Simplifying IRA Lingo

Sometimes terminology gets confusing with respect to IRAs. Here are just a few definitions of IRA terms and concepts that are commonly asked about:

RBD: The Required Beginning Date or RBD is the date that required minimum distributions must begin for all IRA owners, which is April 1st of the year following the year an owner turns 70½. If your RBD happens to fall on a holiday or weekend, the RBD will be the following business day.

RMD: The Required Minimum Distribution or RMD is the minimum amount an IRA owner must withdraw each year from an IRA after his or her RBD.  An IRA owner can always take out more than the RMD.  There are no RMDs for owners of Roth IRAs but beneficiaries of inherited Roth IRAs are still subject to RMD rules.

ROLLOVER: A rollover is when assets are withdrawn from a retirement plan and then re-deposited into the same or other eligible plan. This is a reportable transaction for an IRA owner and it must be completed within 60 days. There is a 1 per year limit regardless of how many IRAs you have.

TRUSTEE-TO-TRUSTEE TRANSFER: This is a transfer of IRA funds that are sent, usually electronically, from an IRA and received directly by another IRA. Unlike a rollover, there is no limit to the number of trustee-to-trustee transfers each year.
 CONVERSION: A conversion is when a traditional IRA (or SEP or SIMPLE IRA) is changed into a Roth IRA. The character of the funds is changed and income taxes will become due on the converted amount in the year of the conversion.

RECHARACTERIZATION: The term recharacterization is used when referring to a traditional IRA that has been converted to a Roth IRA but the owner wants to “undo” the conversion. Recharacterization is also used to refer to a Roth IRA contribution that an owner wishes to change into a traditional IRA contribution. 

RECONVERSION: When an IRA owner converts a traditional IRA to a Roth IRA, then recharacterizes it to “undo” that conversion, but later decides that the conversion to a Roth IRA was a good idea after all, the traditional IRA is now going to be reconverted from a traditional IRA to a Roth IRA. *You cannot convert and reconvert during the same tax year or, if later, during the 30-day period following a recharacterization. If you reconvert during either of these periods, it will be a failed conversion.

How “Safe” Is Your CD?

Certificates of deposit (CDs) are intended for the ultra-conservative investor.  Why are they appealing to so many?  They are touted as the “safe” investment option with essentially no risk as they are not tied to the stock market.  However, how “safe” are they really if, when you do a little math, you are actually losing out on money due to inflation and taxation?

Here are the hard facts:
•    For the past 7 years in a row, the average six-month CD rate has been less than 1%.
•    For the past 7 years in a row, CDs have earned a negative “real” return.
•    CDs have had a negative “real” return for 16 out of the past 30 years.

Knowing the truth about CDs is very important.  You can lose purchasing power with a CD when you factor in inflation and taxes.  Most banks don’t talk about this aspect and we believe CD owners have a right to know what they really own.  The bottom line is, “safety” doesn’t matter a whole lot if your overall rate of return is negative.  The “real” rate of return on a CD requires you to factor in inflation (based on the Consumer Price Index [“CPI”]) and your real tax rate. 

To find out the truth about your CD and other safe options that are available to consumers, give your retirement distribution expert a call for a complimentary evaluation.  This is your hard earned money and you should keep it!

IRA Custodians: What You Need to Know

Although the IRS has set forth the duties required of non-bank trustees in Internal Revenue Code Section 408(a)(2), not all custodians are regulated by the IRS.  Some custodians don’t even ensure that an IRA complies with the law.  When there is a problem, a court often sides with the errant custodian.  If IRA custodians can be let off the hook so easily, what’s an investor to do?

IRA owners expect that the custodian they hire will prevent them from engaging in prohibited transactions and help them satisfy other requirements such as taking annual RMDs.  We are now seeing that some custodians don’t do those things at all. To the contrary, some self-directed IRAs being touted on the Internet are even promoting transactions that could be interpreted as self-dealing (and in violation of the law).

There is one thing clients can be sure of...if an IRA is scrutinized by the IRS and found to be in violation, it is not usually the custodian that will be on the hook.  If the IRA is disqualified, it will result in a taxable distribution of the entire account and the IRA owner will be subject to taxes and possible early distribution penalties.

As part of your overall retirement planning checkup, make sure your IRAs are with custodians who allow beneficiary flexibility. If your custodian doesn’t offer what you want, consider finding a custodian who is multi-generational friendly.

IRA Custodians: Some General Areas of Questioning
Entity Details
Who are you (bank, brokerage firm, nonbank trust company) and how are you regulated? How are you insured (FDIC, SIPC)? Do you have errors-and-omissions insurance? Are you audited? How and by what entity? When was the last audit completed?

Accounts
How are accounts managed?  How are investments processed?

Costs
What are your fees? Do your annual fees include all charges, or are there any hidden fees for transactions or for administration costs or uninvested cash? Do you charge based on each transaction, or on the value of the account?

Forms
Do you require your own beneficiary form, or will you accept as valid a detailed, customized beneficiary designation created by an attorney or advisor?

Distributions
In the event of death, will you permit beneficiaries to receive payments over the period permitted by tax law and IRS rules and regulations, or will you mandate a shorter payout period?

Do You Trust Your Trust?

Trusts certainly have their place in estate, wealth management and retirement planning but consumers need to be aware that not all trusts are created equal.

The Tax Court has held that several trusts were not legit trust vehicles and ordered that they be disregarded for Federal income tax purposes. If the taxpayers sought professional advice from a trust organization, how could this have happened?

In Vlach v. C.I.R. (T.C. 2013) 105 T.C.M. (CCH) 1690, the taxpayers were a married couple and the husband had a medical practice. Dr. Vlach was concerned about protection of his business assets and decided to purchase a trust package from a trust firm representative who presented at a seminar he attended.


Unfortunately, the representative had been involved in abusive trust promotions and practices. Dr. Vlach and his wife only became aware there was a problem with their own trusts after receiving tax deficiency notices from the IRS.

Although the Vlatches insisted the trusts were not created for purposes of tax avoidance and contended that the trusts were created for purposes of asset protection, the Tax Court disagreed. The Court stated that “Evidence of such tax-avoidance objectives is reflected in the operation of the trusts.” (Emphasis added). The Court further stated that the trusts “…were shams, lacking economic substance, and are to be disregarded for Federal income tax purposes.”

Does this mean all trusts are potentially bad? Of course not! The lesson to be learned from this case is to do a little due diligence when deciding who you want to hire to draft your trust. Be cautious about purchasing a “trust package” from an organization or firm you are unfamiliar with.

It is important that you find a suitable attorney or firm who can handle your needs (especially if you have a complicated estate). There are many great trust attorneys and firms that can help you!

Most Retirement Planners Ask the Wrong Question

Many people within striking distance of retirement are focused on one question: what’s my number?

It centers around the idea of how much money you will need to have squirreled away by the date you stop working to continue to provide you with enough income for the rest of your life.

People should instead be focusing on the different question: “what’s my paycheck?” That is, they should be looking at the income they will be getting, rather than how they will be drawing down from the lump sum they've been accumulating. By asking the paycheck question they may be better off both emotionally and financially for several reasons.

When people spend their life building up a capital base, it makes them uneasy to see the balances of their investment accounts go down. While intellectually they may understand that this money was accumulated for this very purpose, it still may be difficult for them to watch the erosion of the capital base that they have spent their whole life building up.

The paycheck method solves this problem because you don’t think about the ups and downs of your capital base when you frame it as getting a regular monthly “salary.”

Even if you hit your lump sum number, you still need to plan for large one-time expenses such as a new car, your child’s wedding, or unexpected health expenses. Once you have hit this lump sum “number” of cash and not prepared for more, you will clutch it even tighter every time you have a major expense at home. But with the paycheck approach, you’ll plan your budget based on the money you will receive each month, and not focus on what you will need to take from your lump sum each month.

Stock Blunders

When it comes to stocks, big blunders can be devastating. Big mistakes picking stocks can be nearly impossible to bounce back from. Why?

It's really a mathematical exercise. Here's an example. If you buy a stock for $100/ share and it falls to $60 a share that's a bruising 40% loss. Some investors assume a 40% gain would erase that loss. That's not true, unfortunately. A 40% gain would only get you back to $84 a share. To get back even after a 40% loss an investor would need a 67% gain.

Climbing back from stock losses is extremely difficult due to the harsh reality of math. That's why investors picking individual stocks need to be extra careful in not allowing losses to get so big that they are nearly insurmountable.

The sheer difficulty of coming back from a big market loss isn't just theoretical. A study of actual returns of the Standard & Poor's 500 stocks bear out how investors who get hammered with a big loss have such a difficult time coming back. What does all this mean? For the average investor it means avoiding the loss in the first place is the key to success. A wise investor should be willing to give up some of the upside of the market in return for downside protection.

The world of fixed indexed annuities (FIAs) offers exactly that. The opportunity to have 100% downside protection in return for a smaller portion of the upside return is the main value proposition of an indexed annuity.

There are three miracles of indexed annuities:

1. No loss of principal
2. Ability to reset and measure gains from the low point of the index annually.
3. The Ability to capture and lock-in all gains annually.

The advantage of a fixed- indexed annuity is that you can't lose your principal, regardless of indexed performance unless during the early withdrawal period you withdraw your money by surrendering your contract.  With FIAs, your clients can have their cake and eat it too.

Retirement Plan Still Working Exception

If you have a qualified employer retirement plan, you generally need to start taking your required minimum distributions (RMDs) no later than April 1st of the year following the year you turn 70½.  This is your required beginning date or RBD.  Certain employer retirement plans, however, may have a “still working exception” for their employees who reach 70½ but are still actively working for that employer.

An employee who is over 70½ years old, still working for the company and doesn’t own more than 5% of the business may elect to delay his/her RBD for taking RMDs until April 1st of the year following the year the employee retires.  It’s important to note that employer plans may offer this option but they are not required to offer a still working exception.

Assume you have a 401(k) and the plan permits a still working exception, an option you have elected.  Now assume you are 73 years old and you decide to retire in July this year.  Your retirement immediately triggers your RBD as April 1, 2017 - your RMD requirement begins the instant you retire.

In this example, if you chose to delay your first RMD and do not take it until, say, February 2017, you will still need to take your 2017 RMD by December 31st next year.    

*There is no “still working exception” for IRAs, Simple IRAs or SEP IRAs.

Portfolio Protection

Will the Wolf Destroy a Lifetime of Hard Work?

As a financial service professional, you take upon yourself the role of helping your clients build their financial futures. Undoubtedly, during your years of training for this demanding profession you have come across the financial planning pyramid (at least one of MANY versions) used by financial advisors to explain the concept of asset protection and financial priorities.

As you will recall, the foundation of the financial pyramid is protection yet many clients’ portfolios are completely unprotected from the “4 Risks of Retirement.” Those risks are:

• Longevity Risk
• Interest Rate Risk
• Market Risk
• Tax Risk

As a financial service professional, you take upon yourself the role of helping your clients build their financial futures. But many advisors have not dealt with the wolf that lurks in the shadows, the 5th risk to retirement…the financially devastating effects of expenses stemming from Long-Term Care (LTC).

Many top advisory firms are taking a fresh look at a better way to assure the foundation of protection is secured before discussing investing. Today we know that less than 10.7% of Americans have the correct protection in place to deal with the wolf. So are we suggesting you sell

them LTC insurance? Nothing could be farther from the truth! In fact, we are not fans of LTC insurance and don’t believe it’s the best option for dealing with and managing risk.

Advisors need to take this growing LTC risk seriously. Not only is the client’s portfolio at risk from an LTC illness they (or a spouse) may suffer, but an advisor’s income is in jeopardy. How? Clients begin to withdraw hundreds of thousands of dollars out of accounts that are being managed by the advisor to deal with this uninsured risk. This is portfolio protection for the client and it is portfolio protection for the advisor!

There are two questions every financial professional should ask clients:

1) You may never need care, but if you did, how will that affect your family, spouse, adult children, family dynamics and finances?

2) If you need care, how will you pay for it?

Today there are NEW solutions to the catastrophic problem of a Long-Term Care event. This solutions allows clients to reposition and leverage an existing asset, typically money in CDs, savings, annuities, IRAs or retirement plan funds, as a guaranteed single premium.

We have found that many advisors don’t feel comfortable discussing these gaps in protection with clients so they simply never raise the issue. But what about the likelihood that 70% of those reaching 65 will experience an LTC event before age 85 that will last, on average, 3.9 years and cost $100,000 per year?

Our Elite Marketing Program can help you articulate this problem and motivate prospects and clients into taking action. This solution can help safeguard a client’s assets by providing income tax free money to handle LTC expenses in their own home or in an assisted living facility.

Additionally, should the client’s needs change or the client simply changes his/her mind at any time, the client can request a full refund of the single premium.

• Special Highlights of this Solution:
• This is Not an LTC Policy
• Premiums are 100% Guaranteed - No Risk of Increase
• Joint Life Coverage
• Lifetime Benefits
• Qualified Money Allowed
• Turn Highly Appreciated Non-Qualified Annuities into Tax-Free Money

Helping your clients protect their assets and prepare for the future is essential as 10,000 Baby Boomers retire each month. By addressing this critical LTC risk, you will open new doors of opportunities and unearth new clients, creating new revenue streams. This will also differentiate and grow your practice, protecting it in the long term.

Top advisors are asking their clients these questions and adopting these new strategies – shouldn’t you too

Table Bay Financial Network is America’s Premier FMO combining preferred products, unparalleled marketing and world-class training designed to drive and increase revenue while drastically cutting marketing costs. Call us.

Today’s Safe Refuge for Lofty Returns and Matchless Tax Advantages

Are you looking for the flexibility of adjustable premiums and face amount, with the opportunity to increase cash value? What if you could do this without downside risk of investing in the market? It’s not a dream; it’s a reality with Indexed Universal Life Insurance.

What is Indexed Universal Life? 
IUL policies offer tax-deferred cash accumulation for retirement while maintaining a death benefit. It is perfect for those individuals that need permanent life insurance protection but wish to take advantage of possible cash accumulation. Indexed Universal Life works great for key-man insurance for business owners, estate-planning vehicles, premium financing, and retirement income.

How Can They Do That? 
A portion of the paid premium goes to annual renewable term insurance based on the life of the insured. All fees are paid and the remaining premium goes into the cash value of the policy. The cash value is credited with interest based on increases in the equity index. However, it is not directly invested in the stock market. Most IULs offer a guaranteed minimum fixed interest rate and a choice of indexes. The index gains are credited back to the policy either on a monthly or annual basis. For example, if the index gained 5% from January 2010 to January 2011, the 5% is multiplied by the cash value. The resulting interest is added to the cash value. If the index goes down instead of up, no interest is credited to the cash value, but their account value does not go down.

The Perks!

• Minimize Risk: The policy is not directly invested in the stock market, thus reducing risk 
• Death Benefit: Permanent coverage 
• Low Cost: The premiums are low 
• Cash Value Accumulation: Cash value credited to the policy grows tax deferred. The cash value can pay the insurance premiums, which over time may allow the policy-holder to stop paying premiums out of pocket.

Can Your Clients Really Trust Their Trust?

As the old saying goes, “people with trusts get them because they don’t trust.” If you have clients with a trust, are they sure that the trust terms are designed to distribute their assets the way they want? We always stress the importance of periodic reviews of your clients’ critical documents like beneficiary designation forms, especially whenever they experience a life changing event such as a birth, death, marriage or divorce. But have your clients also reviewed their trust and estate plan lately?

Many clients fail to understand that just because they may have spent a lot of time and money having a trust created, that doesn’t mean that they never need to look back once the ink is dry. They may have had the best law firm in their area draw up a comprehensive trust instrument, but what if their planning strategy and goals have changed? What if new laws have since been enacted?

Recently, an advisor’s client discovered that the trust her husband set up contained provisions that conflicted with their recently modified financial plan and distribution goals. The trust had been drafted several years before and they never reviewed the trust terms despite the fact that not only had many life changing events occurred in their family but their financial strategy and planning goals had also changed. Unfortunately, the client’s husband passed away and she is now stuck with the flawed trust terms, resulting in irreparable and unintended results for their beneficiaries, their children and grandchildren.

Marriage, divorce, birth or death may occur at any given time. Tax law changes go into effect on a routine basis. Even though you cannot predict what will happen and when it will happen, your clients can adjust their estate plan as needed when any life changing event occurs or new legislation affects their tax planning.

Help your clients ensure their assets flow the way they want and in the most tax efficient manner possible. It is important that clients regularly review important documents such as wills, trusts, beneficiary forms, powers of attorney and anything else they may have in place to provide for and protect their loved ones.

Do you know how to conduct document reviews with your clients? Table Bay advisors have exclusive access to our proprietary Discovery Checklist System. Our checklists were designed to help advisors and their clients identify potential problems and preventative steps can be taken before it is too late.

Who Will Pay For Mom's Or Dad's Nursing Home Bill?

Filial Support Laws and Long-Term Care

Imagine this: One day you’re sifting through your mail. In the pile of letters, bills and junk mail, you find a letter from a law firm informing you that you need to pay $50,000 to cover the cost of your father’s recent nursing home stay, or the care facility will sue you. While this may seem far-fetched, depending on your parents’ state of residence, this could be a possibility.

If your parents live in one of 29 states or Puerto Rico that has filial responsibility laws on the books, you could potentially be held legally responsible for their care under certain circumstances, such as when your parents are ailing and without sufficient financial resources to take care of themselves. Until recently, these statutes have been largely ignored. However, several recent court decisions indicate that there might be renewed interest in enforcing them.

Filial support laws aren’t new. In fact, they were initially derived from England’s 16th century “Poor Laws.” At one time, as many as 45 U.S. states had statutes obligating an adult child to care for his or her parents. Some states repealed their filial support laws after Medicaid took a greater role in providing relief to elderly patients without means. Other states did not, and a large number of filial support laws remain dormant on the books.

Now, with long-term care costs on the rise and funding sources under pressure, nursing homes and other health care providers may have increasing incentive to seek to use the courts to compel children to either help a parent financially or be at risk for covering the cost of his or her care. Today we have tremendous solutions to battle back against the long-term care dilemma. Learn more by calling us today at 1-866-225-1786.

Disclaiming an Inherited IRA

There are several reasons why someone may choose to disclaim an inherited IRA. However, once that decision is made, it is important for the disclaiming beneficiary to avoid common errors.

In short, a disclaimer is a legal document and formal refusal of an inheritance by a beneficiary. Disclaimer rules apply to all IRA beneficiaries. Beneficiaries are not required to accept an IRA (or any portion thereof) and may instead choose to disclaim all or a portion of their share.

To have a valid disclaimer, the beneficiary must not have accepted or benefitted from the IRA assets or property. The only exception to this rule is the year of death RMD taken for the deceased owner. All disclaimers must be submitted in writing to the IRA custodian within 9 months of the IRA owner’s death.

Disclaimers are irreversible, permanent decisions. Some beneficiaries make the mistake of disclaiming an IRA, with the intent to pass on the disclaimed assets to someone else like their child or spouse. Disclaimed IRA assets may only go to the contingent beneficiary or beneficiaries named by the original owner. Disclaiming beneficiaries have zero control over the disclaimed amounts and how they flow.

Launch Your Marketing Plan to New Heights

The Table Bay Partners Marketing Advantage Program is a complete packaged marketing program that will provide you with a lead generation roadmap. Within this roadmap is a year-long schedule of field-tested proven activities that will help the advisor develop a tactical approach to lead generation.

We understand the challenges advisors face today. That is why we will provide you with a unique customized strategy based on your practice, geography, specialty and niche markets served. Our customized strategy includes methods for building market awareness, marketing strategies for generating leads and referrals, and best practices for managing your business and prospecting pipeline.

We’ll help you build a powerful and sustainable brand with our 4-step process:

1. Set your specific goals for the year
2. Determine the quantity of appointments you need
3. Determine the quantity of leads you need to generate appointments
4. Select and plan activities and determine a budget required to generate those leads

Don’t miss out on this exciting new sales opportunity! Let the Table Bay Partners Marketing Advantage

Program launch you into your best year ever! Call us today for more information!

Tax-Free Retirement

QUESTION: Is that even possible?

ANSWER: Yes!

Most people are already familiar with typical taxable investment plans that include tax-deferred assets such as stocks, mutual funds, bonds, traditional IRAs, 401(k)s, and 403(b)s.  But are you looking for a tax-free retirement plan? You can enjoy tax-free retirement by incorporating tax-free investments into your existing retirement strategist.

On Monday June 20th, Table Bay Financial will be hosting a Tax-Free Retirement training.  Join Director of Advanced Markets Joe Mignogna and I for a fresh look at the Tax Free Retirement Concept. Joe will demonstrate his incredible consumer presentation and teach you the key components of the program and how to leverage his presentation and concepts to make incredible sales.

Give us a call to register for this important one-day training!

DOL Lawsuit Complaint Allegations

Here are the eight counts that form the basis for the complaint, which asks the U.S. District Court for the Northern District of Texas to immediately vacate the rule:

* Count One: The Labor Department has “improperly exceeded” its authority in violation of the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code and the Administrative Procedure Act. ERISA grants the DOL authority only over covered employee benefit plans, not over individual retirement accounts, or IRAs, when “sold to individual savers,” the plaintiffs allege.

* Count Two: The rule violates the Administrative Procedure Act because it is “arbitrary, capricious, and irreconcilable” with ERISA and the Internal Revenue Code. The rule is so broad that it includes activity “long been understood to be sales-related and not fiduciary,” the plaintiffs argue.

* Count Three: The DOL “unlawfully created a private right of action.”

The Best Interest Contract (BIC) Exemption and the Principal Transactions Exemption (PTE), which allow advisors to collect third-party fees and commissions, violates the Administrative Procedures Act by enabling IRA participants and other non-ERISA plans to sue financial institutions and advisors for “breach of standards” imposed by the DOL.

* Count Four: The DOL failed to provide adequate notice and to consider and respond sufficiently to the thousands of comments it received last year. Citing just one example, the plaintiffs allege that DOL regulators failed to review its Regulatory Impact Analysis even after dozens of commentators informed the department of the analysis’ defects.

* Count Five: The Federal Arbitration Act prohibits the Best Interest Contract (BIC) and Principal Transaction Exemptions’ (PTE) Regulation of class action waivers in arbitration agreements. The DOL does not have the authority to override the Federal Arbitration Act’s protections of “enforceability of arbitration agreements,” without Congressional authority, plaintiffs argue. There is nothing in ERISA that contains such an override, the lawsuit says.

* Count Six: Regulation of fixed indexed annuities and group variable annuities through the BIC exemption is “arbitrary, capricious, barred by the Dodd-Frank Act, and was not subject to proper notice and comment.” By placing variable annuities and fixed indexed annuities under the BIC, the department is looking to regulate products that Congress removed from federal regulation when it prohibited the SEC from regulating FIAs if the products met state standards, the lawsuit claims.

* Count Seven: DOL regulators “arbitrarily and capriciously assessed the rule’s benefits, consequences, and costs.” DOL analysis of the rule’s benefits – saving retirement savers up to $4 billion a year – would outweigh the costs are “thoroughly flawed,” as the analysis ignores and underestimates the costs of class action lawsuits, lost access to retirement help, the plaintiffs allege.

* Count Eight: The BIC violates the free speech guarantees in the First Amendment because it “impermissibly burdens speech.” The rule “improperly abridges” the right of advisors to engage in truthful, non-misleading speech related to their products and services since the rule sets parameters as to what advisors may or may not discuss with their clients.

Plaintiffs in the dispute include the U.S. Chamber of Commerce, the Financial Services Institute, the Financial Services Roundtable, the Greater Irving-Las Colinas Chamber of Commerce, Humble Area Chamber of Commerce, the Insured Retirement Institute, the Lubbock Chamber of Commerce, the Securities Industry and Financial Market Association and the Texas Association of Business.

Don’t miss our update webinar at 8am on Wednesday June 8th

Here is the link - https://attendee.gotowebinar.com/register/6779126177419240963

One of the Greatest Tax Breaks in the U.S. Tax Code

Thanks to the salutary effects of tax-free growth, the miracle of compound interest and tax breaks aimed at saving spendthrift Baby Boomers from themselves, many people are going to accumulate more money in IRAs, pensions, profit sharing plans, 401(k)s, and similar plans than ever before. Why?

Some retirees may be able to sustain their lifestyles, meet obligations and still leave some percentage of their IRAs to their heirs. These individuals may want to pass on the unused portion of an IRA to a spouse, children or even grandchildren. Creating a Multi-Generational (MGIRA) or “stretch” IRA can result in substantial distributions being made over the life expectancies of the owner, the owner’s spouse and their children.

Consider, for example, a 72-year-old married man with three children who has accumulated $2,550,000 for retirement. By making the most of Multi-Generational IRA planning, total distributions from a $2.5 million retirement nest egg could exceed $11 million!

Unfortunately, putting together a successful Multi-Generational IRA takes careful planning, as there are plenty of potential traps and pitfalls. As Forbes® Magazine explained, “The rules covering inherited IRAs are the most complex that ordinary taxpayers ever encounter; even the IRS hasn’t filled in all the gaps.”

The biggest obstacle to an IRA legacy strategy, believe it or not, is the Federal Government. Congress created IRAs to encourage Americans to plan for their retirement. However, it never intended for them to accumulate funds and defer taxes indefinitely. Unless an IRA owner takes specific steps to continue to defer tax liability, the IRS stands to take 35 to 80% of those hard-earned IRA funds upon the death of the owner.

Embracing Annuities

Here at Table Bay Financial, we love annuities. I continue to be amazed at the reticence of some consumers and their advisors to use annuities to help solve the intractable challenges of financial security in retirement. Whether seeking a secure way to accumulate additional savings for retirement or a way to guarantee a
stream of lifetime income, it seems that non-annuity alternatives continue to be explored and promoted as the only viable alternatives. However, what often is missing in the equation is the simplicity with which annuities can help consumers reach their financial goals. As one ages, it seems that simplicity is an increasingly important virtue.

As clients age and experience cognitive decline, financial solutions that are self-completing and require little if any oversight would seem to be of value. While complex withdrawal strategies have their place in providing more liquid non-annuity alternatives that some retirees and their financial professionals prefer, the fact remains that there can be no guarantee that the professional oversight required to execute a complex strategy will remain consistent and present throughout the retiree’s life.

Given these considerations, it would seem that a core holding of many retirees needing sustainable retirement solutions should include annuities, either classic income annuities or deferred annuities with lifetime withdrawal features. Rather than minimize the value of the financial professional in the process, these self-completing solutions can be a core holding and ensure that the financial professional’s legacy of prudent planning is executed throughout the client’s lifetime, regardless of the presence of the financial professional.

Why You Should Buy an FIA

The biggest fear of retirees is outliving their money. In the past, people could live on social security and interest on their savings because the rates of return were in the double digits. With the current 1% or 2% rates of return, there is a strong possibility that you will have to invade the principal of your savings. This could prove to be catastrophic if you live too long. How much of your savings must you deplete each year to maintain a standard of living that is acceptable to you? Yes, there are surrender charges with annuities, but this typically applies if you take more than 10% per year. How many people are going to spend more than 10% per year of their qualified retirement plan?

Where can you get the potential for an inflation-beating return and have 100% protection against market risk of not only your principal, but also of all your previous years of gains? For the past 17 years, our clients have enjoyed the guarantees annuities provide, along with the upside potential of market indexes. With the wave of new products hitting the market the Fixed Index Annuity marketplace is making huge inroads with American’s. What product do you feel suits you best? Sometimes, it’s a variety of strategies depending on your risk tolerance.  I regularly show people the miracle of FIAs - it is about what is best for you!

Pension Maximization

QUESTION: MY RETIREMENT PLAN OFFERS SEVERAL OPTIONS FOR THE

PAYOUT OF MY PENSION. WHEN I RETIRE, WHICH OPTION SHOULD I TAKE?

Answer: It depends on what options your plan offers, whether you are married at the time of retirement, and what your retirement goals are. Even if you are married, a Joint and Survivor Annuity may not be the best way to care for your spouse should (s)he outlive you.

A life insurance strategy called “pension maximization” or sometimes “pension enhancement,” may provide a more attractive overall benefit package for married couples than the normal Joint and Survivor (J&S) annuity option from a qualified plan. The concept is simple: rather than electing to receive the normal default J&S annuity from a pension plan, the retiring participant, (with the consent of his or her spouse), selects the higher benefit payable under the Single Life (SL) annuity option. The couple then purchases life insurance on the participant to ensure the financial security of the spouse in the event the participant dies first and pension benefits cease. The difference between the pension benefit payable under the SL annuity and the lower joint benefit payable under the J&S annuity is then used to pay premiums on the insurance.

A fundamental but often misunderstood concept is that a J&S annuity is a type of insurance. Whenever a couple selects some form of J&S annuity, rather than the SL annuity, they are essentially buying insurance to ensure survivor benefits for the spouse. The “premiums” they pay for this protection are equal to the difference between the benefit payable under the SL annuity and the joint benefit payable under the J&S annuity.

For example, if the pension would pay $3,000 a month under the SL annuity option, but only $2,550 under the normal benefit and 50% survivor annuity option (which will then pay the surviving spouse $1,275 per month after the death of the plan participant spouse), the couple is effectively paying a $450 monthly premium to ensure that the spouse will be paid $1,275 per month (50% of the $2,550 joint benefit) in the event the plan participant dies first.

A couple can use the basic strategy of a Joint and Survivor annuity to maximize their pension benefits during the lifetime of the participant and still ensure the financial security of the surviving spouse if participant dies first and pension benefits cease. By using the difference in the benefit amounts to purchase life insurance, the spouse can replace the value of the pension income. The life insurance proceeds may be tax-free instead of fully taxable like the pension amounts!*

*Death benefit payments are generally income tax-free.

Penny Wise, Pound Foolish?

Penny Wise and Pound Foolish is an old idiom that talks about the tendency that some advisors have to be over careful with trivial things and under careful about important ones. The literal image is of the person who fusses over small amounts of money to such an extent that they miss opportunities to make large amounts. After 30+ years of leading financial organizations I continue on a daily basis to be amazed at how many

people let their penny wise, and pound foolish mentalities rob them of tremendous suc­cesses.

In some cases, this is as simple as the advisor who deliberates about hiring a $35,000 per year staff member. They decide against it and contin­ue to do tasks that prevent them from doing what only they are uniquely qualified to do, thereby squandering enormous income opportunities in an effort to save the $35,000.

Regrettably however, I see many advisors who continue to focus on “payout rates” and not “revenue generation” as their main focus when selecting an FMO with whom to do business. Is this wise? I would submit that the mistaken be­lief that some advisors hold that payout rate and revenue generation is one in the same. They are not!

Let’s consider the case of Bill who is currently doing $2 million per year in FIA sales. He is evaluating Table Bay and other FMOs to partner with. One firm offers him 50 basis points more than he’s currently being paid at full street level commissions. The other FMO also talks about its ability to show him how to do seminars. Bill does not choose Table Bay but rather the other FMO believing that he will make more money in 2012 because they are willing to pay him 50 basis points more on his production.

So let’s look and see if this was wise or foolish? Because he chose an FMO who is willing to pay 50 basis points more on his production, Bill made an additional $10,000 on his $2 million of pro­duction. Because he did not choose Table Bay, he lost the opportunity to access our world-class cutting edge marketing and unsurpassed training ability, thereby losing the opportunity to in­crease his income between 200 and 500%. Had Bill joined Table Bay, he would have seen his $2 million in annuity sales grow to $5 million in the next 12 months. That represents an increase in his income of $210,000 in the next 12 months which is $200,000 more than he made with the other FMO. I would submit that Bill’s choice was penny wise and pound foolish.

The moral of the story – those that are willing to pay you a piece of their override probably have nothing worthwhile to offer you. If your goal is to increase your revenue, you need to be with the firm that can offer you world-class unique and proven marketing as well as an unsurpassed training system.

Know Thy Client

What is your client’s true risk tolerance? One of the most useful ways to gain a better understanding of a client is to better understand how environmental factors and stressors will affect their response behavior.

Blaise Pascal, a 17th century mathematical genius, discovered “uncertainty is about people, their beliefs and their courage, while calculated risk is based on information, knowledge and credible scenarios. Together, with his colleague, Pierre de Fermat, he came to the conclusion that people are naturally risk averse.”¹ Unfortunately, many investors have a distorted perception of the risk they are taking on.

Over the last decade, the study of investor behavior has become a growing subject of interest among university researchers. In an effort to provide due diligence in client asset allocation, many major financial institutions have created written suitability questionnaires, to include such information as investment experience, time horizon, liquidity needs, risk tolerance, other holdings, financial situation, tax status, and investment objectives. But still clients complain and seek litigation for money lost during market volatility even when the written risk assessment concludes that they should be able to tolerate the prescribed level of volatility. Could we be living in an environment where short written assessments yielding Conservative, Moderate, or Aggressive are not good enough?

Even if the client has all of the information and knowledge before investing, “…it won’t help much unless the investor really and truly understands the amount of money they stand to lose, the probability that this

will occur, and the personal or psychological effects this loss may cause.”² Maybe instead of talking about losses in percentages, we should talk in real dollars. Most risk tolerance questions ask, “Mr. Client, if your investment declined 5% in six months, would you be able to tolerate that?” Now change your question to, “Mr. Client, if you invested $1,000,000 and the market declined resulting in a $50,000 loss, would you be able to tolerate that?” Now watch their risk tolerance change in a heartbeat. Maybe the client is telling you they really don’t want to lose any money at all.

Today, many fixed index annuities offer time horizons as short as 5 and 6 years, no negative annual returns, liberal liquidity options and principle guarantees. If you know that your client seeks safety and guarantees, why take the risk to unnecessarily expose your client to market volatility? By using simple logic and asking the right questions, you can help your client determine their true risk tolerance.

Today, it’s truly better to... KNOW THY CLIENT.

¹Brian Bloch, “Using Logic to Examine Risk”, Investopedia, July 23, 2011;

²Brian Bloch, “Using Logic to Examine Risk”, Investopedia, July 23, 2011

72(t) Basics

 If you have an IRA and are under age 59½ but want to take distributions from your IRA, one exception to the 10% penalty for early IRA withdrawals is found in the Internal Revenue Code under I.R.C. 72(t). This section of the code permits an IRA owner to set up substantially equal periodic payments (SEPPs) from his/her IRA.

Here are some of the basics:

Most Modifications are Prohibited and a modification will trigger penalties that apply retroactively PLUS interest to all distributions made before age 59 ½! No contributions or other additional withdrawals are permitted – the balance may only change due to earnings and losses credited to the account.

Any Change in Your Financial Need is irrelevant – you must continue with 72(t) distributions even if you no longer need the money! Also, any unneeded distributions cannot be rolled into another IRA or converted to a Roth IRA.

A FULL 5 Year Minimum SEPP Commitment is required under a 72(t) payment plan. You must wait until the longer of the end of that 5th year or when the owner turns 59½ to make any modifications to the IRA, i.e., contributions, additional distributions.

*TIP: Segregate the IRA Funds to avoid triggering a modification if you are using the balance of more than one IRA for establishing a plan and calculating the payments.

*CAUTION: Once committed, you are basically stuck with it – the rules are very restrictive so be sure there are no other options available before you decide to choose a 72(t) distribution plan.

Life Insurance: The Greatest Gift of Love

Many years ago an iconic life insurance agent by the name of Tom Wolfe taught me a phrase which I use to this day – “how much money will it take to keep your family in their own world, the world which you created?”

Think about the power of that question. Isn't it true that our children will love us no matter what? We've all heard that our children love us no matter where they live and no matter what conditions they live in. Is not it equally true however that we have created worlds for them that are designed to give them security, happiness, and opportunities to be whatever they want in life? Don’t we have an obligation then to make sure that world is maintained even after we are gone?

You don't sell insurance, you sell love and leaving the ones we love better off, not worse off when the worst event in their life happens. I am convinced that until an advisor processes a death claim and sees how much difference the insurance makes in the life’s of the beneficiaries, you really have no idea how much good you truly do for the people you serve.

Many times I hear and read in various publications that life insurance is not a good deal. When the claim is filed, no one questions if life insurance was a good deal. Today there is a renaissance in the life insurance business largely because of the tax favored status of life insurance payments and the ability to accumulate cash inside of a contract and then pay it out tax-free for retirement purposes. This is a long awaited and amazing opportunity for people to retire using one of the greatest tax breaks inside of the Internal Revenue Code.

That said, forgetting the true miracle of life insurance would be a mistake. As I talk to advisors and even my own staff I hear them constantly talking about what's the commission rate; what's the target premium; what's the override. Sometimes I have to resist the urge to grab them and explain how they don't understand the true miracle of this great industry and the products that we have the privilege to represent.

Have pride in what you do. Our business is not about rates of return, commission rates, trips and contest, or all of the other nonsense that permeates our business. What you do is noble and honorable. You create money when the money is needed the most.

Never lose sight that what you do allows people to give the greatest gift of love- which is allowing the people we love to remain in their own world after we’re gone.

What CPAs Want

Many advisors find it hard to form an effective alliance with a local CPA firm? Here’s some information that should help.

How many CPA firms do you know? More important, how many are you working with to develop your practice? If the answer is “none” it’s time to make alliances with CPAs a key part of your business building efforts.

Here’s why: almost 82% of wealth managers report that referrals from other professionals, such as CPAs, are their #1 source of new clients. What’s more, referrals from accountants are a key driver of these wealth managers success. The same percentage (almost 82%) told us their five best new clients were the result of referrals from CPAs. Nothing else compared!

One reason is that advisors don’t know what CPAs really need and want. The conventional wisdom is that CPAs often distrust financial advisors and don’t want to work with them. However, we believe that over the past decade that Table Bay Financial has developed a unique program to form strong alliances with accountants in your communities. Here are some of our key findings over the past decade.

First, most CPA firms desire to take a collaborative approach to offering wealth preservation services to their clients. This means that they are extremely interested in partnering with the “right” financial advisor. At the end of the day CPAs do not want to sell products and services to their clients, rather they want to take a team approach in offering their clients these critical services. Most importantly CPA firms are interested in helping your clients eliminate heavy, immediate, and unnecessary taxation that can destroy their retirement programs. Recently CPAs have also become aware of and concerned about the devastating effects that a long-term care illness on the client or spouse can have on the ultimate success of the retirement program.

Working collaboratively with an advisor who is highly skilled and trained in distribution planning to provide their clients with beneficiary reviews, custodial reviews, guaranteed income strategies, and protection from long-term care events are currently driving significant new business opportunities for the CPA. When examining non-tax -related revenues for CPA firms we find that the average firm working in a fully collaborative environment utilizing a systematic approach are generating on average $660,000 of new annual revenues.

Firm’s willingness to turn to outsiders is a response to market factors such as increasing complexity of financial products, Social Security issues, and greater client challenges due to market volatility. The top five reasons that CPA’s site for seeking these alliances are as follows:

1. The alliance partner provided them a turn-key marketing and practice management program.
2. The alliance partner was willing to commit resources to help them incorporate wealth preservation strategies into their existing tax practice.
3. The alliance partner was able to help them identify critical issues their clients face and how to effectively communicate those issues to the client along with a resolution.
4. The alliance partner provided systematic and ongoing high-level training regarding tax issues related to distribution planning.
5. The alliance partner was a recognized “expert” in life insurance and IRA distribution planning with respect to effective tax planning for clients and specifically clients nearing retirement.

It is also important to know that the CPA focuses on wanting to partner with top advisers who bring a significant set of resources along with them. Therefore, it is imperative for the advisor to be seen as part of a larger scale operation than simply their own local advisory firm. The CPA wants to be assured that the advisory bringing more to the table than simply an ability to sell product to their clients. Therefore, for advisors who are serious about building strong alliances with CPAs they must partner with a firm that is focused on and devoted to assisting CPAs build their practices. This is why we believe so many CPA referral programs fail because CPA determines quickly that the advisor and the firm to represent only has interest in accessing their database to sell more product. While the CPA is and should be interested in revenue generation opportunities their first concern will be practice building considerations and client retention issues that the advisor can help them with.

If you are interested in learning more about Table Bay’s CPA Advantage Edge Program™ please give Samantha Mayer a call at 866-225-1786.

Stock Blunders

When it comes to stocks, big blunders can be devastating. Big mistakes picking stocks can be nearly impossible to bounce back from. Why?

It's really a mathematical exercise. Here's an example. If you buy a stock for $100/ share and it falls to $60 a share that's a bruising 40% loss. Some investors assume a 40% gain would erase that loss. That's not true, unfortunately. A 40% gain would only get you back to $84 a share. To get back even after a 40% loss an investor would need a 67% gain.

Climbing back from stock losses is extremely difficult due to the harsh reality of math. That's why investors picking individual stocks need to be extra careful to not allow losses to get so big that they are nearly insurmountable.

The sheer difficulty of coming back from a big market loss isn't just theoretical. A study of actual returns of the Standard & Poor's 500 stocks bear out how investors who get hammered with a big loss have such a difficult time coming back. What does all this mean? For the average investor it means avoiding the loss in the first place is the key to success. A wise investor should be willing to give up some of the upside of the market in return for downside protection.

The world of fixed indexed annuities (FIAs) offers exactly that. The opportunity to have 100% downside protection in return for a smaller portion of the upside return is the main value proposition of an indexed annuity.

There are three miracles of indexed annuities:

1. No loss of principal

2. Ability to reset and measure gains from the low point of the index annually.

3. The Ability to capture and lock-in all gains annually.

The advantage of a fixed- indexed annuity is that you can't lose your principal, regardless of indexed performance unless during the early withdrawal period you withdraw your money by surrendering your contract.  With FIAs, your clients can have their cake and eat it too.