Avoiding Spousal Beneficiary Mistakes

Jul 6, 2023 | Estate Planning, Investment Management, Retirement Planning, Tax Planning Strategies

AVOIDING SPOUSAL BENEFICIARY MISTAKES

5 Easy Steps

Cornerstone is pleased to bring you this article by Ed Slott and Company, LLC, an organization providing IRA education and analysis to financial advisors, institutions, consumers, and media across the country. Our association with this organization helps us stay up to date on the latest developments in IRA and tax law. As always, give us a call if you’d like to discuss!

Who is a spouse beneficiary?

A spouse beneficiary:

Must be married to the account owner at the time of the account owner’s death, and

Must be named on the beneficiary form (or inherit directly through the document default provisions).

As a spouse beneficiary you have unique options:

1. Split the inherited account if necessary. As a spouse beneficiary, you can take advantage of the special spousal rules if you are the sole beneficiary of an IRA account.

If other beneficiaries have been named, the spouse can still take advantage of these special provisions by transferring their portion of the inherited IRA to a separate account by December 31st of the year following the year of the IRA owner’s death.

2. Will you need money prior to age 59½. If so, you will likely want to remain a beneficiary of the inherited account. Death is an exception to the 10% early distribution penalty. So, by staying as a beneficiary you can avoid paying the 10% penalty.

The account should be retitled as a properly titled inherited IRA. As a spouse that remains a beneficiary you do not need to take RMDs from the account until the year the deceased spouse would have turned 73.

3. Transfer the inherited IRA into a spouse beneficiary’s account. As a spouse beneficiary you should generally roll the inherited IRA into your name. Once a younger spouse beneficiary reaches age 59½, there’s no advantage to remaining a beneficiary, and a spousal rollover or transfer should be done.

NO other beneficiary has this option. By doing this rollover or transfer, a surviving spouse ensures that eligible designated beneficiaries will be able to stretch distributions over their own life expectancies.

4. Name new beneficiaries. As the surviving spouse you should name your own beneficiaries. If no beneficiaries have been named and the surviving spouse dies, the remaining assets will pass according to the default provisions in the custodial document. This is frequently the estate of the now deceased spouse, which could require a shorter payout period for beneficiaries or add unnecessary time and expenses by tying the assets up in probate.

5. Consider a disclaimer. Before taking any action regarding an inherited IRA, as a surviving spouse you should evaluate whether a full or partial disclaimer would be advantageous. By using a disclaimer, some or all of the inherited IRA can be passed to contingent beneficiaries, potentially extending the stretch IRA and reducing the future impact of estate taxes for eligible designated beneficiaries.

Gordon Wollman, Founder and President of Cornerstone Financial Solutions, and Raymond James Wealth Advisor, with Ed Slott at the 2023 Spring workshop for members of Ed Slott’s Elite and Master Elite IRA Advisor Group℠.

Membership in Ed Slott’s Elite IRA Advisor Group(T) is one of the tools our advisors use to help you avoid unnecessary taxes and fees on your retirement dollars. Gordon attends in-depth technical training on advanced retirement account planning strategies and estate planning techniques. And semiannual workshops analyzing the most recent tax law changes, case studies, private letter rulings, Congressional action and Supreme Court rulings help keep attendees on the cutting-edge of retirement, tax law and IRA distribution planning. Through his membership, Gordon is immediately notified of changes to the tax code and updates on retirement planning, and he has 24/7 access to Ed Slott and Company LLC to confer with on complex cases.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. ACKNOWLEDGMENT: This article was published by Ed Slott and Company, LLC, an organization providing timely IRA information and analysis to financial advisors, institutions, consumers, and media across the country and is distributed with its permission. Copyright 2023, Ed Slott and Company, LLC. Raymond James is not affiliated with and does not endorse the opinions or services of Ed Slott or Ed Slott and Company, LLC.

Raymond James is not affiliated with and does not endorse the opinions or services of ED Slott, Ed Slott and Company, LLC, IRA Help, LLC, or Ed Slott’s Master Elite IRA Advisor Group. Members of Ed Slott’s Elite IRA Advisor Group^SM train with Ed Slott and his team of IRA Experts on a continuous basis. These advisors passed a background check, complete requisite training, attend semiannual workshops, webinars, and complete mandatory exams. They are immediately notified of changes to the tax laws.

Quiz – Market Volatility vs Risk

Jun 23, 2023 | Investment Management, Market Volatility, Risk

What’s the Difference Between Market Volatility and Risk?

While volatility is not the same as risk, the chances of incurring a loss may increase during periods of market volatility, in large part, that’s because investors become anxious about falling share prices and sell when they might be better off holding.

See what you know about the difference between risk and volatility by taking this brief quiz.

1. What is market volatility?

a. Asset prices rising over a period of time.

b. Asset prices falling over a period of time.

c. The frequency and size of asset price swings, higher and lower.

d. A measure of how easy it is to buy and sell stock.

2. What is risk?

a. The chance of losing some or all of an investment.

b. The chance that actual investment returns will be different from anticipated investment returns.

c. A vulnerability that can be managed through asset allocation and diversification.

d. All of the above.

3. How can the effects of stock market volatility be limited?

a. By timing the market

b. By avoiding bonds

c. Through asset allocation and investment diversification

d. By avoiding stocks

4. Which famous investor said, “When people are desperately trying to sell, I buy. When people are desperately trying to buy, I sell. It has worked out very well over the years.”

a. Warren Buffett

b. Abby Joseph Cohen

c. Sir John Templeton

d. Abigail Johnson

Answers: 1) c¹; 2) d²; 3) c³; 4) c⁴

If you feel overwhelmed and uncertain because of volatile markets, give us a call. You don’t have to go it alone! We can help you make sound decisions during difficult times.

Not a Cornerstone client?

Discover what’s possible when our 140 years of combined team experience and 30 years in business goes to work for you! Call 605-352-9490 or email cfsteam@mycfsgroup.com.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Sources

1 https://www.forbes.com/advisor/investing/what-is-volatility/

2 https://www.investopedia.com/terms/r/risk.asp

3 https://www.investopedia.com/articles/active-trading/121014/protect-retirement-money-market-volatility.asp

4 https://novelinvestor.com/quote-author/john-templeton/

CSP #242150 07.18.23

Five New Opportunities for Tax-Free Growth and Withdrawals

May 30, 2023 | Financial Planning, Investment Management, Retirement Planning, Tax Planning Strategies

Cornerstone is pleased to bring you this article by Ed Slott and Company, LLC, an organization providing IRA education and analysis to financial advisors, institutions, consumers, and media across the country. Our association with this organization helps us stay up to date on the latest developments in IRA and tax law updates. As always, give us a call if you’d like to discuss!

Twenty-five years ago, Roth IRAs first became available, offering the promise of tax-free earnings and withdrawals. Since then, Roth options have exploded. Employer plans can now offer Roth options and income limits on Roth conversions are long gone. The recently enacted SECURE 2.0 has made it clear that the trend toward more Roth accounts becoming available for retirement savings is accelerating. Roth-O-Mania has arrived!

Here are five new Roth savings opportunities introduced by SECURE 2.0:

Roth Employer Plan Contributions

Most 401(k) (and other workplace retirement savings plans) provide for employer contributions. These contributions are either matching contributions for participants who make salary deferrals, or across-the-board nonelective contributions for all eligible participants.

Until now, employer contributions, including matches on Roth salary deferrals, have been required to be made to a pre-tax account within the plan. However, beginning in 2023, SECURE 2.0 allows for employer contributions to be made to Roth accounts.

Roth employer contributions are allowed in 401(k), 403(b) and governmental 457(b) plans. SECURE 2.0 makes clear that employers are not required to make their contributions on a Roth basis. It is optional, not mandatory. SECURE 2.0 also provides that only vested matching or nonelective contributions can qualify for Roth treatment. For tax purposes, Roth employer contributions will be treated the same as Roth employee contributions. That is, employees will be taxed on the amount of the Roth contribution.

Roth employer contributions are allowed in 401(k), 403(b) and governmental 457(b)

Roth SEPs and SIMPLEs

Many small business owners offer SEP or SIMPLE IRA plans for their employees. SEP IRAs provide only employer contributions. SIMPLE IRAs provide both employer contributions and employee contributions. Employers with SEP or SIMPLE plans have always been required to make contributions on a pre-tax basis. However, beginning in 2023, SECURE 2.0 permits both SIMPLE and SEP Roth IRA contributions.

Employees can now make SIMPLE Roth IRA salary deferrals similarly to the way participants in an employer plan can make Roth contributions (if the plan allows). SIMPLE Roth contributions made by employees are includible in taxable income for the year of the contribution.

SEP and SIMPLE Roth employer contributions may also be offered. If the Roth option is offered, employees can choose to treat employer SEP and SIMPLE contributions as Roth.

No Lifetime RMDs for Roth Plans

Beginning in 2024, SECURE 2.0 eliminates the need to take lifetime required minimum distributions (RMDs) on Roth plan dollars. This brings Roth plan RMD rules more in line with Roth IRA RMD rules.

Participants in workplace plans — like a 401(k) or 403(b) — will no longer have to factor their Roth plan dollars into their lifetime RMD calculation. This could result in a significant reduction in the plan RMD from 2023 to 2024.

Additionally, plan participants will no longer be forced to roll over Roth plan dollars to a Roth IRA to avoid taking an RMD on those Roth assets. Does this mean that rolling a plan to a Roth IRA is no longer a good option? Not necessarily. Rolling over the funds to a Roth IRA may still be the best choice due to a multitude of other factors – such as more favorable Roth IRA distribution ordering rules, investment options, easier access, etc.

Roth plan participants will join Roth IRA owners in not being subject to lifetime RMDs. However, beneficiaries of a Roth plan, like Roth IRA beneficiaries, are subject to the RMD rules. With either a Roth plan account or a Roth IRA, any distribution to a beneficiary will likely be income tax free. However, after the SECURE Act, most non-spouse beneficiaries will be subject to the 10-year rule that requires the inherited Roth funds to be fully withdrawn by the end of the 10^th year after death.

Rollovers from 529 Plans to Roth IRAs

SECURE 2.0 allows rollovers from 529 plans to Roth IRAs beginning in 2024. For those who have concerns about what to do with funds “left over” in a 529 plan, this may be a good opportunity. Leftover 529 funds can now be rolled over to a Roth IRA in the name of the 529 beneficiary.

These rollovers from 529 plans to Roth IRAs would not be subject to the income restrictions that normally apply to Roth IRA contributions. However, there are many restrictions. The 529 plan must have been in place for at least 15 years. Rollover amounts cannot include any 529 contributions (and earnings on those contributions) made in the preceding five-year period. Annual rollovers cannot exceed the annual Roth IRA contribution limit, and total lifetime rollovers cannot exceed $35,000.

Required Roth Catch-Up Contributions

Beginning in 2024, SECURE 2.0 requires any age 50-and-older catch-up contributions made to 401(k), 403(b) or 457(b) plans by certain higher-paid participants to be made as Roth contributions. This includes a participant whose wages received from the plan sponsor for the preceding calendar year exceeded $145,000 (as indexed). Individuals who are not in this group can choose to make catch-up contributions as Roth contributions (if the plan allows) but are not required to do so.

The Future is Roth

In the past several years, we have seen several legislative proposals put forward that would have limited the availability of Roth accounts. For example, there were proposals to do away with back-door Roth conversions and proposals that would have added income limits for Roth conversions.

None of these proposals that would have cut back on Roth accounts found their way into SECURE 2.0. The reason is clear: Congress is desperate for revenue, and Roth accounts raise immediate tax dollars. In fact, four of the five new Roth rule changes discussed in this article can be found in “Title VI — Revenue Provisions” in the SECURE 2.0 law. Roth-O-Mania is likely here to stay, and with it comes more opportunities for tax-free growth and withdrawals for savvy retirement savers.

Gordon Wollman, Founder and President of Cornerstone Financial Solutions, and Raymond James Wealth Advisor, with Ed Slott at the 2023 Spring workshop for members of Ed Slott’s Elite and Master Elite IRA Advisor Group℠.

Membership in Ed Slott’s Elite IRA Advisor Group(T) is one of the tools our advisors use to help you avoid unnecessary taxes and fees on your retirement dollars. Gordon attends in-depth technical training on advanced retirement account planning strategies and estate planning techniques. And semiannual workshops analyzing the most recent tax law changes, case studies, private letter rulings, Congressional action and Supreme Court rulings help keep attendees on the cutting-edge of retirement, tax law and IRA distribution planning. Through his membership, Gordon is immediately notified of changes to the tax code and updates on retirement planning, and he has 24/7 access to Ed Slott and Company LLC to confer with on complex cases.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. ACKNOWLEDGMENT: This article was published by Ed Slott and Company, LLC, an organization providing timely IRA information and analysis to financial advisors, institutions, consumers, and media across the country and is distributed with its permission. Copyright 2023, Ed Slott and Company, LLC. Raymond James is not affiliated with and does not endorse the opinions or services of Ed Slott or Ed Slott and Company, LLC.

Raymond James is not affiliated with and does not endorse the opinions or services of ED Slott, Ed Slott and Company, LLC, IRA Help, LLC, or Ed Slott’s Master Elite IRA Advisor Group. Members of Ed Slott’s Elite IRA Advisor Group^SM train with Ed Slott and his team of IRA Experts on a continuous basis. These advisors passed a background check, complete requisite training, attend semiannual workshops, webinars, and complete mandatory exams. They are immediately notified of changes to the tax laws.

The Impact of Financial Planning

May 26, 2023 | Financial Planning, Services

How can effective financial planning impact you?

Be more prepared for the short-term and long-term future.

Financial planning services help you actively work toward your goals, whether you’re looking at the next year or the rest of your life.

Depending on the financial advisor you work with, you might have access to any or all of these wealth management services—investment management, risk management, retirement planning, estate planning, and tax planning services. We offer all five at Cornerstone Financial, and each of these services plays an important part in managing your current financial state and preparing for what’s next in life.

Your financial advisor will work closely with you to help set up a college fund for your grandkids and to celebrate with you when you finally buy that boat for summers on the lake. When you feel confident in your financial planning, you can dream bigger — for today and for tomorrow.

Save time.

Making sense of your financial situation on your own is time-consuming, and your time is valuable. Fortunately, you can still enjoy the benefits of strong financial planning while still making the most of your time.

Instead of spending hours researching and organizing resources to try to inform your financial decisions, you can turn to a financial advisor. These experts are more than happy to help simplify financial planning and work with you to reach your goals. That’s their job. Your advisor will help make the process more efficient for you, using their experience and expertise to keep you informed and involved throughout the process.

Let your financial advisor do what they do best so you can spend more time on the things that matter most to you.

Make informed decisions with personalized financial planning advice.

Your financial advisor is there for you as a guide and resource. They get to know you, including your circumstances, goals, and risk tolerance. No two people have exactly the same financial situation, and your advisor takes that into account.

Building up a relationship and trust with you will help them provide the best service possible for your unique situation. When you have questions about an investment strategy, need some assistance navigating the financial implications of a life change, or have other concerns about your finances, your advisor has the expertise you need and the relevant context to help guide you on your financial planning journey.

Enjoy peace of mind.

Financial planning doesn’t have to keep you up at night. When you let a financial advisor lend you their expertise and service, you can make choices that help you meet your needs, achieve your goals, and prepare for what comes next in life.

With an expert on your side to take care of the details and help you make the big decisions; your financial future feels brighter.

Ready to make a positive impact on your financial planning journey?

Contact our office at 605-357-8553 or email cfsteam@mycfsgroup.com.

5 Tips When Planning For Uncertainty

May 12, 2023 | Financial Planning, Market Volatility

Jill Mollner, MBA, CFP®
Wealth Advisor, RJFS
Branch Operations Manager, CFS

ARE WE IN A RECESSION?

That’s been the topic of many a news story in the past year. But economists have varying opinions on whether we are, based on the technical definition of a recession.

Investopedia notes that a recession happens when the economy stops growing and begins to contract.¹ And NerdWallet says that it’s generally two consecutive quarters of a slowing economic activity.²

But despite historic inflation in the past year, and several interest rate increases by the Federal reserve, due to the strong labor market over the past year (though that is starting to slow down), we still technically aren’t in a recession. Some economists say we are headed for a soft landing, which happens when economic growth slows, but doesn’t decline. Other economists say we are in a rolling recession.

Forbes reports that a rolling recession is one that doesn’t have the same impact on the entire economy, but rather it affects different market sectors at different times.³ Some sectors might be spared altogether.

The Conference Board predicts that we may soon be in a recession. They predict we will have three quarters of negative economic growth starting in the first quarter of 2023 but predict the downturn will be mild and brief. The good news is they also predict a rebound in 2024.⁴

But the definition of what’s happening isn’t as important as the fact that we are here to help you navigate it.

GETTING READY FOR A RECESSION

Whether it’s a rolling recession or the type of recession that hits the entire economy all at once, there are steps we can take to prepare.

The good news is we’ve already begun taking those steps together. We’ve talked about it and planned for it in case it happens. But it’s always a good idea to have a refresher on some of the basics:⁵

Stock your emergency fund. Get your budget in order and figure out what you spend per month so that way you can put enough away in your emergency fund to cover three to six months’ worth of expenses.
Focus on paying down debt. We can discuss whether it would be best for you to pay down high-interest debt or tackle the smaller balances first, but either way, prioritize paying down your debt.
Reevaluate your expenditures. See where you can get creative with saving. We can explore this together, but take time to look at your insurance policies, utilities, and other cell phone bills to see if you can save in any area.
Refresh your resume. If you are still in the workforce, it’s always a good idea to refresh your resume and get it professionally edited. Layoffs have been impacting thousands of workers since late last year and Investopedia reports that no sector is safe. It’s just best to be prepared.⁶

We can’t predict what’s going to happen in the future, but we can prepare for various outcomes. If you’re feeling fearful or want to talk to us about any of this, give us a call and let’s work on our plan.

Sources

1 https://www.investopedia.com/terms/r/recession.asp
2 https://www.nerdwallet.com/article/finance/are-we-in-a-recession
3 https://www.forbes.com/sites/qai/2023/02/14/what-is-a-rolling-recession/?sh=21ef2d62535f
4 https://www.conference-board.org/research/us-forecast
5 https://time.com/6240221/a-recession-is-widely-expected-heres-how-to-prepare/
6 https://www.investopedia.com/biggest-layoffs-2023-7096389

NOT A CORNERSTONE CLIENT?

If you have questions about your financial plan please contact us today to schedule a complimentary, no obligation review with one of our advisors. Call 605.357.8553 or email cfsteam@mycfsgroup.com.

Investment Committee Meeting Recap Q1

May 12, 2023 | Investment Management, Market Volatility, Portfolio Management

Andrew Ulvestad, AAMS®
Wealth Advisor

After a weak February, markets rallied in March. U.S. markets were up by low single digits, while bond markets were in the same range. International markets also showed modest gains, with developed markets about the same as the U.S. and emerging markets doing slightly better. This was a stronger start to 2023 than most had
expected, and it may signal how the rest of the year will play out.

The US economy remained resilient, driven by consumer spending. While consumers are shifting spending from goods to services, overall spending continues at a healthy clip. But three factors—dwindling excess savings, higher interest rates and softening job creation— should curb growth soon.

In the short term, the economy may xperience slower growth, and markets could struggle given increased risks to earnings growth. The second quarter may be tougher for markets than the start of the year. At the same time, as we look further forward, a strong first quarter has historically been a positive sign for the year as a whole.

We can reasonably expect more volatility in the short term, but the longer-term picture remains. The progress on inflation drove the gains during the first quarter. While it is still too high, it is well below where it started the year. With the Fed having hiked rates at a fast pace, markets are now convinced that inflation will come under control, as the benchmark yield on the 10-year U.S. Treasury dropped significantly in March.

Equity markets want the Fed and inflation to get off of their cloud. Why? Because equities tend to rally when the Fed ends its tightening cycle, inflation decelerates, and interest rates fall. Assuming the Fed doesn’t overtighten and take the economy into a severe recession, S&P 500 earnings should remain solid.

If anything, the economy’s better-than-expected start this year gives us more confidence in the upside potential. A weaker dollar, quickly improving supply chains, and easing commodity and labor costs should help support margins. The current decline in equities has likely already priced in a mild recession. When we finally get to the recession, sentiment should turn more positive— as markets anticipate coming out of it.

Duration measures a bond’s price sensitivity to interest rate changes.

During our Investment Committee Meeting in April, we discussed these economic and market themes and analyzed our strategies in detail. Based on our outlook and anticipation that rate hikes will slow or stop, we believe it may be prudent to keep fixed income duration low. While we have a more favorable outlook on value currently, we anticipate that to shift to a more neutral outlook of growth and value as we try to best position ourselves for both the short and long term.

As always, thank you for your continued trust. Market corrections – even recessions – are part of normal market cycles, but it’s perfectly natural to be unnerved. Stay focused on your personal goals, don’t get overwhelmed by media hype, and remember we’re here to help. Contact us if you have any questions or would like to review your plan.

Not a Cornerstone client? Call 605-357-8553 or email cfsteam@mycfsgroup.com to schedule a complimentary, no-obligation review!

This content is for general information only and is not intended to provide specific advice, an endorsement, or recommendations for any individual. Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what is appropriate for you, consult a qualified professional.