Avoiding Mistakes in a Divorce in 5 Easy Steps

Retirement Accounts and Divorces

When a divorce occurs, the financial assets of a couple, including their retirement accounts, are often split. If mistakes are made during this process, the stress of a divorce can be compounded when one or both spouses find they are subject to unnecessary taxes or penalties.

1. IRAs in divorce. To properly divide an IRA as a result of a divorce, specific language on the structure of “who gets what” should be included in the marital settlement agreement (MSA) or other divorce agreement. A copy of this executed agreement should be given to the IRA custodian. The money should NOT simply be withdrawn from the IRA and given to the other spouse, as this would be treated as a taxable distribution for the IRA owner.
2. Qualified plans in divorce. Qualified plans can’t be split by an MSA or divorce agreement. They require a special court order, known as a “Qualified Domestic Relations Order,” or “QDRO” for short. Once a QDRO has been issued, it should be sent to the qualified plan’s administrator. The terms of the plan will determine when the spouse receives the funds. In some plans, a lump-sum distribution will be available immediately, while in other funds, benefits may not be payable until the ex-spouse retires.
3. What to do with the received funds. If you are receiving a portion of an IRA, you will likely want to roll the funds over to your own IRA to avoid incurring tax and possibly the 10% early distribution penalty. However, If you are receiving a distribution pursuant to a QDRO, you will want to consider if you will be using any of the funds prior to age 59 ½. Funds received directly from a plan under a QDRO are exempt from the 10% penalty. If you roll those funds over to an IRA and later take a distribution prior to age 59 ½, the 10% early distribution penalty will apply.
4. Name new/update beneficiaries. One of the most common mistakes after a divorce is the failure to properly update beneficiary forms. This is NOT something that should be overlooked. There have been many documented cases where a failure to properly update beneficiary forms led to an ex-spouse receiving funds that were intended for children or even a new spouse. DON’T let this happen to you.
5. Reassess retirement preparedness. For many, a divorce is an emotionally draining and traumatic event. But for some, the emotional impact is compounded by a significant change to personal finances. So just like any other major life event, it’s beneficial to reevaluate your retirement and financial plans to determine the best course of action.

© 2011 Ed Slott and Company, LLC

Paying for Long-Term Care During Retirement

By Allen G. Yee

In all likelihood you have spent a good part of your working years planning for a financially secure retirement. But many issues can arise during retirement that can impact your financial health as well as your quality of life. Among the greatest fears is the cost of medical expenses due to a prolonged illness or injury that can quickly deplete your retirement savings and affect your family’s quality of life. As we age, the prospect of needing medical assistance becomes a real possibility. If you’re on a fixed income, how will you pay for those medical expenses?

Retirement savings and income

An obvious source for paying nursing home expenses is current income you receive from a retirement pension or Social Security retirement income. However, using current income may prove insufficient, or impractical, given other household expenses.

You could use qualified retirement accounts such as a 401(k) or IRA, or investments you set aside as a retirement nest egg. But you may be spending savings otherwise needed for the current or future financial support of your spouse or other family members. And withdrawals from qualified retirement accounts are generally taxed as ordinary income, meaning the more you take out, the more you may have to pay in taxes.

If you have equity in your home, you may be able to tap into that to pay for nursing home expenses. However, since your home is probably one of your most valuable assets, there are many issues to consider before using it to pay for long-term care. Should you sell your house or take out a home loan? If you decide to take out a loan, what type of loan will work best for you? Some loan options include a conventional home equity loan, a first mortgage, and a reverse mortgage.

Private insurance

Aside from paying for nursing home expenses out of your own pocket, you might share the cost through various insurance products. The most common of these is long-term care insurance, which typically pays for the cost of nursing home expenses up to a specified dollar amount per day, such as $150, for a fixed period of time, such as three years. Most policies will pay for care provided in your home, in an assisted-living facility, and in a nursing home. But the premium for this type of insurance can be expensive and the policy usually doesn’t cover the entire cost of care, meaning you’ll probably still have to pay for a portion of your nursing home expenses out-of-pocket.

Other types of insurance may also be used to pay for long-term care. Cash value accumulations in life insurance or annuities can be accessed, either by cashing the policy in or by borrowing against the cash value. However, policy loans and cash value withdrawals may reduce the policy’s death benefit or cause the policy to lapse. A crop of new vehicles based on life insurance and annuities have created alternatives to traditional longer-term care with built-in features or riders that allow access to amounts in excess of the cash accumulation value if it’s used to pay for long-term care.

Medicaid and Veterans Benefits

According to the National Clearinghouse for Long-Term Care Information, Medicaid pays for about 49% of aggregate long-term care expenses. Medicaid is a federally funded program administered through the states that provides long-term care benefits for those who meet state-specific financial eligibility requirements, as well as certain health or functional criteria. However, retirees are often unable to qualify for Medicaid because their income or asset values exceed financial eligibility requirements. Aside from Medicaid, the Department of Veterans Affairs may provide long-term care for service-related disabilities for veterans who meet eligibility requirements.

Long-Term Care Revisited

by Allen G Yee

Are you perplexed over the thought of potentially needing nursing care in the future? Many try not to think about this very situation and instead plan for nothing. So what would you do if you’re dealt with a situation where you’re in a nursing care facility for an extended length of time? What asset would you sell first? How would you approach paying for that cost while balancing medical expenses and life-style cost for your spouse or other loved ones?

Believe it or not, you have a plan. Your current plan (if you don’t have insurance) is self-insuring against that risk. So what would you sell first? Many have liquid assets saved at the bank or under the mattress for that rainy day, but how long will it last? No matter how toned and healthy you feel today, there’s still a good chance you may need long-term care at some point in your life. Americans age 65 and older have a 70%chance of needing some form of long-term care. And with today’s ever-growing medical costs, your retirement savings could be spent very quickly!

You have a few different choices.

You can buy traditional long-term care insurance, where you will pay periodic premiums for the term of your coverage, i.e. pay as you go. The cost is not fixed, over time the insurance company can raise the premiums to your class (you cannot be singled out for premium increases.) Should you stop paying or pass away, there are no residual benefits to you or your heirs.

Another option is you can self-insure, thus paying whatever the expenses are out of pocket until your assets are exhausted and there is no theoretical cap.

Now there’s another option with greater flexibility for the self insurer. This option uses a portion of your “self-insured” dollars (amount depends on age and health) and leverages it to provide benefits you can tap into to reimburse qualified long-term care costs, and to protect assets you’ve set aside for retirement. If you do not use your long-term care benefits while living there is a tax-free death benefit to your heirs. If you would like to learn more about this long-term care option please call us today. 

Are you perplexed over the thought of potentially needing nursing care in the future? Many try not to think about this very situation and instead plan for nothing. So what would you do if you’re dealt with a situation where you’re in a nursing care facility for an extended length of time? What asset would you sell first? How would you approach paying for that cost while balancing medical expenses and life-style cost for your spouse or other loved ones?

Believe it or not, you have a plan. Your current plan (if you don’t have insurance) is self-insuring against that risk. So what would you sell first? Many have liquid assets saved at the bank or under the mattress for that rainy day, but how long will it last? No matter how toned and healthy you feel today, there’s still a good chance you may need long-term care at some point in your life. Americans age 65 and older have a 70%chance of needing some form of long-term care. And with today’s ever-growing medical costs, your retirement savings could be spent very quickly!

You have a few different choices.

You can buy traditional long-term care insurance, where you will pay periodic premiums for the term of your coverage, i.e. pay as you go. The cost is not fixed, over time the insurance company can raise the premiums to your class (you cannot be singled out for premium increases.) Should you stop paying or pass away, there are no residual benefits to you or your heirs.

Another option is you can self-insure, thus paying whatever the expenses are out of pocket until your assets are exhausted and there is no theoretical cap.

Now there’s another option with greater flexibility for the self insurer. This option uses a portion of your “self-insured” dollars (amount depends on age and health) and leverages it to provide benefits you can tap into to reimburse qualified long-term care costs, and to protect assets you’ve set aside for retirement. If you do not use your long-term care benefits while living there is a tax-free death benefit to your heirs. If you would like to learn more about this long-term care option please call us today.