Mark Whitaker, MS, CFP®, CRPC, Author at Peterson Wealth

Now that I am retired, how do I go about crafting an estate plan?

Posted on February 2, 2021March 9, 2023 by Mark Whitaker, MS, CFP®, CRPC

Common Estate Planning questions

We often hear the following questions from people we work with:

What will happen with my estate upon my death?
Who will look after my spouse and help them make good financial decisions when I am gone?
If either my spouse or I become disabled, who will look after us and who will help us to not make poor financial decisions as we age?
When we pass away, what will happen to our hard-earned savings?
What can I be doing now to protect my family’s savings from taxes?
Is there any way to make sure our heirs use the money wisely?

All these questions can be answered by crafting a good estate plan. Many people are familiar with, or have at least heard of, the legal documents that are used in an estate plan such as a will, trust, or power of attorney. These legal documents are critical to a good estate plan. However, if these documents are hastily thrown together without first defining what it is you are trying to accomplish, and who it is that you want to carry out your wishes, the outcome can be less than desirable.

Five things to consider when creating an appropriate estate plan

1. The questions that need to be answered to create an estate plan:

If I become incapacitated, who do I want to appoint to look after my financial and legal affairs?
Who would I want to make medical decisions for me if I get to the point where I can’t make them for myself?
What end-of-life decisions do I want to make now and/or who would I want to make life-ending decisions for me?
When I pass away, what do I want to happen with my possessions and assets?
Are there any special considerations (needs of a disabled child) or preconditions that I want to put in place for my beneficiaries?

2. Choose one or more people that you fully trust to follow your instructions and carry out your wishes.

You should choose someone with integrity. When choosing one of your children to fill an important role in your estate plan, it is helpful to choose one who works well with others and can build consensus. Conflict and hurt feelings are common between siblings after the death of a parent. Therefore, choosing the child who can cross divides with maturity and grace is more important than one who happens to be good in business or simply choosing a child because they happen to be the oldest.

Roles in a typical estate plan:

- Executor: The person who administers your estate/will
- Trustee: The person responsible for trust administration
- Power of attorney: The person responsible to act on your behalf for legal and financial matters when you are unable to do it for yourself
- Medical power of attorney: The person designated to make medical decisions on your behalf when you are incapable of making them yourself

These roles can be filled by a single person, or by multiple people working together on your behalf. Additionally, each of these roles can be filled by different people. It is also wise to consider choosing a backup for each of these roles if your first choice is unable or unwilling to serve in that capacity.

3. Meet with qualified professionals to help you implement your estate plan.

You will need to work with a licensed attorney to draft any legal documents that are required to carry out your wishes. In partnership with an attorney, your financial planner can help coordinate the attorney’s advice with other areas of your financial plan. Your financial planner can be very helpful by making sure you update your retirement account beneficiaries and that your investment accounts are properly titled to make sure they are in accordance with your overall estate plan.

4. Clear communication is a must when it comes to estate planning.

Your son or daughter shouldn’t learn that you have chosen them to decide when to end lifesaving medical care when you are in the hospital. There may be good reasons to not share all the details of your estate with your family before your death, however, walking through your general intentions and the roles each person is being asked to fill will help prepare those involved for the great responsibility you are asking them to carry out.

5. Review your estate plan often.

There are common reasons why you should consider regularly updating your estate plan:

It has been several years since you last reviewed your estate planning documents
There have been major changes in estate or tax law
There have been changes in your family like deaths, divorce, or disability that could impact your beneficiary’s designations as well as impact your potential choices for trustee, executor, etc.
After major changes in your financial situation

Spending a small amount of time to periodically review your estate plan can help you avoid major mistakes down the road. Reviewing your estate plan will also ensure your plans still make sense amid life changes.

It is uncomfortable for most of us to have to make decisions regarding our own death or disability. Additionally, finding an attorney, dealing with all the documents, changing beneficiaries, and transferring titles to property can make the estate planning process overwhelming, and therefore it is often put off. Your estate planning attorney and financial advisor have been through this process many times before and can carefully, and easily, walk you through the steps of creating an estate plan.

An estate plan outlines the wishes for your care while you are alive and frees your family members from the burden of second-guessing what you would have done with your estate after you are gone. A well thought out estate plan is truly a gift to your family.

Questions? Click here to schedule a complimentary consultation to review your situation with one of our experienced advisors!

How Will I Pay for Health Insurance in Retirement?

Posted on September 1, 2020December 5, 2022 by Mark Whitaker, MS, CFP®, CRPC

Bob and Patricia are 60 years old and would love to retire as soon as possible. It’s not uncommon to meet people like Bob and Patricia who have been saving diligently, setting money aside into their 401(k)s, making wise investments, and living below their means with a desire to transition into retirement as early as possible. Unfortunately, health insurance for them to retire before age 65 can now cost as much as $2,000 per month for a high deductible health insurance plan, even for someone who has significant savings, this additional expense can make early retirement unaffordable.

In the past, many people were able to leave the workforce and continue to receive health insurance through a former employer. These retiree health insurance plans would bridge the gap between the time that someone left the workforce and the time they began receiving Medicare benefits at age 65. Unfortunately, most of these benefits, along with other retirement benefits like generous pensions, have gone the way of the Dodo bird. If you are one of the few that still have these benefits available to you, count yourself very fortunate. So, is there a way to retire before age 65, and purchase affordable health insurance? The answer is yes! But it requires special planning.

The Affordable Care Act

The Affordable Care Act, also commonly known as, “Obamacare” contains a provision that provides health insurance subsidies to Americans below certain income levels. To qualify for a health insurance subsidy or discount, your household income cannot be more than four times the federal poverty line. The federal poverty line is based on the number of people in your household. Looking at Table 1., four times the federal poverty line ranges from $49,960 in 2020 for a household of one, all the way up to $138,360 for a household of six. Since Bob and Patricia have a household of two, they would need to have an income below $67,640 in 2020 to qualify for a subsidy, and the subsidies are significant.

Table 1. FEDERAL POVERTY GUIDELINES (YEAR 2020)
# In Household	Federal Poverty Line (FPL)	2-Times (FPL)	3-Times (FPL)	4-Times (FPL)
1	$12,490.00	$24,980.00	$37,470.00	$49,960.00
2	$16,910.00	$33,820.00	$50,730.00	$67,640.00
3	$21,330.00	$42,660.00	$63,990.00	$85,320.00
4	$25,750.00	$51,500.00	$77,250.00	$103,000.00
5	$30,170.00	$60,340.00	$90,510.00	$120,680.00
6	$34,590.00	$69,180.00	$103,770.00	$138,360.00
http://www.healthreformbeyondthebasics.org/wp-content/uploads/2019/10/REFERENCE-GUIDE_Yearly-Guideline-and-Thresholds_CoverageYear2020.pdf

For example, Bob and Patricia, Utah residents, would receive $1,345.29 per month if they reported an income of $65,000 for the year. If Bob and Patricia were to choose a high deductible Bronze plan (See Table 2.) that would typically cost about $1,227 a month. Applying their subsidy of $1,345.29, they wouldn’t have to pay a monthly premium. Now let’s say they select a gold plan that costs $2,403 per month; they would only have to pay $1,058 after their subsidy is applied. That’s a savings of over $16,000 a year in healthcare expenses.

Table 2. EXAMPLES OF HEALTH INSURANCE PLANS AND IMPACT OF SUBSIDIES
Plan	Bronze Plan	Silver Plan	Gold Plan
Monthly Premium	$1,227.40	$1,856.76	$2,403.36
Subsidy	$1,345.29	$1,345.29	$1,345.29
After Subsidy	$0.00	$511.47	$1,058.07
Quotes ran August 2020 at www.healthcare.gov. Based on a household of two with an annual modified adjusted gross income of $65,000

You might be thinking, this sounds great, but I’m not sure I’m willing to restrict myself to only living on an amount that’s below the threshold to qualify for these discounts.

Well, here’s where the planning comes in. The discounts are based on your modified adjusted gross income (MAGI). We need to be careful not to confuse this with cash flow coming into the household.

Modified Adjusted Gross Income (MAGI)

Let’s look at how the tax code defines modified adjusted gross income for health insurance – to determine your modified adjusted gross income, the tax code looks at your adjusted gross income (AGI) and adds back in a few income sources that are normally not included. Three of the most common income sources that must be added back into AGI to come to the MAGI calculation are:

Excluded foreign income
The Non-taxable portion of Social Security
Tax-exempt interest

Once MAGI is calculated, there are ways to keep your income below the 400% of the federal poverty line income limit that would allow you to qualify for subsidies and still have the monthly cash flow you would like.

Let’s return to the case of Bob and Patricia and see how this would work. Let’s say that Bob and Patricia have saved $3,000,000 for retirement. These savings include pre-tax accounts like 401(k)s and IRAs, tax-free accounts like Roth IRAs, and after-tax brokerage investment accounts. Bob and Patricia decide that they would like to have $100,000 per year in income. Bob and Patricia can control how much of their $100,000 income are included in their AGI by choosing which accounts they take distributions from.

Example: Bob and Patricia decide to take out $50,000 from Bob’s IRA over the year for income. They then supplement their IRA income by taking out $50,000 from Bob’s after-tax brokerage investment account. Bob is careful not to sell stocks that have embedded capital gains, which would be added to their MAGI. This means that Bob and Patricia will be able to enjoy $100,000 per year of income but only report about $50,000 on their taxes. This would allow them to then qualify for the significant health insurance subsidies.

This example doesn’t consider things like capital gains, interest, or dividend income that would likely be applicable in their case. These items need to be considered, so careful planning is required. However, the point remains that this strategy would allow someone to enjoy the amount of income they prefer, while simultaneously qualifying for significant subsidies for health insurance.

One last note on health insurance subsidies for early retirees. When you apply for health insurance during open enrollment, you will have to estimate your income or MAGI for the following year. For Bob and Patricia, this means that they would state their income on the application as $50,000 using the numbers from the example above. You might ask, what if my income ends up being different from my estimate? Any difference in income between your estimate and actual income will be reconciled when you file your taxes for the following year. If your actual income is higher than the estimate you used on your application, you would be required to pay back a portion of the subsidy you received. If your actual income is lower than your estimate, you may be eligible for a higher subsidy, which would be paid to you as a tax credit.

In my experience, this isn’t much of an issue unless your actual income is so high that you wouldn’t have qualified for a subsidy at all. In this case, you would be required to pay back the entire subsidy you received throughout the year. In Bob and Patricia’s case, this would mean coming out of pocket $16,000 to pay back the subsidies they received based on their income estimates.

Careful planning is the key. If you understand and follow the rules you can receive significant benefits, if you mess up, you’ll go from thinking you’ve saved money to having to pay out large sums at tax time.

There are other aspects of this planning strategy for early retirees that I haven’t mentioned in this article, but this is a good start. I would recommend you consult with a qualified financial professional that is knowledgeable in the detailed tax rules associated with the Affordable Care Act before attempting to implement this strategy. If you’ve prepared well, early retirement is an achievable goal. Health insurance is a significant expense, that can derail your ability to retire early. However, there are powerful planning strategies available to the well-informed to help you retire with confidence.

How to Protect Your Personal Data Online

Posted on November 7, 2019November 11, 2022 by Mark Whitaker, MS, CFP®, CRPC

Data breaches, once a fairly rare occurrence, have become more frequent as hackers become more skilled in their ability to extract personal data from popular social media sites such as Facebook and Twitter. And while we commonly hear about breaches from these large, global organizations, it’s important to remember that small businesses are just as likely to experience a data breach, meaning the information that is stored at your CPA’s office, your attorney’s office, or your local medical center can be vulnerable to a breach at any time. On a side note, Experian is predicting that wireless devices will become vulnerable to hackers in 2019.

Unfortunately, if you have conducted business online at any time, or use any of the popular social media sites, you’re vulnerable to having your data (and possibly your identity) stolen. But there are a few things you can do to protect yourself:

Restrict the information you post on social media. This doesn’t necessarily mean restricting posts, although that can be helpful if you tend to provide too much information. Instead, remove any identifying information such as your cell phone number, email address, and your birthday from your online profile. You may also want to stop answering some of those pesky quizzes that ask you a lot of personal information – information that can possibly be used against you. Finally, consider using the privacy settings that all social media sites offer such as restricting access to your information or your posts.
Restrict the information you provide to retailers. I’ve noticed that many retailers ask for your phone number when you’re purchasing an item. Don’t give it out. Better yet, pay cash if possible when purchasing something. That way the store has no personal information on file that can be useful should they be hacked.
Be especially aware of phishing. Phishing has become a profitable endeavor for hackers, who have perfected the scheme with their ability to recreate emails to appear as if from a trusted source such as your bank, credit card company, or cell phone provider. Never provide confidential information to anyone based on an email request. When you do receive an email that you’re unsure of, spend a few moments verifying its validity. Those few extra minutes could save you months, if not years in legal battles, and potentially, thousands of dollars. Verify. It’s important.
The same advice provided above also applies to unsolicited phone calls. Never provide anyone with a credit card number, bank account number, or any financial information over the phone. While there are many companies that may be legitimate, it’s impossible to determine their legitimacy over the phone.
Stop using personal information for passwords. Using a birthday, an address, or a nickname can make it much easier for hackers to access your data. Instead, create complex passwords that are difficult to crack.
Always use reputable anti-virus software on all of your devices, and be sure that you keep it up to date, as new threats appear on a daily basis.

While you may not be able to prevent data breaches, be sure that you’re doing everything you can to keep your personal information safe from online crooks and criminals.

3 strategies to deal with your RSU tax bomb

Posted on January 30, 2019March 9, 2023 by Mark Whitaker, MS, CFP®, CRPC

An old friend of mine works for a technology company in Utah. The company was recently acquired, and he will receive $1,000,000 from the company’s Restricted Stock Unit Plan. He is already in a high tax bracket from his regular income and his RSU payout will only compound his tax problems. He stands to lose between 40-45% of his RSU payment to taxes!

So how does one deal with the RSU payment tax bomb?

A little bit of proactive tax planning can go a long way to help you keep more of your RSU benefit now and help you secure your future.

3 strategies for reducing the tax hit from your RSU payment:

1. Max out your 401k contributions. This idea is simple, so simple in fact that many people will probably overlook it. For 2019 you can contribute $19,000 on a pre-tax basis, and an extra $6,000 on top of that if you are over age 50. If you are not on track to max out your 401k, talk with your HR department to make the switch. In the year you receive your RSU payment, you will want to make sure that your 401k contributions are happening on a pre-tax basis. Roth 401k contributions may have made sense in past years, but it will not be your best option in the year of an RSU payment.

2. Fund a 529 education account for each of your children. Utah offers a 5% tax credit for contributions up to $4,000 per qualified beneficiary. This means you can get a $200 tax credit for each child. With a 529 account, you are not only reducing your taxes this year, but all the growth is also tax free and will be tax free when it is taken out to pay for college down the road.

3. Pre-pay multiple years of charitable donations. This is the most powerful tax reduction strategy available through the use of a Donor Advised Fund. A donor advised fund, or DAF for short, is like a charitable investment account that holds your charitable dollars until you ultimately decide where you want those charitable dollars to go. The value of the DAF is that you will receive a tax deduction in the year when you need it most and the money you donate to the DAF can then be parsed out in future years to pay church donations or to support other charitable causes in the community. The funds can even be used to pay for the missions of your children and even grandchildren! Another unique benefit of a donor advised fund is that the money that is placed in the fund can be invested. This means your initial contribution to the DAF can potentially grow to enhance the future value of your contribution to your charities.

One last piece of advice: buying a product is not the solution, having a plan is. There are plenty of salesman who are eager to earn a commission by selling you a product, but what you really need is a plan. At Peterson Wealth Advisors we have been helping successful professionals and retirees with complex financial planning decisions since 1986. Click here to learn more and schedule a complimentary consultation to review your situation with one of our experienced advisors!

Best Tax-Friendly Places to Live for Retirees

Posted on July 12, 2018November 11, 2022 by Mark Whitaker, MS, CFP®, CRPC

If you’re approaching retirement age, you may be considering a move to a more retirement-friendly state, particularly if your current state of residence imposes numerous taxes on social security, pensions, and other retirement income. While making the decision to relocate is not something that can be done lightly, there are a variety of options available nationwide that may allow you to retain more of your retirement income.

Of course, taxes alone are not the only reason to relocate; climate, proximity to health care, cost of housing, and property taxes all need to be taken into consideration.

States that offer a tax-friendly environment to retirees:

Alaska – While it may not be the first choice of retirees, Alaska offers an excellent environment for retirees with neither Social Security nor pensions taxed. Another advantage is the lack of state income tax and sales tax.

New Hampshire – Retirees residing in New Hampshire are exempt from state taxes on Social Security and pay no taxes at all on pensions or distributions from their retirement plans. As an added bonus, there is no state sales tax either. Homeowners, however, need to take into account that property taxes are higher than most other states.

Nevada – There’s a reason why so many retirees gravitate to Nevada, and it isn’t for the slot machines. Nevada has no state income tax, so Social Security and other retirement income are tax-free. There is a sales tax in Nevada, though food and prescription drugs are currently exempt. Property taxes are reasonable, however, there are no breaks given to those over the age of 65.

Florida – Florida remains popular with retirees for a lot of very good reasons. With no state income tax, residents are able to retain more of their Social Security and retirement income. One downside is the state’s sales tax rates that can go upwards of 7% in some areas. However, property taxes are slightly below the national average, with some counties offering homestead exemptions to homeowners over 65.

Wyoming – While Wyoming may not be on anyone’s radar when it comes to retirement, the state offers a lot of benefits to retirees, including no state income tax. Sales taxes are also relatively low in Wyoming, and property taxes are minimal.

Mississippi – Social Security and other retirement income, including retirement plan withdrawals, and public and private pensions are exempt from state income tax in Mississippi. The state sales tax rate is high at 7%, and the state also imposes sales tax on groceries though other items such as prescription drugs and utilities are exempt. Property taxes are also some of the lowest in the U.S.

Other states with no state income tax include Texas, Washington, South Dakota, and Tennessee. While a lot of factors need to be taken into consideration when looking to relocate, these states make it just a little easier on your wallet, so you can enjoy your retirement stress-free.

Resources

https://www.kiplinger.com/slideshow/retirement/T006-S001-most-friendly-states-for-retirees-taxes/index.html