1. THE ECONOMICS OF LIVING TO 100:
With more Americans living longer, many older people lack the resources to sustain themselves in terms of income, housing, health insurance, and long-term care. They’re at one end of the so-called “longevity risk” spectrum; at the other end are sponsors of retirement plans that now have to finance people for longer periods after they retire. These circumstances provide opportunities for public-private partnerships to create financial products that help offset, pool, or transfer the longevity risks to other market participants while helping aging Americans support themselves.
“We are living in an aging society, and we are living longer,” according to Surya Kolluri WG92, a managing director at Bank of America whose responsibilities include thought leadership in the company’s retirement and personal wealth solutions business. “A baby born today has a one in three chance of living to 100 years old. And a female baby born today has a one in two chance of living to 100 years old. We need to be ready for 100-year lives. But you can’t finance these 100-year lives purely by public purse or purely by private purse. You need the two to come together.”
Olivia S. Mitchell, executive director of Wharton’s Pension Research Council, expanded on the need for public-private partnerships: “The traditional methods of coping with longevity, like relying on your own savings or relying on family, don’t always work that well anymore.”
How these partnerships could help older Americans strengthen their financial security was one of the topics discussed at an online symposium in May hosted by the Pension Research Council and Wharton’s Boettner Center for Pensions and Retirement Security. Mitchell and Kolluri moderated panel discussions at the conference, titled “Managing Longevity Risk: New Roles for Public/Private Engagement.” Participants discussed what rising longevity means for our future, how people perceive longevity risk, and the economics and psychology of working longer.
Expanding the Market for Property Tax Deferrals
Property tax deferrals could be a way to provide financial freedom for older Americans, said Alicia Munnell, director of the Center for Retirement Research at Boston College. Under such programs, local governments agree to collect on taxes when property is sold or when ownership passes to the next generation after the current owner’s death.
Kolluri explained how public-private partnerships could play a role in expanding the market for these deferrals: “The fact that you don’t bill the property tax is a public policy activity. Private-sector banks or other lenders would create a mortgage or lien on the property to complete the other end of the transaction, to become a public-private partnership.”
Many U.S. states, including California, Washington, Massachusetts, and Connecticut, offer seniors the ability to defer all property taxes, Munnell said. However, participation in property tax deferral programs remains low nationwide. More seniors could be encouraged to defer property taxes with innovative programs through which state governments reimburse local municipalities for their share of the forgone taxes, she said. She suggested features such as the ability to defer property taxes for up to $1 million in the assessed value of a home. She also suggested that state governments could permit seniors to defer their property taxes until the sum of deferrals, accumulated interest, and mortgages equals 60 percent of the assessed value of their homes.
Retirees will need to work longer than before and become more financially literate in order to make safe choices in planning their financial futures. In Munnell’s plan, such programs would be financed by states covering the interest cost on the deferrals and administrative costs by issuing bonds. The interest on those bonds would be paid by homeowners or the states, from their general revenues. If states don’t want to take on that financing cost, the private sector could buy aggregated loans and liens, securitize them, and sell those securities in the market, she said.
Munnell noted that many households won’t have enough money in retirement, and property tax deferral offers a cheap and easy way to tap home equity. Property tax deferral programs are self-financing on a household basis, but they need startup money from either government or a public-private partnership. “Increasingly, retirees will need to tap their home equity, and stable homeownership makes this option viable financially,” she said.
“The idea is that in the long run, these property tax deferral programs would be self-financing and self-sustaining,” Mitchell said. “When the individual moves out of the house or dies and then the house is sold, the property tax gets paid.” Over time, as more borrowers pass away, the city would be able to collect on taxes that were deferred.
The Opportunity in Reverse Mortgages
Reverse mortgages are another way for older Americans to unlock the money in their home equity. Here, homeowners could raise loans against the value of their homes that can be paid out either in a lump sum or as monthly installments. The loan would have to be repaid when the homeowner dies or if the property is sold.
“It’s well known that many, many older people have substantial home equity,” Mitchell said. “And yet it has been very difficult for them to access that wealth without moving out and selling the house. That’s also not something that older people necessarily want to do. Most older people would like to remain in their homes and age in place, if they can. So reverse mortgages are absolutely critical as a tool to help access some of that wealth.”
27 Million : The number of U.S. adults in need of long-term health services and support is expected to reach this level by 2050, up from 14 million today.
Federal law protects homeowners in reverse mortgages in that they don’t have to repay any balance that exceeds the value of their homes. On the flip side, borrowers can retain the contracted loan amount even if the value of their home falls below that level, or if they live long enough to collect more monthly payments than the lender expected. But in some cases, borrowers can face foreclosure “if they do not pay their property taxes or insurance, or maintain their home in good repair,” according to a guidance note from the National Council on Aging.
Despite their apparent attractiveness, reverse mortgages aren’t popular in the United States, with less than two percent of eligible borrowers taking out such loans, according to a Brookings Institution study. One reason is that potential borrowers are skeptical of scams, high fees, and fears of foreclosure. Alternately, they want to leave their properties for their children after they die.
Public-private partnerships could help find new ways for older Americans to use reverse mortgages, Mitchell said, pointing to Japan as an example. There, some prefectures -- or municipalities -- have innovative reverse mortgage programs for the elderly that allow them to borrow against the equity on their homes to retrofit the properties with railings or wider doors, to accommodate wheelchairs and other needs.
The Attraction of Longevity Bonds
Longevity bonds are also among the “whiteboard ideas” that could be considered, Kolluri said. As people live longer, the pension obligations for sponsors of defined benefit plans have become bigger. Those pension obligations and the associated longevity risks could be transferred to life insurers and reinsurers, he said. “Longevity risk may be an attractive asset class to institutional investors due to low correlation with other risk factors in their portfolios,” said John Kiff, a senior financial sector expert with the International Monetary Fund. He said investors could learn about how “longevity risk transfer markets” work from so-called CAT bonds -- or catastrophe bonds -- for which payouts are made when a catastrophe occurs.
Longevity bonds are like catastrophe bonds in how they protect sponsors of defined-benefit pension plans, according to Mitchell: “If people end up living longer than expected, the plan sponsor is going to be hung out to dry and not be able to pay all the benefits. In order to make a market in longevity risk, the risk needs to be pooled.” She explained how a longevity bond would work: “There would likely be an institution like a defined-benefit plan that would buy such a bond; the insurance company would sell it; and then the insurance company would pool the risk of longevity changes and surprises across its book of business.”
The biggest impediment to implementing longevity bonds is developing a robust framework around the related risks and finding ways to mitigate them. In order to generate income over, for example, a 30-year period, private-sector participants need to start with forecasts of variables such as interest rates, inflation, health-care costs, and long-term care needs, Kolluri said. The trick is being able to correctly prioritize the right variables to forecast, he added.
Mitchell suggested governments could help develop the market for such bonds: “It has been very difficult for insurers to obtain the granular data on mortality patterns across the population.”
The Need for Guaranteed Income
The common thread in all those discussions is a “latent demand for some sort of guaranteed income,” Kolluri said. “As the world has moved from defined-benefit plans to defined-contribution plans, you have offset the risk from a pooled vehicle to an individual. And we have not over the last two or three decades equipped that individual who was taking on the risk with any of the tools to manage that portfolio.”
Richard Fullmer, founder of Nuova Longevità Research, made a case in his presentation for pooled annuities. He explored the scope for state-sponsored defined-contribution pensions in the form of “low-cost assurance pools that deliver lifetime income through mortality pooling and strict enforcement of a budget constraint.” Those could take the form of pooled annuities or tontines, with lifetime income assured but the level of that income not insured or guaranteed, he said.
On top of the need for guaranteed income, innovative strategies are necessary to finance and deliver long-term care, said Nora Super, senior director of the Milken Institute’s Center for the Future of Aging. To improve funding and delivery, she focused on three possibilities. First, she suggested facilitating private and public insurance-product design for long-term care with increased funding to allow for better testing of models. Second, she called for Medicare coverage of long-term services and supports to be increased through the expansion of Medicare Advantage supplemental benefits, and by testing new benefit offerings that would allow insurers to gather data needed to measure health outcomes and related cost savings. Last, she called for improving cost savings and efficiency via better integration of technology with care delivery and by scaling successful funding models to allow for greater adoption.
Financing issues are especially relevant amid concerns that the Social Security trust fund won’t be able to honor its obligations after 2035, and in light of huge government deficits resulting from the COVID-19 pandemic. “There really isn’t much money left out there to tax to be able to support these social safety-net programs,” Mitchell said.
As a result of these pressures, retirees will need to work longer than before and become more financially literate in order to make safe choices in planning their financial futures, she added. “Governments can play an important role here in educating the population about the need to save and earn returns and not draw down their assets too quickly in retirement.” WHARTON Magazine, https://magazine.wharton.upenn.edu, Fall/Winter 2020.
2. COVID-19; HOW DO PENSION SYSTEMS FARE?:
Saving for retirement is the primary investment objective for most individuals. Yet the ability to meet this objective depends not only on the investments made, but on the system on which retirement income provision rests. Put simply, how well a pension system is designed, including the level of benefits it provides, its sustainability, and its governance, has a critical bearing on the ability to meet one’s retirement goals.
Pension funds, as some of the biggest institutional investors in financial markets, play an influential role in capital allocation and the generation of wealth and well-being for individuals’ retirement. The framework in which they operate provides the key infrastructure supporting pension system effectiveness.
An annual examination of 39 different retirement income systems around the world rates the strengths and weaknesses of different pension systems. The findings, published in the Mercer CFA Institute Global Pension Index, provide accurate and comparable data on retirement systems covering approximately two-thirds of the world’s population.
The index is comprised of three sub-indices that measure the adequacy, sustainability, and integrity of pension systems, respectively. The adequacy sub-index includes certain core features such as the design of the system and level of benefits it provides in retirement. The sustainability index examines factors such as demography, public expenditure, government debt and economic growth, while the integrity sub-index evaluates the governance and regulation of the pension system, including transparency, costs and investor protections. The index covers all the pillars of retirement income provision, namely state pensions, personal and occupational pensions, and additional private savings or assets held outside of a pension.
The Netherlands is ranked as the top retirement income system, followed by Denmark, both of which received the coveted A-grade in the index. These systems provide very good benefits and have good pension coverage in the private sector, as well as having a significant level of assets (more than 150 per cent of GDP) set aside to meet future liabilities.
But in most markets, pension provision is challenged by increased life expectancy and the low growth/low interest rate environment, which may reduce investment return expectations and increase the present discounted value of future liabilities. The Covid-19 pandemic has created an additional challenge for retirement systems that has accentuated strains in funding levels.
The pandemic has led to large-scale fiscal support measures, funded by increased government debt levels, the servicing of which adds to pressure on future pay-outs from the state. Moreover, in many markets, the recession induced by the closure of large segments of the economy, together with reduced employment, may lead to lower individual contributions.
In some countries, workers who have lost employment have been permitted to access a certain (limited) proportion of their pension savings, which may provide temporary income support but at the expense of lost future retirement income. The impact of reduced contributions generally, as well as early access to pension assets, results in leakage from the system, which may impair future benefits.
The index identifies a number of recommendations to strengthen pension provision in each of the markets covered. All else equal, the more individuals save and the longer they work, the higher the benefits in retirement and the more sustainable the system. But the recommendations also identify important areas for reform, including expanding pension coverage to all types of workers, making improvements to pension scheme governance and transparency, reviewing the level of public pension indexation, tackling the pensions gender gap, and reducing the leakage from retirement income systems.
The macroeconomic consequences of the pandemic may have long-term effects on the adequacy and sustainability of retirement income systems around the world. Investors, pension plans, and public authorities will need to work together to address the potential build-up of an accrued trust deficit in pensions among individual savers. Among other things, this will require a re-examination of asset allocation, including the dependence of defined contribution schemes on public markets, as well as ongoing improvements to pension scheme governance, costs, and coverage.
The path to a more robust pension system will require continued dialogue and collective action among policymakers and industry stakeholders. The promise of a secure retirement depends on it. Rhodri Preece, www.top1000funds.com, November 30, 2020.
3. THE BASICS OF TERMINATING A DC PLAN:
It's possible that more retirement plans could be terminated this year as a result of the economic impact of COVID-19 and business closures.
In addition, if a business is going south, a plan sponsor could decide to terminate its retirement plan, says David Klimaszewski, partner at Culhane Meadows. “As an alternative, plan sponsors may freeze their plans to see if things get better.”
While many in the retirement plan industry are familiar with frozen defined benefit (DB) plans, Klimaszewski explains that defined contribution (DC) plan sponsors can freeze their plans as well. Typically, employer contributions stop, then the plan can stop accepting employee contributions. “Normally, if employer contributions are not received for a while, participants remaining in the plan become 100% vested, but it doesn’t affect the qualification of a plan,” he says.
However, unlike DB plans, Klimaszewski says he’s never seen a DC plan completely frozen and left to hang around. “I’ve always seen deferrals accepted up to a date before termination.”
Beth Garner, national practice leader for BDO’s employee benefit plan audits practice, says BDO has had several clients with more than 100 employees decide the administrative burden was too much and terminated their DC plans.
Before terminating a DC plan, plan sponsors should make plan amendments for all law changes as of the date of termination, says Lisa Tavares, employee benefits and compensation partner and co-chair of the Business Division at Venable LLP. “There will likely be an accelerated amendment deadline from the IRS extended amendment deadlines,” she says.
Plan sponsors may make a general amendment regarding the plan termination but many plans only require the adoption of a resolution terminating the plan, Tavares says. “Plan sponsors should adopt a resolution to terminate the plan on a specific date, discontinue contributions, vest all participants 100% and distribute all assets as soon as administratively feasible,” she says. “They should provide the recordkeeper and/or third-party administrator [TPA] with a copy of the adopted resolution terminating the plan.”
If a plan sponsor decides to amend the plan, the amendment should document when contributions stop, Garner says. If the plan is a prototype or volume submitter adopted from a recordkeeper or TPA, plan sponsors can tell the provider when the termination is effective and the provider will prepare the agreements that need to be signed, she adds.
When a plan is terminated, all active participants become 100% vested in their accounts and participants who were recently terminated will also be made 100% vested, Klimaszewski says.
Plan sponsors need to have all assets distributed within one year of the plan termination, Tavares says. “They need to start this process right away in order to get notices out and provide the opportunity for multiple mailings to nonresponsive participants in order to get all money out in one year,” she says.
Plan participants must be notified of the effective date of plan termination and notified of distribution options. Following plan termination, the recordkeeper or TPA must provide the appropriate Internal Revenue Code (IRC) 402(f) rollover notice within 30 to 180 days of the distribution date, Tavares adds.
Klimaszewski notes that IRC Section 204(h) mandates that for money purchase pension (MPP) plans, when future benefit accruals will be significantly reduced by a plan amendment, participants should receive a notice explaining how future accruals are expected to be reduced. The notice must be provided at least 45 days before benefits cease to accrue.
“It can be complicated to send notices to everyone and get their [distribution] elections,” he adds. “Frequently, a few people don’t respond, and if assets are not distributed, it can cause a plan disqualification.”
But, as long as plan sponsors show they are making a concerted effort to find people, the IRS is not likely to disqualify the plan, Klimaszewski says. This can include hiring a commercial locator service, rolling a participant’s money into an individual retirement account (IRA) or escheating a participant’s assets and filing a 1099-R.
Other than the steps for terminating a plan outlined in the Employee Retirement Income Security Act (ERISA) and IRC, Klimaszewski says plan sponsors should see what procedures might be specified in the plan document.
Garner says the plan document should specify rules about cashing out plan participants with low balances if plan sponsors have decided to do that. Typically, plan sponsors can send a check to the participant’s address on file if his account balance is $1,000 or less. If his balance is greater than $1,000 and up to $5,000, assets are rolled to an IRA.
“Loans are always another issue,” Klimaszewski says. Plan sponsors usually accept participant loan repayments for a little while—perhaps until distribution of assets begins, he notes, but how plans handle outstanding loans varies a great deal from company to company.
“Participants have to be notified and given a chance to roll over loan amounts before a loan is defaulted,” Klimaszewski says. “There are also cure period rules and loan offset rules. Under new rules, participants have until the due date for filing their federal income tax return to do a rollover.”
Klimaszewski also reminds plan sponsors that do a match true- up to budget for it and make sure it happens, because there will be problems if there are unpaid benefits.
Tavares recommends that the retirement plan committee continue to monitor benefits until all assets are paid out of the plan. She notes that for money purchase plans, there may be special distribution rules, including annuity forms of distribution that may need to be distributed, and some special rules apply for 403(b) plan terminations.
She also suggests that plan sponsors apply to the IRS for a favorable determination letter (Form 5310) on the termination of the plan. “The determination letter is not required but is recommended to ensure that there are no issues that the IRS can raise in a later audit,” she says. Form 5310 needs to be filed within one year of plan termination.
Klimaszewski says he thinks it’s a good idea to file for a determination letter when terminating a plan. He adds that when plan sponsors file for bankruptcy, often the bankruptcy trustee will decide to file for a determination letter.
Klimaszewski says plan sponsors in dire financial positions may forego getting a determination letter because of the cost. The filing fee for a Form 5300 is $2,500 for single-employer plans. According to Garner, getting a determination letter also takes so long that some plan sponsors decide not to go through with it.
Tavares says the process takes six to nine months or longer depending on the IRS’ backlog. “Plan sponsors need to consult with counsel to determine if all the information necessary to complete the application is available and in good order before filing,” she says.
Tavares adds that the Form 5310 filing requires a Notice to Interested Parties that is sent to all participants between 10 and 24 days before the IRS application, and the notice explains the plan sponsor’s request for a favorable determination letter on termination.
Plan sponsors should file a final Form 5500 and continue filing until there are zero assets in the plan, Tavares says. Garner says plan sponsors might “get tripped up” about filing the final Form 5500. It needs to be filed by 7 1/2 months after the date of termination, but plan sponsors can file for an extension. To make sure the plan’s trust is clean, Garner says, plan sponsors should pay all outstanding plan expenses that are paid by the plan. Rebecca Moore, PLANSPONSOR, www.plansponsor.com, November 30, 2020.
4. NEW JERSEY POLICE AND FIRE NABS ITS FIRST CIO:
Russell Niemie was named chief investment officer of the Police and Firemen's Retirement System of New Jersey, confirmed Dan Bank, a spokesman for the Trenton-based plan. The position is new at the $27.4 billion pension plan.
"Russ brings more than two decades of experience to the Police and Firemen's Retirement System, and we are extremely fortunate to be able to draw from his expertise and leadership," said Gregory Petzold, executive director of the retirement system, in a statement. Mr. Niemie was chief risk officer at White Oak Global Advisors. Will Pierce, head of risk management, assumed his responsibilities, confirmed spokesman Jonathan Setiabrata. James Comtois, Pension & Investments, www.pionline.com, December 1, 2020.
5. HOW DOES A 403(B) PLAN DIFFER FROM A 401(K) PLAN?:
A 403(b) plan works in a similar fashion to a traditional 401(k) plan. However, there are a few key takeaways that differentiate these retirement accounts.
A 403(b) plan is for specific employees of public schools and other public institutions, as well as tax-exempt organizations. For example, participants commonly include teachers of all educational levels and government employees. Some nurses and doctors will also have access to this type of retirement account. Let’s take a closer look below.
403(b) Plan vs. 401(k) Plan
The biggest difference between these two plans is the participants. Otherwise, they work in similar ways.
So, what is a 403(b) plan exactly? It’s a plan for certain public-sector employees and tax-exempt organizations that offers a tax-advantaged way to save for retirement. Congress invented them in 1958 as a tax-sheltered annuity for certain organizations.
But the investment options are often more limited than a traditional 401(k). And a 401(k) serves private-sector employees. Most 403(b) plans offer mutual fund options such as fixed and variable contracts. Other securities, such as stocks or real estate investment trusts (REITs), are prohibited.
Yet, there are many benefits to a 403(b) plan as well. For instance, these accounts can include faster vesting options for your funds. You will also have the ability to make additional catch-up contributions if necessary.
Contribution limits are right on par with a 401(k) plan. The basic contribution limit is $19,500 in 2020 and 2021. The combined employer and employee contributions are limited to the lesser of $57,000 in 2020 and $58,000 in 2021. Or 100% of the employee’s most recent yearly salary.
You can withdraw funds without penalty once you reach 59 1/2. Any funds withdrawn before this age are subject to a 10% tax penalty. There are also Roth options available for 403(b) plans if you are interested.
403(b) Plan Outlook
The overall outlook of a 403(b) plan is, as you may have guessed, similar to that of a 401(k). For starters, all earnings and returns are tax-deferred until you make withdrawals.
Your employer may also offer a contribution match. And if you have 15 or more years of service with a certain nonprofit or government agency, you may have the option to make even more additional catch-up contributions. There are generally lower administrative fees as well.
In addition, some 403(b) plans offer immediate vesting of funds. This is almost unheard of in 401(k) plans. To learn six ways to make the most of these plans, click on that link.
Planning for Your Retirement
It’s important that you plan for your retirement no matter if you work in the public or private sector. There are many avenues that you can take to prepare financially for this stage of life.
Don’t fall behind in your retirement savings journey. Sign up for the Wealthy Retirement e-letter below for the most up-to-date retirement trends and strategies.
Many Americans aren’t saving enough money to live comfortably in retirement. And this is largely due to the fact that most people aren’t informed enough to make better retirement decisions. Do your research and learn more about the benefits of a 403(b) plan if you work in the public sector. Corey Mann, Investment U, https://investmentu.com, November 30, 2020.
6. THREE FACTORS IN DETERMINING YOUR IDEAL RETIREMENT AGE:
Determining the best age for retirement is a multifaceted process, but financial needs should be a central consideration. Retirees require sufficient cash flow to cover basic needs along with desired lifestyle, but they also have to manage the biggest risks, including longevity risk, inflation risk, and healthcare. If all the elements of a financial plan aren't in place to provide enough cash flow without incurring too much risk, investors might have to consider a different retirement age.
To determine the ideal retirement age, people need to weigh their anticipated cash needs against guaranteed income and cash flows produced by their accumulated assets. A successful retirement can be achieved once those cash needs are covered.
Anticipated Cash Needs
Investors need to estimate how much cash they'll need annually to meet basic needs and support their desired lifestyle. It's generally understood that income after retirement can be meaningfully lower than during working years because there's no explicit need for continued saving, houses tend to be paid off, and people usually no longer have children to support.
However, people often require more than anticipated during the golden years due to higher medical expenses, more time spent traveling or eating out, and changing standards of living. In the 1980s, people likely hadn't expected to incur bills for internet service or cellphones that are seen by many as basic costs of living today. Long-term care has become a major element in retirement financial planning, with more and more seniors requiring nursing homes, acute care, or in-home care that can easily surpass $7,500 each month.Get the Coronavirus Watch newsletter in your inbox.
Moreover, inflation drives all these prices higher over time, further complicating the decision. Retirees need to conservatively tally their anticipated income to ensure that it can cover expenses. Any shortfall here might force them to delay retirement.
The amount you've already saved and interest rates
Savings in brokerage and retirement accounts can produce cash flow through dividends and interest, and assets can also be sold to pay for lifestyle needs. Retirement planners often quote the 4% rule, meaning that investors can safely withdraw 4% of their total portfolio value each year in retirement without running out of cash.
However, historically low interest rates and rising life expectancy are causing many to challenge this rule, which may need to be revised downward to 3% or lower. So, for every $1,000,000 in savings, retirees can reliably expect $30,000 in annual cash for living expenses. Rising interest rates would hypothetically reduce the amount of savings required to generate that income, but the Fed has indicated that rates will remain low for the foreseeable future.
Anyone relying on funds in a qualified plan such as an IRA or 401(k) should also note that withdrawals generally cannot be made prior to age 59 ½ without penalty.
Guaranteed Income Sources
Most retirees have some form of guaranteed income from Social Security benefits, annuities, and defined benefits plans, such as pensions. Monthly Social Security benefits are dependent on someone's age and the amount they've paid into the system throughout their working life, so retirees have to check with the Social Security Administration to determine their exact income.
The average monthly benefit in 2020 was $1,503. Full retirement age ranges from 66 to 67 years old, depending on year of birth, but people can elect to start collecting at any age between 62 and 70. The longer collection is delayed, the higher the benefit will be. For example, someone who turns 62 in 2021 and starts collecting retirement benefits immediately will get just over 70% of their full retirement benefit, while waiting until age 70 can increase that number to more than 125%.
Younger people should note that Social Security benefits may be unavailable or reduced in the future. By 2035, the system is expected to lose more money than it collects, meaning it may be underfunded several decades from now.
Pensions used to be very popular. They've become more rare, but more than 20% of American workers still participate in pensions. These provide guaranteed monthly payments for either the life of the retired person, or whichever spouse lives the longest. Length of service and retirement age can change the amount paid out each month by a pension, but it should be relatively easy to determine how much income a household will receive in retirement once those factors are determined.
Many people purchase annuities, which provide guaranteed monthly income over the lifetime of the purchaser. These can be complicated products with numerous options, but they are ultimately designed to eliminate longevity risk by transferring assets and risk from an individual to an insurance company. Insurance carriers can provide estimates, through an official forecast called an illustration, for payouts based on assumed account growth and age of retirement. Policyholders should know that these are usually not guarantees, but they can be useful for forecasting cash flows after their working years.
When doing financial planning for retirement, people need to understand whether or not their cash flows will be high enough to cover anticipated costs. Retirees should estimate their guaranteed income, along with the cash flow that their assets will produce, then compare these to monthly expenditures on housing, medical expenses, basic needs, and lifestyle. Ideal retirement age should be whatever age allows retirement cash flows to be sufficiently high. Ryan Downie, The Motley Fool, www.fool.com, November 29, 2020.
7. SHOULD YOU USE THIS CORONAVIRUS RETIREMENT LOOPHOLE BEFORE 2021?
Millions of Americans have been hit hard financially due to the coronavirus pandemic, and the months ahead look grim as the number of COVID-19 cases continues to surge. Although Congress has not yet reached an agreement about another stimulus package, many benefits under the CARES Act are still in effect.
However, those benefits are set to expire on Dec. 31, 2020. And there's one key retirement money loophole you might consider taking advantage of before it disappears.
Retirement benefits under the CARES Act
The CARES Act, which was passed in March of this year, includes several provisions aimed to provide financial relief to U.S. households. One of those benefits is the ability to withdraw money from your 401(k), 403(b), or IRA without facing penalties.
Typically, taking money from one of these accounts if you're under age 59 1/2 results in a 10% penalty and income taxes on the withdrawal amount. Under the CARES Act, though, you can take penalty-free withdrawals of up to $100,000. The only caveat is that, to be eligible for these distributions, you'll need to be experiencing coronavirus-related financial hardship.
In addition, withdrawing funds now can reduce your tax burden. Before the CARES Act, you would be subject to income taxes immediately after making your withdrawal. Now, although you'll still owe income taxes on your penalty-free distributions, you can pay them over three years.
If you expect to be able to repay your withdrawal, the CARES Act also allows you to redeposit your distribution into your retirement fund within three years without owing taxes. Repaying your distribution quickly will not only help you avoid the penalty and income taxes, but it can also reduce the withdrawal's impact on your long-term savings.
These benefits are going to expire at the end of the year. So if you're planning on making a hardship withdrawal, doing it now rather than waiting until 2021 could save you some money.
The dangers of early distributions
Although these provisions under the CARES Act make it more affordable to withdraw from your retirement fund, there are still plenty of risks involved with taking early distributions. For one, you'll likely still have to pay taxes. Spreading your payments out over three years can make each payment more affordable, but if you withdraw a significant amount of money, that's still a hefty tax bill.
More importantly, taking early distributions can hurt your long-term savings. Every time you take money from your retirement fund -- even if it's only a few hundred or thousand dollars -- you're reducing your investments' earning potential.
Say, for instance, you have $100,000 in your 401(k) and you withdraw $5,000 right now. Here's what your savings would look like over time if you were earning average stock market returns and didn't make any additional contributions:
Although a $5,000 withdrawal may not seem like much, it can potentially amount to around $50,000 in missed investment gains over 30 years. So before you take an early distribution, consider how that withdrawal will affect your long-term savings.
Should you make a withdrawal now?
Whether or not to raid your retirement savings is a highly personal decision and will depend on your unique situation. If it's a true emergency and you have no other savings, tapping your retirement fund might be your only option. And if you already know you're going to make a withdrawal, doing it before the end of the year is a smart move -- especially if you think you might be able to pay it back within the next three years.
If at all possible, though, aim to avoid taking early distributions from your retirement fund. Try your best to set aside cash in an emergency fund for the future, so you won't need to touch your retirement savings when money is tight. No matter what you decide to do, make sure you've thought about all your options and weighed the risks and rewards. Katie Brockman, The Motley Fool, www.fool.com, November 30, 2020.
8. THREE STEPS YOU CAN TAKE NOW TO GAIN CONTROL OF YOUR RETIREMENT:
Given the year we’ve experienced, most people are feeling justifiably anxious about protecting their retirement investments. Some nervousness is normal at any time, of course, since we can never predict what the markets or the overall economy will do. But there are things investors can do now to gain more control over their finances and prepare for what might come next.
Determine your risk tolerance and risk exposure
How much risk are you willing -- and able -- to accept when it comes to future returns? Here are some things to consider:
- There’s a difference between emotional risk tolerance and mathematical risk tolerance. Emotional tolerance is the level of loss you can handle without churning with worry at night or making knee-jerk moves that could end up costing you money. Mathematical tolerance is the level of loss your plan can actually afford to take and still have enough money left to provide the income you need. Both are important factors when deciding the appropriate asset allocation for your portfolio.
- Many people adjust their level of risk based on their “time horizon” -- the number of years they expect to grow the money in their portfolio before they retire. Young investors, for example, are generally open to taking on more risk because they know if the market suffers a downturn, they’ll have time to recover from the loss. Older investors typically have a lower risk tolerance, especially if they are about five years away from retirement, or are less than five years into retirement. (I call this period the hazard zone, because it requires extra vigilance.) Soon-to-be retirees who will depend on their investments for income must take into account what an ill-timed downturn could do to their retirement plans.
Look at ways to optimize your retirement income sources
Retirement success is really all about finding reliable income streams and turning them on at the appropriate time.
You can start by doing some Internet and in-person research and asking questions like:
- “How will I replace my paycheck when I retire?”
- “When is the best time to claim my Social Security benefits?”
- “What should I do with my pension?
- “Should I take a lump sum or an annuity payout, and should I opt for the survivor benefit?”
- “How can I avoid paying too much in taxes?”
- “What will happen if I outlive my money?”
Keep in mind that the rules change when you move from the accumulation phase of your financial life to the distribution phase. Think of it like climbing Mount Everest. The majority of accidents happen on the way down. Getting to the summit (retirement) is only half of the journey. Even a minor slip could impact your retirement success, so having a plan that prioritizes safety is critical.
Protect your retirement with a comprehensive plan
There’s a big difference between having a financial portfolio and having a financial plan. A plan should coordinate all the areas of your financial life and protect you from any threats, or what I call “plan killers,” including:
- Market risk and the effects of volatility on your investments
- Longevity risk and the possibility you could outlive your money
- Inflation risk and the danger of losing your purchasing power as you move through retirement
- Health risk and the often-overlooked (and downright scary) costs of long-term care
If you think of the various aspects of retirement like dominoes, you can see the value of using a comprehensive plan to keep one mistake or oversight from impacting other parts of your financial life. A poor investing strategy, for example, could have a negative effect on your taxes. A lack of insurance planning could have a negative effect on your income. Missing out on an important tax strategy could cost you thousands or have a negative effect on your estate plan. And so on. David Faulkner, Kiplinger, www.kiplinger.com, November 26, 2020.
9. FOURTEEN FINANCIAL PLANNING TIPS TO ACT ON BEFORE YEAR-END:
The window of opportunity for clients to trim their 2020 tax bill, save for retirement and leverage strategies to secure their financial futures is closing. No doubt many advisors are already fielding client questions about these very issues. And if they aren’t--they soon will be.
To enable advisors to help their clients make these moves before it’s too late, CPA financial planners with the American Institute of CPAs (AICPA) , the world’s largest member association representing the CPA profession, have offered the following 2020 year-end tips, along with the relevant deadlines to act on each.
Prepay 2021 Residence Real Estate Taxes For a 2020 Discount
Deadline: December 31, 2020
“In the past, prepaying real estate taxes could trigger the alternative minimum tax (AMT), but with a generous AMT exemption and a cap on deducting state and local taxes, AMT concerns are minimal. While this benefit can be reduced by the $10,000 overall cap on state and local taxes, by prepaying real estate taxes in 2020 that are otherwise due before the end of 2021, taxpayers can get a discount on their 2020 taxes.” - Jason Uetrecht, CPA/PFS member of the AICPA Personal Financial Planning (PFP) Executive Committee
Excellent Opportunity for the Charitably Inclined
Deadline: December 31, 2020
“For taxpayers thinking about making a large charitable contribution, 2020 offers an excellent opportunity to go all in. Unlike other years where charitable gifts are limited by a percentage of AGI (adjusted gross income), charitable donations made in 2020 to qualifying organizations are 100% deductible. So, if you do decide to make a large donation, this offers a great opportunity to also lower your overall taxable income for the year. If you plan right—everybody wins.” - Maggie L.N. Rauh, CPA/PFS member of the AICPA Personal Financial Specialist (PFS) Credential Committee
Pay Home Business Expenses Now to Lower Taxable Income
Deadline: December 31, 2020
“If you have a home business or a side gig, take this time to look at your Profit and Loss Statement so you won’t be surprised by lower expenses and higher taxable income (and taxes) than expected come Tax Day 2021. Now may be the right time to squeeze in any large business expenses you have been considering. By paying for qualified business expenses before the calendar flips to 2021, you will lower your overall 2020 taxable income.” - Brooke Salvini, CPA/PFS member of the AICPA PFP Executive Committee
Self-Employed? Establish a Retirement Plan for Your Future & Get Tax Benefits Today
Deadline: December 31, 2020 setup for certain plans, return due date for others
“If you’re self-employed, it’s never too late or too soon to set up a retirement plan. Some plans must be established before December 31, but you can postpone funding until 2021 and still claim the tax benefit on your 2020 tax return. A CPA financial planner can help you evaluate your options and select the right retirement plan for your business.” - Brooke Salvini, CPA/PFS member of the AICPA PFP Executive Committee
Make Up Estimated Tax Shortfall with Increased Withholding
Deadline: Final 2020 company payroll submission by human resources (varies by company)
“If you find that your estimated tax payments throughout the year are coming up short of what you expect to pay for 2020 taxes, you are in danger of incurring penalties. Reach out to your human resources department to request an increase to the withholdings from your remaining 2020 paychecks to make up the difference ASAP. After you catch up, you can complete and submit a new Form W-4 to make your withholding more accurate so it is even throughout the year.” - Paula McMillan, CPA/PFS member of the AICPA PFS Credential Committee
Pandemic Loan Opportunity Coming to an End
Deadline: December 31, 2020
“For those impacted by the pandemic who need liquidity, there is a special opportunity expiring at the end of the year. Distributions made prior to December 31, 2020 from qualified plans provide a once-in-a-lifetime chance to borrow up to $100,000 penalty, tax, and interest-free (you do lose the upside/downside on the investments) from your 401(k)/IRA over three years. This potential liquidity lifeline should be used very cautiously to avoid setting back your retirement savings for years. But for small business owners affected by COVID costs/loss of revenue, it could be a valuable option.” - Mark J. Alaimo, CPA/PFS member of the AICPA PFS Credential Committee
Consider a Roth IRA Conversion
Deadline: December 31, 2020
“The Roth IRA conversion remains a good planning technique for certain taxpayers. Doing so creates tax-free income during retirement and provides greater flexibility than a Traditional IRA does. In the current environment where asset values may still be low, and with the potential that tax rates may increase in the future, the Roth IRA conversion is even more attractive between now and the end of 2020.” - Dave Cherill, CPA member of the AICPA PFP Executive Committee
Maximize Health Savings Account (HSA) Contributions
Deadline: April 15, 2021
“If you have an HSA qualified health insurance plan, one way to lower your taxes is to contribute the maximum allowed in your HSA (generally $3,550 for individual coverage or $7,100 for family, $1,000 additional catch-up contribution allowed if age 55 or older). HSA contributions can be deducted through payroll, but you can also make contributions directly to ensure the maximum is made. In addition to providing a tax deduction, HSA dollars carry over indefinitely and are yours even if you switch jobs or retire. They can also be distributed without penalty once the account owner is on Medicare, so if you have the funds, it would be a shame to miss out on this tax savings opportunity while also saving for future healthcare costs.” - Matt Rosenberg, CPA/PFS member of the AICPA Financial Literacy Commission
Leverage Your Losses to Protect Your Income from Taxes
Deadline: December 31, 2020
“This has been a year to remember for stock portfolios. The market downturn caused by the pandemic produced losses not seen since 2008/2009. And the rebound since the low has been equally surprising. Now is a great time to review your investment portfolio to realize any additional capital gains and losses for the year. If you find yourself with net realized capital losses for the year, it is important to know that you can only reduce your ordinary income by $3,000. The remaining capital loss would then be carried forward into the next year. Remember to coordinate your capital gain/loss harvesting strategy with your tax planning. If you expect to be in a higher tax bracket next year, it may be better to carry the capital loss into next year to help offset capital gains in 2021 instead of incurring capital gains in 2020.” - Oscar Vives Ortiz, CPA/PFS member of the AICPA PFS Credential Committee
Don’t Miss Employer 401(k) Match Opportunities
Deadline: Deferred from last paycheck or December 31, 2020
“Everyone with an employer that offers a 401(k) match should at least contribute the amount required to get the maximum match. An employer 401(k) match is like getting a 100% return on your money the first year invested. If you aren't contributing enough to receive the full employer match, you should check on whether there may be a ‘catch up’ opportunity before year-end. Not fully utilizing this employer benefit is essentially passing on free money.” - Matt Rosenberg, CPA/PFS member of the AICPA Financial Literacy Commission
Maximize Roth Contribution Opportunities
Deadline: April 15, 2021
“If you haven’t reached your Roth IRA contribution limit for the year, it might make sense to increase your contributions in order to take full advantage of this year’s opportunity to put away retirement savings dollars. Keep in mind, you pay taxes at the time of contribution to a Roth IRA and then 100% of the Roth contribution remains in the account growing tax-free for the benefit of the taxpayer.” - Robert Westley, CPA/PFS member of the AICPA Financial Literacy Commission
Review Beneficiary Designations
Deadline: Make it routine.
“Due to the end of ‘stretch-IRAs,’ check whether any designated beneficiaries are ‘eligible’ to be exempt from the 10-year rule. Determine whether current designations align with original intent (e.g., an initial designation for a child may be outdated if the adult child no longer needs the income but another beneficiary would). Additionally, if you are post-divorce, be sure to review all designations and make changes where necessary.” - Sidney Kess, CPA member of the AICPA PFP Executive Committee
Gift Today to Reduce Future Estate Tax
Deadline: December 31, 2020
“If you are looking for ways to gift your wealth while reducing your estate tax exposure, don’t forget that you can give up to $15,000 to as many beneficences as you would like each year without paying a gift tax or decreasing your lifetime estate tax exclusion amount. This is a great way to gift your wealth without triggering a tax impact. Review this 2020 tax planning opportunity now because once the year ends it is lost.” - Mark J. Alaimo, CPA/PFS member of the AICPA PFS Credential Committee
Revisit Risk Tolerance and Portfolio Diversification
Deadline: Make it routine.
“Though the stock market’s record performance is encouraging, 2020 has served as a reminder of the volatile nature of markets. As the impact of COVID-19 continues to play out across the country, investors should weigh their risk tolerance and ensure they have ample cash on hand. Further, a tax-efficient financial plan that includes a diversified portfolio can give confidence that long-term financial goals will remain within reach through this period of extreme uncertainty.” - Dave Stolz, CPA/PFS and chair of the AICPA PFS Credential Committee
Wealth Management Staff, WealthManagement.com,November 20, 2020.
10. HOW THE HOLD HARMLESS PROVISION PROTECTS YOUR BENEFITS:
Social Security works together with the Centers for Medicare & Medicaid Services to make sure you won’t have a reduction in your Social Security benefits as a result of Medicare Part B premium increases.
A special rule called the “hold harmless provision” protects your Social Security benefit payment from decreasing due to an increase in the Medicare Part B premium. The Part B base premium for 2021 is $148.50, which is $3.90 higher than the 2020 base premium.
Most people with Medicare will pay the new premium amount because the increase in their benefit amount will cover the increase. However, a small number of people will see little or no increase in their Part B premium -- and their Social Security benefit checks will remain the same -- because the amount of their cost-of-living adjustment isn’t large enough to cover the increase.
To qualify for the hold harmless provision, you must:
- Receive Social Security benefits or be entitled to Social Security benefits for November and December of the current year.
- Have your Medicare Part B premiums for December and January deducted from your monthly benefits.
There are exceptions:
The hold harmless provision does NOT apply to you if:
- You enroll in Part B for the first time in 2021.
- You pay an income-related monthly adjustment amount premium.
- You are dually eligible for Medicaid and have your premium paid by a state Medicaid agency.
You can learn more by visiting Medicare. Darlynda Bogle, Assistant Deputy Commissioner, SSA, www.ssa.gov, November 30, 2020.
11. CENSUS BUREAU 2020 DEMOGRAPHIC ANALYSIS ESTIMATES:
The U.S. Census Bureau will hold a virtual news conference to announce the release of the 2020 Demographic Analysis population estimates, which include national-level estimates of the population by age, sex, and select race and Hispanic origin groups as of April 1, 2020.
Instead of collecting responses to a questionnaire like the 2020 Census, Demographic Analysis uses birth records, death records, data on international migration, and Medicare enrollment records to estimate the size of the U.S. population. By releasing these estimates ahead of the first 2020 Census results, Demographic Analysis offers an independent measure of the population for comparison with the official census counts once available. A live media Q&A session will immediately follow the briefing.
When: Tuesday, December 15, 2020, at 1 p.m. EST
- Ron Jarmin, Deputy Director and Chief Operating Officer, U.S. Census Bureau
- Eric Jensen, Senior Technical Expert for Demographic Analysis, Population Division, U.S. Census Bureau
- Victoria Velkoff, Associate Director for Demographic Programs, U.S. Census Bureau
- Karen Battle, Chief, Population Division, U.S. Census Bureau
- Michael C. Cook, Sr., Chief, Public Information Office, U.S. Census Bureau (moderator)
- Carolyn Liebler, Associate Professor of Sociology, University of Minnesota
- Jeffrey Passel, Senior Demographer, Pew Research Center
- Elizabeth Arias, Statistical Analysis and Research Team Leader, Mortality Statistics Branch, National Center for Health Statistics
Access: The news briefing will consist of a simultaneous audio conference and online presentation. Media will be able to ask questions following the presentation.
The Census Bureau will post the data tables and media products in the 2020 Demographic Analysis electronic press kit shortly after the news conference begins.
Audio conference access information:
Toll-free number: 1-888-677-1834
Participant passcode: 2680724#
Please dial in 15-30 minutes early to allow time for registration. Q&A participation is limited to accredited media only following the presentation.
Online presentation access information
To view the WebEx presentation, click the following link: https://uscensusevents.webex.com/uscensusevents/onstage/g.php?MTID=edde3b87104cdc54aef92c2d1e2ac7d50
The event will be recorded and available for viewing after the event in the 2020 Demographic Analysis electronic press kit.
RSVP: Members of the media who would like to attend this news conference, please RSVP here.
Interviews: Please contact the Census Bureau’s Public Information Office at firstname.lastname@example.org or call 301-763-3030 to request an interview.
Online Press Kit: 2020 Demographic Analysis.
U.S. Census Bureau, www.census.gov, December 1, 2020.
12. HEY, COLLEGE STUDENTS; HAVE YOU SEEN THIS SCAM?:
Scammers are targeting college students. In the last year, we told you about a car wrap scam and a COVID-19 scam hitting college students. Today, we want to tell you about a fake check scam.
In this one, a scammer posing as a professor sends you an email. It uses a college domain name and a format like email@example.com. The scammer offers you a part-time job, like personal assistant or dog walker. Then, the scammer sends you a check, asks you to deposit it, send some of the money to someone else, and keep the rest as payment. A while later, the bank realizes the check was fake and deducts the original check amount from your account. So, if you deposited a $1,000 check, they’ll take that back. But if you sent $400 to someone else, you’re now out $400 of your own money.
People report losing a lot of money to fake check scams. The median loss in 2019 was $1,988. That’s a lot of money for anyone to lose. But an FTC analysis published earlier this year showed that people in their twenties are more than twice as likely as people over 30 to report losing money to fake check scams.
So how do you avoid a fake check scam? Never use money from a check to send gift cards, money orders, or wire money to someone. It’s always a scam. And, once you send the money or put it on a gift card and give someone the gift card PIN, it‘s like giving them cash. It’s almost impossible to get your money back.
Banks have to give you money from deposited checks within a few days. But if the check turns out to be a fake, they’ll make sure they get that money back from your account. The bottom line is, if someone sends you a check and tells you to send money by wire transfer or gift card -- it’s a scam.
Spotted a scam like this? We want to hear about it. Let us know at ReportFraud.ftc.gov. Ari Lazarus, Consumer Education Specialist, FTC, www.ftc.gov, December 2, 2020.
13. IRS WEBINAR; RETIREMENT PLANS FOR SMALL EMPLOYERS AND SELF-EMPLOYED:
Watch this live IRS webinar designed to provide an overview of the key features of retirement plans for small employers and self-employed. An employer that adopts the right plan may keep it longer, make fewer mistakes and help their employees save for a more secure retirement.
- When: Thursday, January 21, 2021, at 1:00 PM Eastern Time
- Register: Select this link to register for this 30-minute event.
- Submit Questions: We invite you to submit questions you would like covered as part of this presentation. We won’t have a Q&A session at this webinar, but we’ll try to incorporate your question into presentation. Submit your questions to TEGE.Outreach@IRS.gov. Please include Retirement Plan Webinar in the subject line. Continuing education (CE) credits will not be offered for this program.
IRS Meeting for Pre-approved Plan Providers: Discussion of Third Cycle Pre-Approved Defined Benefit Plan Submissions: The IRS is planning a virtual meeting to discuss technical and procedural requirements for third cycle defined benefit pre-approved plans. This meeting is intended for those providers who draft pre-approved plans and will apply for a third cycle defined benefit opinion letter under Rev. Procs. 2017-41 and 2020-10.
- When: Thursday, January 21, 2021, at 12:00pm – 1:30pm Eastern Time
- Who should attend: Providers who are in the process of drafting plans should attend this virtual meeting and share their issues with the IRS prior to submitting plan documents for IRS review. We anticipate this meeting will be mutually beneficial for the providers and the IRS.
- Register: Please send an email to Cameron.R.Kalchert@irs.gov by January 6, 2021, if you’re interested in attending. Include your name and email address so we can provide you with instructions for joining the meeting.
IRS Webinar: Uploading Forms 2848/8821 with Electronic Signatures: Watch this live webinar discussing the new option for submitting third-party authorization forms and signatures electronically. Learn what electronic signatures are acceptable and how to authenticate a taxpayer’s identity when conducting remote transactions, plus live Q&A.
- When: Thursday, December 10, 2020, at 2:00 PM Eastern Time
- Register: Select this link to register for this 60-minute event.
IRS, Employee Plan News, www.irs.gov, December 1, 2020.
14. SPECIAL $300 TAX DEDUCTION HELPS MOST PEOPLE GIVE TO CHARITY THIS YEAR – EVEN IF THEY DON’T ITEMIZE:
The Internal Revenue Service today reminded taxpayers of a special new provision that will allow more people to easily deduct up to $300 in donations to qualifying charities this year.
Following special tax law changes made earlier this year, cash donations of up to $300 made before Dec. 31, 2020, are now deductible when people file their taxes in 2021.
“Our nation’s charities are struggling to help those suffering from COVID-19, and many deserving organizations can use all the help they can get,” said IRS Commissioner Chuck Rettig. “The IRS reminds people there’s a new provision that allows for up to $300 in cash donations to qualifying organizations to be deducted from income. We encourage people to explore this option to help deserving tax-exempt organizations – and the people and causes they serve.”
The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted last spring, includes several temporary tax changes helping charities, including the special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemizing their deductions.
Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify for this new tax deduction. In tax-year 2018, the most recent year for which complete figures are available, more than 134 million taxpayers claimed the standard deduction, just over 87% of all filers.
Under this new change, individual taxpayers can claim an “above-the-line” deduction of up to $300 for cash donations made to charity during 2020. This means the deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.
Before making a donation, the IRS reminds people they can check the special Tax Exempt Organization Search tool on IRS.govto make sure the organization is eligible for tax-deductible donations.
Cash donations include those made by check, credit card or debit card. They don’t include securities, household items or other property. Though cash contributions to most charitable organizations qualify, some do not. Check Publication 526, Charitable Contributions, and the TEOS for more information.
Though cash contributions to most charitable organizations qualify, those made to supporting organizations and donor-advised funds do not.
The IRS reminds everyone giving to charity to be sure to keep good records. By law, special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining a receipt or acknowledgement letter from the charity, before filing a return, and retaining a cancelled check or credit card receipt. For details on these recordkeeping rules, see Publication 526, available on IRS.gov.
In addition, the CARES Act includes other temporary provisions designed to help charities. These include higher charitable contribution limits for corporations, individuals who itemize their deductions and businesses that give food inventory to food banks and other eligible charities. For more information about these and other Coronavirus-related tax relief provisions, visit IRS.gov/Coronavirus. IRS Newswire, IR-2020-264, www.irs.gov, November 25, 2020.
15. TIPS TO HELP PEOPLE STAY SAFE ONLINE:
These days most people are spending more time at home and a lot more time online. Whether people are online for work, school, a virtual gathering or shopping, online security is more important than ever. Everyone should be mindful of risks they may encounter when they share devices, shop online and interact on social media. Taxpayers might find the online security overwhelming, but it doesn't have to be. Even those who aren't super tech-savvy can stay safe online.
Remember security is important.
No one should reveal too much information about themselves. People can keep data secure by only providing what is necessary. This reduces online exposure to scammers and criminals. For example, birthdays, addresses, age and especially Social Security numbers are some things that should not be shared freely. In fact, people should not routinely carry a Social Security card in their wallet or purse.
Use software with firewall and anti-virus protections.
People should make sure security software is always turned on and can automatically update. They should encrypt sensitive files stored on computers. Sensitive files include things like tax records, school transcripts and college applications. They should use strong, unique passwords for each account. They should also be sure all family members have comprehensive anti-virus protection for their devices, particularly on shared devices.
Learn to recognize and avoid scams.
Everyone should be on the lookout for scams. Thieves use phishing emails, threatening phone calls and texts to pose as IRS employees or other legitimate government or law enforcement agencies. People should remember to never click on links or download attachments from unknown or suspicious emails. If someone calls asking for personal information, people should not to give out such details.
- Protect personal data.
Adults should advise children and teens and other young users to shop at reputable online retailers. They should treat personal information like cash and shouldn’t leave it lying around.
- Know the risk of public Wi-Fi.
Connection to public Wi-Fi is convenient and often free, but it may not be safe. Hackers and cybercriminals can easily steal personal information from these networks. Always use a virtual private network when connecting to public Wi-Fi.
More information: Publication 4524, Security Awareness for Taxpayers. IRS Tax Tips, 2020-163, www.irs.gov, December 1, 2020.
16. FOR THOSE WHO LOVE WORDS:
What Is The Difference Between “Affect” vs. “Effect”. Learn the answer here.
17. A THOUGHT FOR TODAY:
The capacity to learn is a gift; the ability to learn is a skill; the willingness to learn is a choice.”- Brian Herbert
18. TODAY IN HISTORY:
On this day in 1989, Soviet President Mikhail Gorbachev and US President George H. W. Bush, declare the Cold War over.
19. REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT.