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Bach, Jacobs & Byrne, P.A.

Saving for Retirement 101: Traditional 401(k)

By Elder Law, Estate Planning, Tax Law

What is a 401(k) plan?

A 401(k) is an employee-sponsored retirement savings account.

With a 401(k), individuals invest pretax funds directly from their paychecks into an employer-sponsored retirement account. Because 401(k)s hold pre-taxed income, individuals pay taxes upon withdrawal in retirement.

For 2022, 401(k) contribution limits for individuals aged under 50 were $20,500, and $27,000 for individuals aged over 50.

Individual limits are cumulative across 401(k) plans. For example, suppose you are an individual under 50 and leave your current job for a new one during the 2022 calendar year. In that case, your individual 401(k) contributions are limited to $20,500 across both plans at both positions. However, any match or non-match contributions made by your employer do not count towards your individual contribution limit.

401(k)s also allow for individuals to make catch-up contributions. A catch-up contribution is a retirement savings contribution that enables individuals over 50 to make additional contributions to their 401(k). The 2022 catch-up contribution limit was $6,500. Those who make catch-up contributions will have a total annual contribution exceeding the standard contribution limit.

Estate Planning is an important component of financial planning. At Bach, Jacobs & Byrne, P.A., we address tax issues and avoidance as part of estate planning. If you live in Sarasota, Manatee, or Charlotte County, contact Bach, Jacobs and Byrne, P.A. at (941) 906-1231 to evaluate whether your estate plan is tax efficient.

August 29, 2022
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Key tax deferral strategies

By Estate Planning, Tax Law

Tax deferral refers to the action of delaying the payment of taxes to some point in the future.

 

Some taxes can be delayed for an unlimited amount of time, and others may be taxed at a lower rate at a future time. Both individuals and corporations can defer certain taxes.

To defer paying taxes on earnings, you must first place funds into a retirement account. If you withdraw funds from your retirement account before age 59.5, you will incur an early-withdrawal penalty of 10% of the total amount withdrawn. The earnings held in retirement accounts withdrawn after age 59.5 are taxed at a more favorable rate.

There are seven types of retirement accounts that individuals may use to defer taxes:

  • 401(k) or 403(b): Employer-offered accounts, where oftentimes the employer will match a contribution deposited by an employee up to a certain amount.
  • Solo 401(k): 401(k)s set up by individuals who solely own unincorporated businesses. Under this plan, the business owner can contribute as both an employer and employee.
  • Individual Retirement Account (“IRA”): An individual retirement account that allows individuals to save up to a certain amount every year.
  • Simple IRA: Used by employers with less than 100 employees.
  • Simplified Employee Pension IRA (“SEP-IRA”): Used by small businesses and self-employed workers; this account requires less paperwork than a traditional IRA.
  • Roth IRA: Account that allows individuals to save a certain amount of after-tax dollars annually. Contributions to Roth IRAs are not tax-deductible.
  • Health savings account: Account where individuals can save pre-tax funds to pay future medical expenses.
August 22, 2022
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Everything You Need to Know About “Below the Line” Deductions

By Estate Planning, Government Benefits, Tax Law

Below-the-line deductions, also known as itemized deductions, include any deduction reported under the line for AGI calculation on your tax return.

Each tax season, you can choose whether to itemize your deductions or take the standard deduction. The standard deduction refers to a set dollar amount, primarily based upon your filing status that non-itemizers subtract from their income before income tax is applied.

 

For the 2022 tax year, the standard deduction numbers were:

  • $12,950 for single filers and married individuals filing separately
  • $19,400 for the heads of household
  • $25,900 for married couples filing jointly

Itemized deductions include:

  • Out-of-pocket medical expenses exceeding 7.5% of your AGI
  • A maximum of $10,000 of state and local taxes combined
  • Interest paid on a maximum of $750,000 of home mortgage debt
  • Contributions made to a charity
  • Casualty losses due to a federally declared disaster

Aside from the deductions mentioned above, there is a catchall section for less standard itemized deductions, including:

  • Losses incurred from gambling
  • Amortizable bond premiums
  • Impairment-related work expenses incurred by individuals with disabilities

More information on claiming below-the-line deductions can be found on the IRS instructions for Schedule A.

 

At Bach, Jacobs and Byrne, P.A., we address tax issues as part of your estate planning, probate, and trust administration. If you live in Sarasota, Manatee, or Charlotte County, contact Bach, Jacobs and Byrne, P.A. at (941) 906-1231 to evaluate whether your estate plan is tax efficient.

August 17, 2022
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What are ‘above-the-line deductions,’ and why are they valuable?

By Estate Planning, Government Benefits, Tax Law

Before we get into above-the-line deductions, let us start with some helpful definitions:

Deduction: another way of saying ‘subtract.’ In the context of a federal tax return, a deduction is an expense you subtract from your gross income to determine your taxable income.

Itemized Deduction: the amount of money you spent on deductible expenses, for example: medical costs, state and local taxes, mortgage interest, and charitable expenses.

Gross income: the sum of all wages, dividends, capital gains, business income, retirement distributions, or other types of income.

Adjusted gross income (“AGI”): Your taxable income. (Gross income minus deductions)

An “above the line” deduction is a method by which you can reduce your taxable income. This type of deduction is subtracted from your gross income before determining your AGI.

 

You claim above-the-line deductions in Part II of Schedule I, some of which include:

  • HSA Contributions.
  • Moving expenses for members of the Armed Forces.
  • The deductible part of self-employment tax.
  • Contributions to self-employed SEP, SIMPLE, and qualified retirement plans.
  • Health insurance premiums for self-employed individuals.
  • Penalties associated with early withdrawals of savings.
  • Alimony payments (from divorce agreements before Dec. 31, 2018).
  • Traditional IRA contributions.
  • Contributions to an Archer medical savings account.

More details and rules for claiming above-the-line deductions may be found in the Form 1040 Instructions.

 

At Bach, Jacobs and Byrne, P.A., we address tax issues as part of your estate planning, probate, and trust administration. If you live in Sarasota, Manatee, or Charlotte County, contact Bach, Jacobs and Byrne, P.A. at (941) 906-1231 to evaluate whether your estate plan is tax efficient.

August 15, 2022
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What is the “Secure Act 2.0”?

By Asset Protection Planning, Elder Law, Estate Planning, Government Benefits, Tax Law

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act (“the Act”) with a bipartisan vote of 414 to 5.

The Act has been nick-named the “Secure Act 2.0” as it aims to build upon the 2019 legislation by improving employee retirement savings opportunities.

 

Noteworthy changes passed by the House include:

Mandatory Automatic Enrollment/Escalation: this would require employers to automatically enroll their newly hired employees in retirement contribution plans at 3% of the employee’s pay, increasing annually by 1% to at least 10% but no more than 15% of an employee’s paycheck.

Increase 401(k) Catch-Up Contributions: Keeping the existing 401(k) and 403(b) catch-up contribution limits for those aged 50, the Act would increase the annual catch-up limit for those aged 62-64 from $6,500 to $10,000 beginning in 2024.

Allow Roth Matching Contributions: Beginning in 2023, employers matching contributions would allow employees to elect some or all of their matching contributions to be designated as Roth contributions.

Delay Mandatory Distributions: the RMD distribution age would further increase to:

  • 73 starting in 2023
  • 74 starting in 2030
  • 75 starting in 2033

Expedite Part-Time Worker’s participation: The SECURE Act 2.0 would shorten the period for eligibility from three years to two years.

Authorize Student-Loan Matching: Under the SECURE Act 2.0, employers would have a statutory basis for matching contributions based upon employees’ student loan payments, regardless of whether the employee is making retirement contributions.

 

Incorporate tax planning for retirement accounts into your estate planning by contacting Bach, Jacobs & Byrne, P.A. at (941) 906-1231.

August 8, 2022
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How do these changes in the SECURE Act affect me?

By Elder Law, Estate Planning, Government Benefits, Tax Law
  • An older RMD age will allow IRA owners to defer withdrawals, allowing assets to continue growing for longer.
  • Removing the age limit for individuals to contribute to their IRA accounts benefits those who retire at older ages and seek to continue contributing to their IRAs.
  • IRA beneficiaries must withdraw assets in an inherited IRA or 401(k) within ten years.
  • Before the law, if you withdrew assets from your IRA before age 59.9, you were subject to an income tax and a 10% penalty. The secure act adds an exception to this rule for new parents, allowing for a $5000 withdrawal after the birth or adoption of a child.
  • Part-time employees who work at least 500 hours annually for three years may contribute to a 401(k) plan. This is a significant decrease from the earlier 1,000 hours per year requirement.
August 5, 2022
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Important changes in the SECURE Act

By Elder Law, Estate Planning, Government Benefits, Tax Law

Important changes in the SECURE Act include:

  • The required minimum distribution age (“RMD”) increased from 70.5 to 72 years old.
  • Removal of the age limit for IRA contributions.
  • The requirement that inherited retirement account distributions must be taken within ten years.
  • Penalty-free withdrawals for new parents.
  • Long-term employees working part-time can enroll in 401(k) plans.
August 3, 2022
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What is the SECURE Act, and how can it affect my retirement?

By Elder Law, Estate Planning, Government Benefits, Tax Law

The “SECURE” Act stands for ‘The Setting Every Community Up for Retirement Enhancement Act’ and was signed into law by former President Donald Trump on December 20, 2019.

The law changes many existing retirement rules to prevent elderly Americans from outliving their assets. This three-part series summarizes some of the changes in the law and describes how these changes affect Bradenton and Sarasota account holders of all ages.

August 1, 2022
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Managing Dementia’s Side Effects with Essential Oils

By Health, Long-Term Care

Now, more than ever, many are turning to a more holistic approach to medicine. For generations, essential oils have been used to ease symptoms of depression, anxiety, and insomnia.  Some research suggests that aromatherapy and the use of essential oils may be useful in the treatment of certain symptom’s of Alzheimer’s disease and other types of dementia.

Essential oils may be inhaled, applied to the skin, or ingested depending on the type of oil and its level of concentration. It is important to note that although essential oils have been used for generations and are thought to be safe, they are not regulated by the Food and Drug Administration, so you should always consult with your doctor before using to ensure that specific oils will not have any negative reaction with medications.

Some of the essential oils that been shown to be effective in alleviating different symptoms of dementia are:

  1. Lavender

Lavender is said to be calming and able to balance strong emotions. It is also an antidepressant and useful in cases of insomnia. Use it in the evening to promote better sleep, or any time of day to promote better mood.

  1. Peppermint

Peppermint is energizing and can be used to stimulate the mind. It is best used in the morning, and can be inhaled directly, diffused in the room, used as a massage oil, or even placed in a bath.

  1. Bergamot

Bergamot can be used to relieve anxiety, agitation, mild depression, and stress. It is a mood elevating and calming oil, that can also be used to relieve insomnia. It can be placed in a bath, used as a massage oil, diffused through a room, or sprayed on clothing or linens.

  1. Rosemary

Much like peppermint, Rosemary is an uplifting oil used to stimulate the mind and body. It may help improve cognitive performance and mood. Rosemary has also been known to ease constipation, symptoms of depression, and reinvigorate the appetite.

  1. Ginger

Ginger oil is helpful for anyone struggling with digestion issues. It is commonly used to treat a loss of appetite and constipation and can help promote good eating habits. Ginger oil can be applied directly to the skin as an abdominal massage, diffused, sprayed or placed on a compress.

  1. Lemon

Lemon oil is one of the most studied and effective oils. It has been shown to help calm and relax people who are dealing with anxiety and insomnia, improve memory and ease digestion. Lemon oil can be dropped in a bath, inhaled directly, diffused, sprayed or applied directly to the skin as a massage oil.

  1. Ylang Ylang

Ylang Ylang oil can help ease depression while also promoting good sleep. This is a great oil not only for the person living with dementia, but also for caregivers struggling with restlessness and lack of sleep. Ylang Ylang is often combined with lemon oil and can be placed in a bath, inhaled, diffused, or sprayed.

June 26, 2020
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Statewide Medicaid Managed Care (SMMC) – Managed Medical Assistance Program

By Asset Protection Planning, Government Benefits, Long-Term Care, Medicaid Planning

Statewide Medicaid Managed Care (SMMC) is the program where most Medicaid recipients receive their Medicaid services.

There are two different parts that make up the SMMC program:

  • The Managed Medical Assistance (MMA) Program
  • The Long-term Care (LTC) Program

Medicaid recipients who qualify and become enrolled in MMA will receive all health care services (other than long-term care) from a managed care plan. Medicaid recipients who qualify and become enrolled in LTC will receive long-term care services from a Long-term Care managed care plan.

What does the Statewide Medicaid Managed Care program provide?

Medicaid members receive their health care services through a managed care plan. MMA plans cover services such as prescriptions, doctors’ visits and hospital stays.

All MMA plans offer the following health care services:

  • Advanced Registered Nurse Practitioner
  • Ambulatory Surgical Center Services
  • Assistive Care Services
  • Behavioral Health Services
  • Birth Center and Licensed Midwife Services
  • Chiropractic Services
  • Dental Services
  • Child Health Check Up
  • Immunizations
  • Emergency Services
  • Emergency Behavioral Health Services
  • Family Planning Services and Supplies
  • Healthy Start Services
  • Hearing Services
  • Home Health Services and Nursing Care
  • Hospice Services
  • Hospital Services
  • Laboratory and Imaging Services
  • Medical Supplies, Equipment, Prostheses and Orthoses
  • Optometric and Vision Services
  • Therapy Services
  • Physician Assistant Services
  • Physician Services
  • Podiatric Services
  • Prescribed Drug Services
  • Renal Dialysis Services
  • Clinic Services
  • Transportation Services

Medicaid applicants will receive a letter once you are approved for Medicaid informing them of the MMA plan the state has enrolled them with. Applicants are allowed to switch to an alternate plan in the first 120 days.

If you have specific questions regarding your Medicaid eligibility, the experienced elder law attorneys of Bach, Jacobs & Byrne, P.A. are here to assist you. Call us at (941)906-1231 to set up a consultation.

June 23, 2020
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