Life insurance can be called “love “insurance because we use it to protect the ones we hold dear. It’s the true definition of love for your family that can be the key to ensuring their future financial security.
What is life insurance?
When trying to piece together on the importance of life insurance, you will probably have numerous questions. Luckily for you, we have put together the basic information you need to figure out life insurance’s role.
Life insurance is one of the common types of insurance available. It merely implies that you buy various life policies that shield your family from financial crisis and hardships resulting from loss of income.
The insurance term offers financial cushioning for your beneficiaries if the insured dies having bought the insurance policy. In this case, the term refers to the period you have an active insurance policy over your life. It can be anywhere from one decade to four, depending on the length you choose when buying the life policy.
Types of life insurance
1. Term life insurance
It’s a temporary policy that offers death benefits for a specific period known as the term. The period can range from 10 to 40 years. This type of insurance does not accumulate benefits where beneficiaries receive the specified benefits in the policy. It costs much less than other life insurance policies, especially if the insurer is younger.
2. Permanent policy
It remains in place for as long as the policyholder continues makes payments in time. The cash reserve on permanent policy continues to build up with the policy.
How life insurance works
The premiums remain unchanged through the coverage term, and in case you pass within this time, your beneficiaries receive a lump sum of your death benefits. The money can pay off medical bills, debts, or any other policy pay-out you choose. An insurance company will work with you to find the best policy that fits your needs.
Do you need a life insurance policy?
Some people are not sure whether they need a life insurance policy. The simple answer is that if you have someone looking up to you for financial support, then its high time that you secured yourself a life policy. Some examples of individuals who need life insurance include:
- Young and single -They may acquire various debts that need settling along with funeral expenses. A life insurance policy can help avoid leaving your family with too much burden.
- Married and engaged – Couples usually depend on two incomes. Couples need life insurance to avoid drastic expense change.
- Parent– A parent is a primary provider for their bundle of joy. Since raising kids is an expensive endeavor, you should do all you can to ensure that they are well funded, even in your absence.
Who can benefit from life insurance?
You can use the policy to protect a single person or more. The beneficiaries can be:
- Spouse (heterosexual and same-sex)
- Children (both biological and adapted)
- Organization (business or charity)
The money received from this life insurance is known as the death benefit, and the life insurance company releases it to your beneficiary in one lump sum. The life insurance policy is diverse, and it has no limitations on the number a single person can purchase. Therefore, you can choose to take multiple policies with different term lengths and coverage. All you have to do is make sure that your premiums payments are always up to date to ensure that your coverage remains viable.
Advantages of life insurance
- It’s an affordable low-cost coverage
- It provides coverage for a specific time frame
- Fixed premiums for the insurance period
- Offers financial security for your family
Conclusion
Life does not offer any guarantees. Taking a life insurance policy is a bold and necessary step that provides financial security to the ones you love in the event of the unthinkable. Each payment is a sign of your commitment to protecting your family.
Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.
This year has been quite an adventure for people who need to file and pay taxes. COVID-19’s impact on the economy led to the delaying of the income tax filing date as well as the passing of the CARES Act, or what’s otherwise known as the COVID-19 Stimulus. If you met the eligibility requirements set forth by Congress and the Treasury Department, you received a payment from the government for the amount you qualified for.
Many people may have questions about whether receiving stimulus payments will mean a lower amount in their tax return, or a higher amount in taxes owed. But it may be especially worrisome for those who are currently receiving social security benefits because they have an additional source of income and filing procedures to deal with. Here’s what you should know about how stimulus payments will affect how you file taxes.
Who Gets Stimulus Payments?
Stimulus payments are intended to go to tax payers who have either already filed, or who will file taxes for the years 2018 and 2019. Note that social security beneficiaries are also included in this group. You qualify for $1,200 if you filed individually and your annual income is $75,000 or less, and $2,400 if you filed jointly with your spouse and your combined annual income is $150,000 or less. If you have any children under age 17 who you claimed as dependents, you get an additional $500 per child. If you filed as a head of household, your income can be as high as $115,000 to get the $1,200 payments as well as the $500 per qualifying child.
You will not get a stimulus payment if you have an annual income of $99,000 or more when filing as an individual, $136,500 or more when filing as a head of household, or $198,000 when filing jointly. You also cannot get one if you’re classified as a dependent, don’t satisfy the requirement in the IRS’s non-filer tool, or are a non-resident alien. Bear in mind though that payments are received much quicker if you met the April 15 deadline for direct deposit of your payment, because otherwise receiving it via check in the mail could take months.
How Social Security Benefits Affect Receiving Stimulus Payments
Those who have been receiving social security benefits since before January 1 of this year, and who do not regularly file federal income taxes automatically receive stimulus payments. Those who started receiving them after January 1 of this year, and who didn’t file tax returns for 2018 or 2019 will need to use the non-filer tool to make sure they get their payments. If you used the non-filer tool to enter information about dependents qualifying for the $500 payments after the set deadline, you will have to wait until next year to get those payments.
Social Security Benefits Tax And The Stimulus
One thing to be clear on is that a stimulus payment is NOT considered income according to the IRS. You simply report it as a tax refund credit on next year’s tax form, but your tax owed or refund amount for the year 2020 will not be affected. If you’re a social security beneficiary, your stimulus payment will also not affect your provisional income amount which affects how much you owe in social security benefits taxes. Your provisional income is an amount that’s calculated taking your AGI calculated without student loan interest deductions or tuition fee deductions, adding any tax-free interest your investments such as 401k’s or IRAs have earned, and adding all of that to 50% of the current amount of your social security benefits.
If your provisional income is $25,000 or less and you’re a single tax filers, or $32,000 or less and a joint tax filer, you owe nothing on benefits taxes. You will owe up to 50% in benefits taxes if you’re a single tax payer whose provisional income is between $25,000 and $34,000, or a joint filer whose income is between $32,000 and $44,000. Any provisional income over $34,000 as a single filer or $44,000 as a joint filer will subject you to an 85% tax on your social security benefits. However, if you received a stimulus payment, it will not move your provisional income from one tax bracket to another, and as such you will not have to worry about seeing your benefits decrease.
Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.
Even during difficult financial times, opportunity can come knocking at your door. There is very little
doubt that the current COVID19 pandemic has wreaked havoc on the U.S. economy, affecting almost
every individual in its path. With that said, certain events have made 2020 the year to strongly consider
converting any eligible investment accounts into a Roth Individual Retirement Account?
Does a Roth Conversion Make Sense for Retirees?
Under normal circumstances, the conversion of a traditional IRA to a Roth IRA would make little sense
for a retiree with other sources of income. They would be required to pay taxes on the conversion
amount as they take pretax dollar contributions and convert them into a Roth IRA where contributions
are normally taxed upfront with no tax obligation upon withdrawal.
Thanks to the CARES Act, a waiver has been issued for retirees, waving the requirement for them to
take mandatory retirement distributions for the year 2020 only. They can use that waiver as an
opportunity to convert their normal annual distributions from other IRAs and 401K accounts into Roth
IRA contributions without having to pay the taxes normally associated with doing so. That adds up to
tax savings on the amount converted based on the individual’s applicable tax rate for 2020.
How High Earners Can Benefit From Roth Conversions
Under normal circumstances, a Roth investment would offer little value to high earners. Anyone
making over $139,000, or $206,000 if married and filing jointly would actually not be eligible to
benefit from a direct investment in a Roth IRA. This rule also applies to anyone who has no reported
income.
However, there are a couple of ways high earners can benefit from a Roth conversion in 2020. First, it’s
worth noting that President Donald Trump signed a tax bill in 2017 that slashed U.S. tax rates to its
lowest levels in decades. This offers high earners an opportunity to take the tax hit on conversions at
2020 rates, knowing the future income they will earn from their Roth investments will be tax-free when
taking distributions during retirement.
The benefit would be realized if tax rates are higher in subsequent years, which is entirely possible if
Trump loses the 2020 election. With the country closing in on $27 trillion in National Debt, a new
administration would certainly consider increasing tax rates across the board. That would leave 2020 as
the last year a high earner could take advantage of current tax rates under this particular scenario.
Second, there is a “trick” high earners can use to get access to a Roth IRA. By law, there are no current
income restrictions on contributions someone can make to a traditional IRA. There are also income
limits or earnings requirements related to Roth conversions. Strategically, they could invest in a
traditional IRA and subsequently convert that amount to a Roth. That would leave them with future
earnings that would not be subject to income tax. Investment experts refer to this strategy as a
“backdoor” Roth IRA.
Conclusion
As indicated in the opening paragraph, we are living in extraordinary times. As an investor preparing
for retirement, it is incumbent on you to stay abreast of opportunities that might arise to give you
certain tax advantages.
As Congress contemplates how to keep the U.S. economy from flatlining, there will likely be more
favorable tax legislation coming out in the next few months. Under the right circumstances, investment
options like Roth IRAs might become more appealing. This is the time to keep your eyes open for good
opportunities to take advantage of difficult times.
Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.
Doug Ybema- Grand Rapids Office
Randy Knapp- Okemos Office
