Category Archives: Family Finance Law

Social Security Trustees Report 2019

May 1, 2019

NAELA News:

Social Security Combined Trust Funds Gain One Year Says Board of Trustees

Disability Fund Shows Strong Improvement—Twenty Years

The Social Security Board of Trustees today released its annual report on the long-term financial status of the Social Security Trust Funds. The combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035, one year later than projected last year, with 80 percent of benefits payable at that time.

The OASI Trust Fund is projected to become depleted in 2034, the same as last year’s estimate, with 77 percent of benefits payable at that time. The DI Trust Fund is estimated to become depleted in 2052, extended 20 years from last year’s estimate of 2032, with 91 percent of benefits still payable.

In the 2019 Annual Report to Congress, the Trustees announced:

  • The asset reserves of the combined OASI and DI Trust Funds increased by $3 billion in 2018 to a total of $2.895 trillion.
  • The total annual cost of the program is projected to exceed total annual income, for the first time since 1982, in 2020 and remain higher throughout the 75-year projection period. As a result, asset reserves are expected to decline during 2020. Social Security’s cost has exceeded its non-interest income since 2010.
  • The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2035 – gaining one year from last year’s projection. At that time, there would be sufficient income coming in to pay 80 percent of scheduled benefits.

“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them,” said Nancy A. Berryhill, Acting Commissioner of Social Security. “The large change in the reserve depletion date for the DI Fund is mainly due to continuing favorable trends in the disability program. Disability applications have been declining since 2010, and the number of disabled-worker beneficiaries receiving payments has been falling since 2014.”

Other highlights of the Trustees Report include:

  • Total income, including interest, to the combined OASI and DI Trust Funds amounted to just over $1 trillion in 2018. ($885 billion from net payroll tax contributions, $35 billion from taxation of benefits, and $83 billion in interest)
  • Total expenditures from the combined OASI and DI Trust Funds amounted to $1 trillion in 2018.
  • Social Security paid benefits of nearly $989 billion in calendar year 2018. There were about 63 million beneficiaries at the end of the calendar year.
  • The projected actuarial deficit over the 75-year long-range period is 2.78 percent of taxable payroll – lower than the 2.84 percent projected in last year’s report.
  • During 2018, an estimated 176 million people had earnings covered by Social Security and paid payroll taxes.
  • The cost of $6.7 billion to administer the Social Security program in 2018 was a very low 0.7 percent of total expenditures.
  • The combined Trust Fund asset reserves earned interest at an effective annual rate of 2.9 percent in 2018.

The Board of Trustees usually comprises six members. Four serve by virtue of their positions with the federal government: Steven T. Mnuchin, Secretary of the Treasury and Managing Trustee; Nancy A. Berryhill, Acting Commissioner of Social Security; Alex M. Azar II, Secretary of Health and Human Services; and R. Alexander Acosta, Secretary of Labor. The two public trustee positions are currently vacant.

View the 2019 Trustees Report at www.socialsecurity.gov/OACT/TR/2019/.

 

Your Clients May Be Eligible for a Tax Credit that Helps Working Caregivers Pay for Day Care

March 29, 2019

Paying for day care is one of the biggest expenses faced by working adults with young children, a dependent parent, or a child with a disability, but your clients need to know that there is a tax credit available to help working caregivers defray the costs of day care (called “adult day care” in the case of the elderly).

In order to qualify for the tax credit, the taxpayer must have a dependent who cannot be left alone and who has lived with them for more than half the year. Qualifying dependents may be the following:

  • A child who is under age 13 when the care is provided
  • A spouse who is physically or mentally incapable of self-care
  • An individual who is physically or mentally incapable of self-care and either is the taxpayer’s dependent or could have been the taxpayer’s dependent except that his or her income is too high ($4,150 or more) or he or she files a joint return.

Even though individuals can no longer receive a deduction for claiming a parent (or child) as a dependent, your clients can still receive this tax credit if their parents (or other relatives) qualify as a dependent. This means the caregiver must provide more than half of the relative’s support for the year. Support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Even if the caregiver does not pay more than half the parent’s total support for the year, the individual may still be able to claim his or her parents as dependents if the individual pays more than 10 percent of the parent’s support for the year, and, with others, collectively contributes to more than half of the parent’s support.

The total expenses that can be used to calculate the credit is $3,000 for one child or dependent or up to $6,000 for two or more children or dependents. So if the taxpayer spent $10,000 on care, they can only use $3,000 of it toward the credit. Once taxpayers know their work-related day care expenses, to calculate the credit, they need to multiply the expenses by a percentage of between 20 and 35, depending on their income. (A chart giving the percentage rates is in IRS Publication 503.) For example, if someone earns $15,000 or less and has the maximum $3,000 eligible for the credit, to figure out the credit he or she multiplies $3,000 by 35 percent. If an individual earns $43,000 or more, he or she multiplies $3,000 by 20 percent.

The care can be provided in or out of the home, by an individual or by a licensed care center, but the care provider cannot be a spouse, dependent, or the child’s parent. The main purpose of the care must be the dependent’s well-being and protection, and expenses for care should not include amounts paid for food, lodging, clothing, education, and entertainment.

To get the credit, taxpayers must report the name, address, and either the care provider’s Social Security number or employer identification number on the tax return.

For more information about the credit from the IRS, click here and here.

The New Tax Law Means It’s Time to Review Your Estate Plan

February 27, 2019

While the new tax law doubled the federal estate tax exemption, meaning the vast majority of estates will not have to pay any federal estate tax, it doesn’t mean you should ignore its impact on your estate plan.

In December 2017, Republicans in Congress and President Trump increased the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. (For 2019, the figures are $11.4 million and $22.8 million, respectively.) The tax rate for those few estates subject to taxation is 40 percent.

While most estates won’t be subject to the federal estate tax, you should review your estate plan to make sure the changes won’t have other negative consequences or to see if there is a better way to pass on your assets. One common estate planning technique when the estate tax exemption was smaller was to leave everything that could pass free of the estate tax to the decedent’s children and the rest to the spouse. If you still have that provision in your will, your kids could inherit your entire estate while your spouse would be disinherited.

For example, as recently as 2001 the federal estate tax exemption was a mere $675,000. Someone with, say, an $800,000 estate who hasn’t changed their estate plan since then could see the entire estate go to their children and none to their spouse.

Another consideration is how the new tax law might affect capital gains taxes. When someone inherits property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If the beneficiary were to sell the property, there could be huge capital gains taxes. Fortunately, when someone inherits property, the property’s tax basis is “stepped up,” which means the tax basis would be the current value of the property. If the same property is gifted, there is no “step up” in basis, so the gift recipient would have to pay capital gains taxes. Previously, in order to avoid the estate tax you might have given property to your children or to a trust, even though there would be capital gains consequences. Now, it might be better for your beneficiaries to inherit the property.

In addition, many states have their own estate tax laws with much lower exemptions, so it is important to consult with your attorney to make sure your estate plan still works for you.

For American Workers, 4 Key Retirement Issues to Watch in 2019

February 5, 2019

NAELA News:

By Mark Miller

John Chiang, the California state treasurer, spoke at a news conference Wednesday at Loyola Law School in Los Angeles. “The goal is to make sure we stem the tide of the retirement crisis and help Californians realize the dream of a golden retirement,” he said in an interview.
Monica Almeida for The New York Times

It’s going to be a busy year in Washington and state capitals for policymakers working to improve the retirement security of millions of Americans.

New retirement savings options will be on the horizon in 2019 for millions who don’t have access to workplace 401(k) plans. Meanwhile, Congress will try to agree on a plan to avert sharp cuts in traditional pension benefits for over a million workers. The long-running battle over regulation to protect investors will enter a new phase when the Securities and Exchange Commission issues new “best interest” rules governing investment advice. And the House of Representatives could take up legislation to expand Social Security.

Here is a look at crucial retirement policy topics to watch in the year ahead.

Workplace retirement savings plans have proved to be the most effective route to help savers, mainly thanks to features like automatic enrollment, regular payroll deductions and matching employer contributions. Yet one-third of private sector workers had no access to an employer-sponsored retirement plan in 2016, according to the Government Accountability Office. The coverage shortfall is greatest among low-income workers and people working for small companies.

But 2019 will be a turning point in covering more workers.
Some states are starting programs that automatically sign up workers who don’t have workplace 401(k) accounts or Individual Retirement Accounts. Over time, employers in many of these states will be required to set up automatic payroll deductions for these accounts and enroll workers, although they will not need to make matching contributions.

Oregon started its plan this year; California and Illinois will start in 2019; Vermont, Maryland and Connecticut are preparing programs; and New York has passed legislation and is establishing a board to oversee the start of a state program over the next two years. And this week, New Jersey’s General Assembly passed legislation authorizing the creation of a program (the state’s Senate is expected to consider the bill early next year).

The states that have approved plans could eventually extend coverage to 15 million workers, AARP estimates.

California’s plan alone could cover 7.5 million workers, officials there say. The CalSavers program is in a pilot phase through the end of June, and will be open to all employers beginning July 1; mandatory compliance will phase in with three waves based on employer size.

“The goal is to make sure we stem the tide of the retirement crisis and help Californians realize the dream of a golden retirement,” says John Chiang, the state treasurer. “It’s not an easy task, because the current marketplace has failed.”

Meanwhile, Congress will take up legislation next year that would make it easier for employers to band together to join a single 401(k) plan that they can offer to employees. These “open multiple-employer plans” would be offered by private plan custodians; the aim would be to offer employers low-cost plans featuring simplified paperwork.

How quickly would these multiple-employer plans be offered if legislation were approved? “Plan providers will need a year to gear up and get infrastructure in place,” predicts Kathleen Coulombe, a vice president at the American Council of Life Insurers, which supports the legislation. “I’d expect to see plans launch starting in 2020.”

Which approach is better — auto-I.R.A. or a multiple-employer plan? “They are both good ideas, and there’s no inconsistency between them,” says Mark Iwry, one of the architects of a national auto-I.R.A. program that he worked to enact during his time as a senior adviser to the Treasury secretary in the Obama administration. The national auto-I.R.A. would require employers without their own retirement plan to enroll workers.

Mr. Iwry, currently a nonresident senior fellow at the Brookings Institution, sees the two ideas as complementary, with auto-I.R.A.s serving as starter accounts likely to lead many more employers to adopt 401(k) plans.

But Mr. Iwry said the market already had achieved much of the economy of scale and reduced costs promised by multiple-employer plans, with companies sponsoring identical plans using a single low-cost investment lineup and common record-keeping and administration. “The proposed open M.E.P. legislation is desirable and long overdue,” he said. “But in their potential to expand coverage, open M.E.P.s don’t hold a candle to auto-I.R.A.s.” That is because auto-I.R.A. programs achieve big gains in plan participation through mandatory employer participation features and automatic worker enrollment; with open M.E.P.s, takeup will depend on whether financial service providers market them aggressively, and employers’ appetite to sign up. What’s more, not all of these multiple-employer plans will use auto-enrollment.

Mr. Iwry still holds out legislative hope for a national auto-I.R.A. program, noting that the bill’s longtime lead Democratic sponsor, Representative Richard Neal, of Massachusetts, is about to become chairman of the powerful House Ways and Means committee.

Saving One Million Pensions

A special congressional committee is racing to head off an insolvency crisis, one that could lead to sharp cuts in pension benefits for over a million workers and retirees, and sink a federally sponsored insurance backup program.

The problem centers on so-called multiemployer pension plans. Over 10 million workers and retirees are covered by 1,400 of these plans, which are created under collective bargaining agreements and jointly funded by groups of employers in industries like construction, trucking, mining and food retailing.

Plans covering 1.3 million workers and retirees are severely underfunded — the result of stock market crashes in 2001 and 2008-9, and industrial decline that led to consolidation and sliding employment. Cheiron Inc., an actuarial consulting firm, recently forecast that 121 plans might fail within 20 years. Plans are underfunded by a total of $48.9 billion, the firm estimated. Three plans alone account for 65 percent of all unfunded liabilities, led by the Teamsters’ Central States fund, which is falling short by $22.9 billion.

Meanwhile, the Pension Benefit Guaranty Corporation, the federally sponsored insurance backstop for defunct plans, projects that its multiemployer insurance program will run out of money by the end of the 2025 fiscal year, absent reforms.

Congress approved an overhaul in 2014, the Multiemployer Pension Reform Act, but the legislation has faced strong resistance from retiree organizations, consumer groups and some labor unions.

The act allows troubled plans to seek government permission to make deep benefit cuts, if they can show that the reductions would prolong the life of the plan. Benefit cuts vary widely depending on what a plan proposes and the tenure of the worker — but a worker with 25 years of service and a $2,000 monthly benefit could see that benefit cut to as low as $983, according to a cutback calculator created by the Pension Rights Center, an advocacy group. To date, nine plan restructurings have been approved.

This year, the special congressional committee appointed to create a replacement for the pension reform act missed an end-of-November deadline to issue its recommendation. But a draft proposal raises the guaranteed minimum benefits paid by the Pension Benefit Guaranty Corporation if a plan fails. It also would inject federal funds into the agency — perhaps $3 billion annually — to expand its partition program, which allows it to take on benefit payments to so-called orphans — people who earned benefits from employers who have dropped out of plans, often because they have gone out of business.

“It would rely less on cutting benefits, and more on raising money from existing pension plans and taxpayers,” says Joshua Gotbaum, a guest scholar at the Brookings Institution and a former director of the federal pension backstop.

The sticking points in the discussion have included the assumptions used to measure plan liabilities, and how much respective stakeholders, including the government, should contribute to maintain a viable multiemployer system, says Karen Friedman, executive vice president of the Pension Rights Center. “We’re hoping they can find a fair, comprehensive solution that can save these plans, the P.B.G.C. and protect workers and retirees.”

Protecting Investors From Conflicted Advice

The long-running battle to require brokers to look out for the best interests of clients will continue in 2019.
The S.E.C. is moving toward adoption of a “regulation best interest” standard following the end this year of an advice standard created by the Obama-era Labor Department. That regulation, which required advice on retirement accounts to meet fiduciary standards, was opposed by the financial services and insurance industries, which argued that it made advising smaller investors too costly.

The S.E.C. rule would require brokers to put their customers’ financial interests ahead of their own, but it does not require them to act as fiduciaries. The rule also would require disclosures to clients of any potential conflicts, and it reaffirms existing higher standards for registered investment advisers.

The draft regulation has come under fire from consumer advocates who note that it does not clearly define the term “best interest,” and that the proposed disclosure forms are confusing for investors.

“There is a real need to simplify the disclosure forms so that they communicate effectively to investors the information that they actually need to make decisions,” says Cristina Martin Firvida, vice president for financial security and consumer affairs at AARP.

Expanding Social Security

Proposals to overhaul Social Security by progressives are likely to get a hearing in the new Democratic-controlled House.

Most of the winning Democratic candidates who flipped 40 congressional seats in the midterm elections ran on expanding Social Security benefits, said Nancy Altman, president of Social Security Works, a progressive advocacy group. And the likely new chairman of the Ways and Means Social Security Subcommittee, Representative John B. Larson, Democrat of Connecticut, is the author of expansion legislation that has more than 170 co-sponsors in the House, including Mr. Neal, the incoming Ways and Means chairman.

“The Larson bill certainly will get a hearing, and there’s a substantial chance it will move out of committee and even get a vote on the House floor,” Ms. Altman predicted. “That will really elevate the issue and put a spotlight on the Senate and the White House.”

Mr. Larson’s bill includes a 2 percent across-the-board increase in benefits, a more generous annual cost-of-living adjustment and a higher minimum benefit for low-income workers. The bill would pay for the expansion by lifting the cap on wages subject to taxation and a gradual phase-in of a higher payroll tax rate.

Social Security faces a long-run financial imbalance — the program is now spending more than it takes in annually in payroll taxes. The Social Security trustees project that the program will be unable to pay full benefits beginning in 2034; unless Congress takes action, benefits would be slashed by about 25 percent. The funding proposal in Mr. Larson’s bill also would restore the program’s long-range financial balance.

Correction: Dec. 20, 2018
Because of an editing error, an earlier version of a picture caption on this article misstated the day of a news conference at Loyola Law School. The conference was on Wednesday, not Monday.

Key Elder Law Numbers for 2019: Our Annual Roundup

February 4, 2019

Below are figures for 2019 that are frequently used in the elder law practice or are of interest to clients.

Medicaid Spousal Impoverishment Figures for 2019

The new minimum community spouse resource allowance (CSRA) is $25,284 and the maximum CSRA is $126,420. The maximum monthly maintenance needs allowance is $3,160.50. The minimum monthly maintenance needs allowance remains $2,057.50 ($2,572.50 for Alaska and $2,366.25 for Hawaii) until July 1, 2019.

Medicaid Home Equity Limits

Minimum: $585,000

Maximum: $878,000

For CMS’s complete chart of the 2019 SSI and Spousal Impoverishment Standards, click here.

Income Cap

The income cap for 2019 applicable in “income cap” states is $2,313 a month.

Gift and estate tax figures

Federal estate tax exemption: $11.4 million for individuals, $22.8 million for married couples

Lifetime tax exclusion for gifts: $11.4 million

Generation-skipping transfer tax exemption: $11.4 million

Annual gift tax exclusion: $15,000 (unchanged)

Long-Term Care Premium Deductibility Limits for 2019

The Internal Revenue Service has announced the 2019 limitations on the deductibility of long-term care insurance premiums from income. Any premium amounts above these limits are not considered to be a medical expense.

Attained age before the close of the taxable year Maximum deduction
40 or less $420
More than 40 but not more than 50 $790
More than 50 but not more than 60 $1,580
More than 60 but not more than 70 $4,220
More than 70 $5,270

Benefits from per diem or indemnity policies, which pay a predetermined amount each day, are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $370 per day (for 2019), whichever is greater.

For these and other inflation adjustments from the IRS, click here.

Medicare Premiums, Deductibles and Copayments for 2019

  • Part B premium: $135.50/month (was $134)
  • Part B deductible: $185 (was $183)
  • Part A deductible: $1,364 (was $1,340)
  • Co-payment for hospital stay days 61-90: $341/day (was $335)
  • Co-payment for hospital stay days 91 and beyond: $682/day (was $670)
  • Skilled nursing facility co-payment, days 21-100: $170.50/day (was $167.50)

Part B premiums for higher-income beneficiaries:

  • Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 will pay a monthly premium of $189.60.
  • Individuals with annual incomes between $107,000 and $133,500 and married couples with annual incomes between $214,000 and $267,000 will pay a monthly premium of $270.90.
  • Individuals with annual incomes between $133,500 and $160,000 and married couples with annual incomes between $267,000 and $320,000 will pay a monthly premium of $352.20.
  • Individuals with annual incomes between above $160,000 and married couples with annual incomes above $320,000 will pay a monthly premium of $433.40.
  • Individuals with annual incomes above $500,000 and married couples with annual incomes above $750,000 will pay a monthly premium of $460.50

High-earner premiums differ for beneficiaries who are married but file a separate tax return from their spouse. Those with incomes greater than $85,000 and less than $415,000 will pay a monthly premium of $433.40. Those with incomes greater than $415,000 will pay a monthly premium of $460.50.

For Medicare’s “Medicare 2019 costs at a glance,” click here.

Social Security Benefits for 2019

The new monthly federal Supplemental Security Income (SSI) payment standard is $771 for an individual and $1,157 for a couple.

Estimated average monthly Social Security retirement payment: $1,461 a month for individuals and $2,448 for couples

Maximum amount of earnings subject to Social Security taxation: $132,900 (was $128,400)

For a complete list of the 2019 Social Security figures, go to: https://www.ssa.gov/news/press/factsheets/colafacts2019.pdf

CFPB Releases “Managing Someone Else’s Money” Guides

January 2, 2019

Millions of Americans manage money or property for a loved one who’s unable to pay bills or make financial decisions. To help financial caregivers, we’ve released easy-to-understand guides.

About the guides

The guides help you understand your role as a financial caregiver, also called a fiduciary. Each guide explains your responsibilities as a fiduciary, how to spot financial exploitation, and avoid scams. Each guide also includes a “Where to go for help” section with a list of relevant resources.

Managing Someone Else’s Money guides

Featured video
If you are serving as a financial caregiver, navigating your role can be difficult. We’re here to help.

Find the right guide for you

The guides are tailored to the needs of people in four different fiduciary roles:

Power of attorney

Guides for those who have been named in a power of attorney to make decisions about money and property for someone else.

View power of attorney guides

Court-appointed guardians

Guides for those who have been appointed by a court to be guardians of property or conservators, giving them the duty and the power to make financial decisions on someone’s behalf.

View guides for court-appointed guardians

Trustees

Guides for those who have been named as trustees under revocable living trusts.

View guides for trustees

Government fiduciaries

Guides for those who have been appointed by a government agency to manage another person’s income benefits, such as Social Security or Veterans Affairs benefit checks.

View guides for government fiduciaries

Why Social Security may survive longer than the government expects

December 26, 2018

Social Security might have a shot at surviving for another generation — and that’s thanks to 78.1 million individuals who will be contributing to it.

These 78.1 million individuals who come after millennials and were born after 1997 make up what is known as Generation Z.

Morgan Stanley says it is more optimistic about the impact of Generation Z than the Congressional Budget Office.

The Wall Street firm’s more bullish assessment on labor-force participation in particular means that its view of potential GDP by 2040 is above the CBO’s by 2.4% to 4.3%. Morgan Stanley says the CBO is understating potential labor force growth by between 0.2% to 0.3% per year in the 15 years through 2040.

While this may seem like a small variance, given that the continued funding of Social Security depends upon the number of people working, the variance has tremendous implications.

Currently, there are approximately 58 million beneficiaries receiving monthly Social Security payments averaging $1,249.55 . As of now, Social Security is funded through 2034, according to the Social Security Administration.

According to the Morgan Stanley report, the increase in the expected number of workers may allow Social Security to remain alive well beyond 2034.

If Morgan Stanley is right, the Social Security trust fund reserves may become depleted in 2062. It likely will delay the date of depletion for Medicare funds as well, the report said.

“Extending the deadline would likely push action off until the new depletion date, therefore removing the near- to medium-term prospects of raising the payroll tax, raising the taxable maximum to cover more or all earnings, raising the retirement age, and/or decreasing benefits,” the report says.

The Morgan Stanley report, if it’s right, also would provide a floor to stocksSPX, +2.46%   and interest rates TMUBMUSD10Y, +0.00%  over the long term.

The most obvious benefit, the firm says, is the tailwind to sales growth. “To the extent the rise of Gens Y and Z in the labor force support a higher potential GDP growth rate in the U.S., this relationship would indicate a modestly higher potential longer-run growth rate for corporate sales and earnings,” the report said.


IRS Announces Higher 2019 Estate And Gift Tax Limits

December 24, 2018


Ashlea Ebeling Forbes Staff

The Internal Revenue Service announced today the official estate and gift tax limits for 2019: The estate and gift tax exemption is $11.4 million per individual, up from $11.18 million in 2018. That means an individual can leave $11.4 million to heirs and pay no federal estate or gift tax, while a married couple will be able to shield $22.8 million. The annual gift exclusion amount remains the same at $15,000.

For the ultra rich, these numbers represent planning opportunities. For everybody else, they serve as a reminder: Even if you don’t have a taxable estate, you still need an estate plan.

The IRS announced the new inflation-adjusted numbers in Rev. Proc. 2018-57. Forbes contributor Kelly Phillips Erb has all the details on 2019 tax brackets, standard deduction amounts and more. We have all the details on the new higher 2019 retirement account limits too.

The Trump tax cuts slashed the number of estates subject to the federal estate tax, by doubling the exemption amount from a base level of $5 million per person. So, there were only an estimated 1,890 taxable estates in 2018 (according to the Tax Policy Center). That compares with 4,687 taxable estates in 2013 reflecting a base $5 million exemption, and 52,000 taxable estates in 2000 when the exemption was $675,000 (Table 2, JCT 2015 Wealth Transfer Tax System Report).

For now, death tax foes are trying to make the new doubled exemption amounts permanent; the Trump tax cuts are scheduled to expire at year-end 2025. “Permanence [of the doubled exemption] would make the score of repeal much cheaper and provide predictability,” says Palmer Schoening of the anti-death tax Family Business Coalition, noting that the ultimate goal is still to repeal the estate tax. The mid-term elections, however, put a damper on the viability of Tax Reform 2.0, the Republicans’ latest push to make that doubled exemption permanent.

In the meantime, the wealthy will continue to plan around the estate tax, whittling down their estates with lifetime wealth transfer strategies to keep below the new threshold and avoid the 40% federal estate tax. Now, a couple who has used up every dollar of their exemption before the increase has another $440,000 of exemption value to pass on tax free. For planning tips, see Trusts In The Age of Trump: Time To Re-Engineer Your Estate Plan.

What about the $15,000 annual exclusion amount? You can give away $15,000 to as many individuals as you’d like. A husband and wife can each make $15,000 gifts. So, a couple could make $15,000 gifts to each of their four grandchildren, for a total of $120,000. Lifetime gifts beyond the annual exclusion amount count towards the $11.4 million combined estate/gift tax exemption. See The Gift Tax Return Trap And How To Avoid It.

Warning: The $22.8 million number per couple isn’t automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But to use your late spouse’s unused exemption – a move called “portability”—you must elect it on the estate tax return of the first spouse to die, even when no tax is due. The problem is if you don’t know what portability is and how to elect it, you could be hit with a surprise federal estate tax bill.

And note, if you live in one of the 17 states or the District of Columbia that levy separate estate and/or inheritance taxes, there’s even more at stake, with death taxes sometimes starting at the first dollar of an estate. Several states were in line to match the federal exemption amount for 2018, but state legislators determined the new doubled exemption was just too high. See States Rebel, Won’t Conform To Trump’s Estate Tax Cuts. Most states haven’t announced their inflation-adjusted numbers yet for 2019, but we’ll keep you posted.

A Comparison of 529 ABLE Accounts, Pooled Special Needs Trusts, and Special Needs Trusts

December 11, 2018

This article and the accompanying chart were originally published in 2016 by Joanne Marcus, MSW, and Theresa M. Varnet, MSW, JD.
The 2018 updates were provided by Karen Dunivan Konvicka, JD.

The ABLE Act allows an individual with a disability to have a tax-preferred savings account without jeopardizing his or her Medicaid and SSI eligibility. See a comparison chart of ABLE accounts and trusts at the end of this article.

Download PDF of article (19 pages)

IRS Announces Higher 2019 Retirement Plan Contribution Limits For 401(k)s and More

November 26, 2018

NAELA news:
Ashlea Ebeling, 

Get ready to save more for retirement in 2019! The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2019, and there are a lot of changes that will help savers stuff these accounts.
After six years stuck at $5,500, the amount you can contribute to an Individual Retirement Account is being bumped up to $6,000 for 2019. The amount you can contribute to your 401(k) or similar workplace retirement plan goes up from $18,500 in 2018 to $19,000 in 2019. Catch-up contribution limits if you’re 50 or older in 2019 remain unchanged at $6,000 for workplace plans and $1,000 for IRAs.

That means that many high earners and super-savers age 50-plus can sock away $32,000 in these tax-advantaged accounts. If your employer allows aftertax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $56,000, from $55,000.

Do these limits seem unreachable? During 2017, 13% of employees with retirement plans at work saved the then-statutory maximum of $18,000/$24,000, according to Vanguard’s How America Saves. In plans offering catch-up contributions,14% of those age 50 or older took advantage of the extra savings opportunity.

We outline the numbers below; see IRS Notice 2018-83 for technical guidance.

401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $19,000 for 2019—a $500 boost over 2018. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.

YOU MAY ALSO LIKE

The 401(k) Catch-Up. The catch-up contribution limit for employees age 50 or older in these plans stays the same at $6,000 for 2019. Even if you don’t turn 50 until December 31, 2019, you can make the additional $6,000 catch-up contribution for the year.

SEP IRAs and Solo 401(k)s. For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.

Aftertax 401(k) contributions. If your employer allows aftertax contributions to your 401(k), you also get the advantage of the $56,000 limit for 2019. It’s an overall cap, including your $19,000 (pretax or Roth) salary deferrals plus any employer contributions (but not catch-up contributions). For how to rollover aftertax 401(k) money into a Roth IRA, see Roth Road To Riches.

The SIMPLE. The limit on SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000. Here’s how a SIMPLE works in practice.

Defined Benefit Plans. UPDATE The limitation on the annual benefit of a defined benefit plan goes up from $220,000 in 2018 to $225,000 in 2019. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.

Individual Retirement Accounts. The limit on annual contributions to an Individual Retirement Account (pretax or Roth or a combination) is moving up to $6,000 for 2019, up from $5,500. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2018 IRA contributions can be made until April 15, 2019.)

Deductible IRA Phase-Outs. You can earn a little more in 2019 and get to deduct your contributions to a traditional pretax IRA. Note, even if you earn too much to get a deduction for contributing to an IRA, you can still contribute; it’s just nondeductible.

In 2019, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000, up from $63,000 and $73,000 in 2018. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019, up from $101,000 to $121,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000 in 2019, up from $189,000 and $199,000 in 2018.

Roth IRA Phase-Outs. The inflation adjustment helps Roth IRA savers too. In 2019, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $193,000 to $203,000 for married couples filing jointly, up from $189,000 to $199,000 in 2018. For singles and heads of household, the income phase-out range is $122,000 to $137,000, up from $120,000 to $135,000 in 2018.

If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions. To learn more about the backdoor Roth, see Congress Blesses Roth IRAs For Everyone, Even The Well-Paid.

Saver’s Credit. The income limit for the saver’s credit for low- and moderate-income workers is $64,000 for married couples filing jointly for 2019, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married filing separately, up from $31,500. See Grab The Saver’s Credit for details on how it can pay off.

QLACs. The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract remains unchanged at $130,000. See Make Your Retirement Money Last For Life for how QLACs work.