREE Transfers
    You can transfer the Cash Value of your policy to another Life Insurance policy or an annuity via IRC Section 1035(a) via Tax-Free Exchange.
  5. NO 10% pre-59 ½ IRS Penalty on Withdrawals
    (non MEC) Cash Value Distributions are NOT subject to the 10% pre-59 ½ IRS Penalty because they are tax free in fact:
  6. NO 1099R!!
    Tax Free income means NO 1099 and no reporting to the IRS.
  7. NO OFFSET for Social Security
    In determining how much of your Social Security benefit is taxable, Cash Value Loans and Distributions are NOT COUNTED, unlike Taxable Investments and Tax Free Municipal Bonds (How about that “investing the difference” point again?)
  8. Creditor Protection
    The Cash Value in Permanent, Cash Value Life Insurance is NOT attachable by Creditors.
  9. Can be used as collateral
    If you DO need a loan from a Bank (for personal or business reasons), you can use the Cash Value in your policy as collateral. Of course, the bank may require you to “Collaterally Assign” the policy to them until the loan is paid off. (which guarantees their note is paid first before other beneficiaries)
  10. It’s PRIVATE
    There are NO Public Records as your Life Insurance policies generally AVOID PROBATE. (the exception is if a person names their Estate as the beneficiary)
  11. Waiver of Premium/Long Term Care/Accelerated Benefit Riders
    Because of Waiver of Premium (WOP) Life Insurance is the ONLY self-completing savings, college funding, & Supplemental Retirement plan.
    Long Term Care Riders offer a way to access a portion of the DEATH BENEFIT for Long Term Care needs, and similarly, Accelerated Benefits Riders allow you access to a portion of the overall DEATH BENEFIT of the policy should you be diagnosed with a terminal illness.
    *Most policies offer the Accelerated Benefit for no extra fee, but other riders like WOP or LTC have a fee to add these riders that will be added to the premium.
  12. Has GUARANTEES
    ONLY Life Insurance and Annuities can guarantee your investment principal AND offer you a minimum growth rate for the life of the contract. No stock, bond, or mutual fund can.
  13. No Alternative Minimum Tax
    Again, no 1099R reportable income, so Tax Free Cash withdrawals or Policy Loans are not subject to this. (See a pattern here?)
  14. Not a countable asset in qualifying for Obama Care
    Tax Free Cash withdrawals or Policy Loans are not subject to the 3.8% passive income tax under the Affordable Care Act (ACA)
  15. Not a countable asset in qualifying for FAFSA (financial aid for college)
    Not only is it not countable as an asset, but Tax Free distributions are not countable as well when applying for FAFSA for you or your loved ones!
  16. Not countable as income in Medicare Means-Testing
    Tax Free Cash Value distributions and policy loans do not count as income in Medicare Means-Testing in determining your Medicare Part B and Medicare Prescription Drug coverage premiums.
  17. It’s UNLIMITED
    Unlike Qualified Plans and IRAs, there is NO LIMIT on how much you can save – you are only limited by the size of the policy!

As you can see, Permanent, Cash Value Life Insurance is a lot more than meets the eye, and can be a GREAT piece within your overall financial plan. Living Tax Free…it is possible!